Strategic partnership model for defence manufacturing gets cabinet approval

New Delhi: The Union Cabinet has approved the much-awaited strategic partnership model which will allow local private sector companies to form manufacturing joint ventures with foreign defence equipment makers—a shot in the arm for the government’s ‘Make in India’ programme as well as efforts by the Indian private sector to make inroads into the lucrative defence equipment business.

“The capacity building of the private sector in defence (equipment) manufacturing will begin now,” finance and defence minister Arun Jaitley said after the Cabinet meeting.

Indian firms Larsen and Toubro Ltd, Ashok Leyland Ltd, Mahindra and Mahindra Ltd, Reliance Infrastructure Ltd, Tata Group, Punj Lloyd, Adani Group and Bharat Forge Ltd, which have existing defence businesses, are likely to benefit the most from the decision.

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A February 2015 report by lobby group Ficci and Centrum Capital estimated that by 2022, the annual opportunity for Indian companies, both state-owned and private, would be around $41 billion. That number could increase further because of the new policy.

The Indian defence industry is currently dominated by state-owned manufacturers, including HAL.

Jaitley said the policy was designed to ensure firms do get orders. “You don’t set up a manufacturing facility if you don’t have any hope of getting orders,” he said.

Under the “strategic partnership” model, the government will shortlist and then pick Indian companies to join forces with foreign firms to make fighter jets, helicopters, armoured vehicles and submarines.

Lockheed Martin, Boeing, BAE Systems, Airbus and Saab are among the key foreign companies looking at the India market. Many like Boeing and Airbus already source products worth $500 million annually from India.

Airbus which has partnerships with many Indian players, including Tata group companies, welcomed the policy.

“With all the effort that has gone into finalising the policy, it can potentially be a turning point in India’s endeavour to have a robust home-grown private defence industrial base. We hope the segments that have been identified under the strategic partnership model will provide the much needed spark to kick-start the ‘Make in India’ initiative, which we espouse wholeheartedly. We will assess the policy fine print when it is released,” Pierre de Bausset, President & Managing Director, Airbus in India said in an email.