India’s domestic defence industries pick up pace in acquisitions and collaborations
Yunus Dar and Rohan Ramesh
Optimism has been the driving force in the private sector for the last few years following a slew of reforms by the Narendra Modi government. Major efforts were made by the government to boost investment in the sector such as relaxation of rules in defence production and Foreign Direct Investment (FDI) inflows among others, thus making the sector a leading contributor to the ‘Make in India’ initiative.
Till now, it was widely believed that the private industries were prevented from fulsome participation in the defence sector because of apparent conservatism among the policy-makers towards public sector enterprises. The new regulations enabled the rise of newbies in the defence sector, and the last few years saw increased collaborations between Indian defence companies with leading global defence and aerospace manufacturers. There were big announcements from renowned players like Larsen & Toubro, Adani Group, Tata Group, Mahindra, Bharat Forge, Ambani Group, and a host of others, who have also teamed up with leading companies globally.
The ministry of defence (MoD) released the revised Defence Procurement Procedure (DPP) in 2016 intended to boost the ‘Make in India’ initiative in defence and speed up procurements. The new DPP declared that the foreign original equipment manufacturers (OEMs) would be liable to disburse 30 per cent offsets if the value of the contract was Rs 2,000 crore or more in the ‘Buy (Global)’ and ‘Buy and Make’ category. This was the result of the realisation that despite all dilutions in the offsets clause (including allowing OEMs to disburse offsets in the non-defence sectors like internal security and civil aviation) the Indian industry was simply not geared towards absorbing the investments made under DPP. The clause was noteworthy in that it recognised the fact that Indian defence capabilities were yet to develop to a significant level to absorb high-end technologies, and therefore, the offsets had to be channelled to other sectors.
The DPP 2016 also laid the foundations of the Strategic Partnership (SP) model, through which a mechanism was envisaged to be created to ensure a level-playing field for private defence manufacturers. Prime Minister Narendra Modi in his address at Aero India on 18 February 2015 declared that his government was focusing on developing India’s defence industry with a sense of mission and it was at the heart of the ‘Make in India’ programme. Mission ‘Make in India’ was formally launched on 25 September 2014, aiming to persuade Indian and foreign companies to invest in indigenous manufacturing. The two major changes introduced in the defence sector – deregulation of certain restricted defence products for private industry and the raising of FDI cap from 26 to 49 per cent under automatic route.
The country’s biggest industrial houses have in the recent years sensed the boom in the domestic defence markets after a number of policy changes were made by the government. These companies are now foraying into the field, manufacturing everything from aircraft, guns, missiles, ammunition, military electronics, communication systems, either through Joint Ventures (JVs) with overseas companies or through their own capacities.
FORCE spoke to the secretary general, Federation of Indian Chambers of Commerce and Industry (FICCI), Dilip Chenoy, about the prospects of the emerging defence industrial boom. He says it’s been a long journey for the defence industrial sector in India. “Earlier,” he notes, “we used to import, then gradually our indigenisation efforts created more capabilities and as the defence industries were slowly encouraged through policy relaxations, monumental shifts started happening.
“Over the past few years, the private sector capability has been developed, and rather than being just a subsystem supplier, it has become whole-system supplier. And the ministry is trying to create a forum by which they can get the Indian industry involved in different aspects,” explains Chenoy. However, there are two challenges. The first challenge for the government, as Chenoy points out, is getting the private sector involved in a large way for funding and meeting the needs of the defence forces. “We often only like to think of the big deals but there are a lot of small stuff which is also being bought – bulletproof vests, helmets, small arms. There is a lot of other defence equipment which is bought from the private sector — inventories such as the infantry vehicles or aircraft, or other types of equipment,” adds Chenoy.
Loïc Piedevache, Country Head, India, MBDA, spoke to FORCE about the plans of the company in strengthening the defence industrial capabilities of India. Piedevache says MBDA has been actively working in partnership with India’s government and industry to build India’s defence industrial capabilities for over 50 years. He said the company is recognised world-wide as an absolute leader in the field of missile technologies.
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