New Delhi: A handful of companies are seeking to become the Boeings and Lockheed Martins of India, collaborating with global defence manufacturers to locally build advanced military hardware.
Those in the running to build planes, warships, submarines and tanks include Larson & Toubro Ltd, Mahindra & Mahindra Ltd, Tata Advanced Systems Ltd, Reliance Defence and Engineering Ltd and Kalyani Strategic Systems Ltd. The companies are looking to profit from a program to boost domestic manufacturing in a country that is now the world’s largest defence importer.
Prime Minister Narendra Modi is set this month to formally lay out his defence industrial policy—in train for 14 months and widely detailed already—anointing select private companies as strategic partners for the military. It builds on his much-touted “Make in India” program, which gives preferential treatment to foreign companies that agree to have a portion of the manufacturing done domestically.
The policy will provide exclusive rights for the local companies to execute on large defence projects with assured orders, and encourage them to tie up with foreign contractors for their expertise.
“The strategic partners policy is meant to spur large Indian business houses to transform into systems integrators,” said New Delhi-based Ankur Gupta, vice-president for aerospace and defence at Ernst & Young. Having confirmed orders allows companies to invest more in infrastructure, Gupta said.
Modi has pledged to spend $250 billion by 2025 on weapons and equipment for a military that faces territorial tensions with neighbours Pakistan and China. India has topped the Stockholm International Peace Research Institute’s list of the largest defence importers for the last seven years. About 70% of its defence purchases are imports.
Local companies started venturing into defence manufacturing 15 years ago, after the sector was opened to private investment. Still, their involvement has remained nascent, hindered by a lack of domestic infrastructure for niche military manufacturing and a government preference for higher-quality imported products.
“Strategic partnerships will work best if we synergise national capabilities with global original equipment manufacturers to optimize low cost, efficient, and faster” deliveries for the military, said Sujeet Samaddar, an independent defence industry analyst who has previously served as a commodore in the navy.
It’s unclear when Modi will allocate money and award contracts for the projects. In the budget for 2017-18, finance minister Arun Jaitley announced about $13 billion for defence capital acquisitions, only slightly higher than the $12 billion for this fiscal year.
‘Poor on delivery’
“The Finance Minister has not made the requisite allocation to the Defence Ministry,” said K. V. Kuber, an independent defence analyst and former army colonel. “This stems from the fact that the budget is rich with hope and poor on delivery in so far as the armed forces are concerned.”
A defence ministry spokesman declined to comment on the policy until it is formally released. Finance ministry spokesman D.S. Malik declined to comment on the defence budget allocation.
Among the projects waiting for the strategic partners policy to be announced is a Rs50,000 crore ($7.5 billion) program to build six diesel-electric attack submarines for the Navy. The project—for which competition from the private sector includes Reliance Defence and Larsen & Toubro—went to tender two years ago but has not been finalized. That can’t happen until the policy is announced.
Modi’s policy has been under consideration by defence minister Manohar Parrikar for more than a year. There were legal, political, constitutional and industrial implications from the policy that needed careful consideration, according to a senior official with direct knowledge of the discussions.
The partnerships will ensure the ministry is on the “road map to self reliance,” said J.D. Patil, senior vice president and head of defence and aerospace at Larson & Toubro. It will “enhance indigenization by cutting imports and eventually build exports volumes to attain a positive trade balance in defense for India.”
In the long term, India could become a net exporter, said S.P. Shukla, group president for aerospace and defence at the Mahindra Group, which is competing for contracts to produce howitzers and other military vehicles. “As we start manufacturing helicopters, transport planes and fighter aircraft in India, we will not be the largest importer anymore.
Tata Advanced Systems did not respond to requests for comment.
For the three years to January 2017, the ministry approved $46 billion in procurement projects via the Defence Acquisition Council. But it is not possible to assess if these projects have received an allocation.
Apart from the submarines, and combat planes, which don’t have a cost assessment, the building of 100 naval utility helicopters worth $2 billion is also pending.
“We have a long gestation period,” said Gupta from Ernst & Young. “The proposed policy should now be implemented in the shortest possible time—nothing will boost the confidence of the domestic strategic manufacturing sector more than an actual signed contract.” Bloomberg