Mumbai / Bangalore: Wipro Ltd, which is India’s third largest software services company, will build electronic warfare systems, radars and flight simulators locally for US defence contractors, such as Lockheed Martin Corp. and Northrop Grumman Corp., as it pursues what are called offset contracts for missiles and aircraft sold by foreign vendors to Indian armed forces.
India’s defence offset policy mandates that foreign contractors source components and systems from local vendors for at least 30% of the value of orders of more than Rs300 crore that they get from the Indian military.
Indian companies are expected to get offset orders from global military equipment makers of nearly Rs40,000 crore up to 2011, according to the ministry of defence.
The biggest of such orders will come from local sourcing in a purchase of 126 fighteraircraft, estimated to cost Rs42,000 crore.
Wipro, the Bangalore-based company with interests from soaps to software, is setting up dedicated units for these systems, including avionics, anticipating bigger revenues from defence customers from middle of next year.
Taking flight: Wipro is setting up dedicated units for avionics, anticipating bigger revenues from defence customers from mid-2009. The firm already has three tie-ups.
This company, chaired by Azim Hasham Premji, has plans to build command and control systems for defence equipment; design and development of flight control systems; aircraft simulators; maintenance simulators; and other communication systems associated with the defence sector, said a person familiar with the development.
“Wipro has already approached the Indian government for necessary approvals for making a strong presence in defence production,” this person said.
Sudip Nandy, chief executive officer of telecom and product engineering services at Wipro, said these permissions are required for exploring offset opportunities under the guidelines of the ministry of defence.
“There could be a different school of thought whether it is required or not. But we are going ahead with this,” added Nandy.
“Revenues from defence are small, but the big revenues will start flowing from mid-2009 to end-2009,” Nandy had said in an earlier interview in January. “We currently have three tie-ups and will announce a few more.”
Wipro and Lockheed Martin set up a network-centric operations centre in August last year, called Ambar Jyoti, in Gurgaon, near New Delhi, to work on new technologies in communication for the defence sector.
Wipro also has a tie-up with Britian’s largest defence maker BAE Systems Plc., to build sub-systems for aircraft engines that power business jets in the commercial segment. This relationship could set the basis for further cooperation in the defence and aerospace businesses.
India’s imports of military hardware and software could reach a cumulative $30 billion (Rs1.2 trillion) by 2012 as its armed forces buy multi-role fighter jets, artillery guns, a variety of helicopters and long-range maritime spy aircraft, according to a study by the Associated Chambersof Commerce and Industry of India, or Assocham, a lobby of trade associations.
“In the past three years, India spent as much as $10.5 billion of military hardware and software, making it the largest arms importers in the developing world. Indian military budget was about $20 billion in last fiscal and is expected to grow 7% annually over the next five years,” Assocham said. Much of the budget goes to meet spending on salaries, fuel, spares and other operating expenses.
The year 2001 witnessed the entry of foreign private players in defence-related manufacturing in India, with a 26% overseas ownership permitted in the sector.
By mid-2007, there were about 5,200 companies supplying 20-25% of componentsand sub-assemblies to state-owned contractors in the defence sector.
The government has recently issued licences to various private companies for the production of defence items including Larsen and Toubro Ltd, the Tata group, Mahindra and Mahindra Ltd, Max Aerospace and Aviation Ltd and Ramoss India. Companies such as Kirloskar Brothers Ltd,Ashok Leyland Ltd and the Jindal group, too, supply defence equipment and services to the state-owned defence production companies.
The same person, quoted earlier, added that Wipro is also trying to secure key offset opportunities emanating from civil aviation purchases. Under a 111-plane acquisition deal by National Aviation Co. of India Ltd, which operates Air India, from the US-based plane maker Boeing Co. and France’s Airbus SAS, the government has ensured an offset clause similar to that in defence purchases.
“Wipro is also eyeing contracts from both Boeing and Airbus,” he added.