History is going to credit Narendra Modi as the man who initiated Defence Production Version 2.0 in India. India is fast emerging as an economic powerhouse and is on the way to modernise its defence forces to give it the necessary strategic confidence.
In the next ten years, the defence industry in India is going to generate a business opportunity of over $700 billion. Thanks to the Prime Minister Narendra Modi’s vision and initiative, the Indian private sector shall have a level playing field for a larger play in this technologically challenging but very lucrative industry.
Vested Interests Kept India an Import-Dependent Economy
For over six decades since independence, India was stuck in socialist era mindset where defence production was the exclusive prerogative of the state and all private sector participation was viewed with suspicion and deemed a potential security threat.
Vested interests ensured that India remained an importer of arms, draining India of precious foreign exchange, as this offered opportunities for raising significant kickbacks. It took a gutsy Modi to take the bull by the horns and decide to make defence production in India, a national and strategic priority. He further went on to open the sector to private participation, thereby setting up a stage where India could emerge as a major defence-industrial hub.
The Opportunity Ahead
The opportunities for India are immense. Besides creating jobs in cutting-edge technologies, India is all set to emerge as a major nation in defence R&D, as both the public and private sector companies move up the technological chain, in first absorbing and then creating new technologies.
Post-independence, India’s early investment in setting up IITs paid off handsomely when the nation was ready to take full advantage of the opening of the IT sector in the 70s and 80s. From early days, when Indian IT professionals were at the low end of the value chain, India is now all set to enter the next phase of developing cutting edge technologies with companies like TCS, Infosys, Wipro, Cognizant, HCL and Tech Mahindra leading the way.
The opening up of the defence production to private sector companies will now open up new vistas for some of the best young creative minds from the IITs and other leading institutions, to come forward and participate in innovation and development of emerging technologies, in areas like Defence and Space. India never really had an ecosystem for R&D and this was mainly restricted to government funded institutions under CSIR, DRDO, etc.
These institutions failed to attract the best minds, as a result there was a migration to the West. India now has the real possibility of harnessing this talent pool and the way forward is for the private sector to enter this space.
As revenues grow, the private sector must be encouraged to invest heavily on R&D, along with the government. The coming decade will unravel India’s ability to innovate and produce at costs that will make it one of the cheapest production centres.
Private sector companies and business houses like the Tatas, Mahindras, L&T, Kalyani Group, etc have been on the periphery of defence production for some time. This is now set to change with government clearly encouraging the Indian private sector to form joint ventures with leading international companies and become major contributors to defence production.
This is backed by a supportive policy that has increased FDI limit to 49%, with the option of increasing it up to 100%, in cases where the technology is cutting edge. This is further backed by aggressive diplomacy promoting India and redefining India’s strategic goals in the coming decades.
Aero India 2015
Inaugurating the Aero India 2015 show at Bangalore, the Prime Minister clearly stated that the government plans to make ‘Make in India’ its top priority objective. He underlined the potential for creating over one lakh highly skilled jobs in the country, if imports were reduced by 20-25%.
This line was further backed by the Defence Minister, Manohar Parrikar when he stated that the government was willing to offer a level playing field to both the public sector and private sector companies.
All leading International manufacturers were present at Aero India and for the first time, the Defence Minister of Israel, Moshe Ya’alon attended the show. Israel has promised to partner India in jointly developing state-of-the-art weapon systems.
Indian Companies Join the Party
In one of the first deals signed under the new policy, the Rs 15,535 crore Kalyani Group announced a 51:49 Joint Venture between Bharat Forge and Raphael Advanced Systems Limited of Israel. Under this agreement, Raphael will offer transfer of technology and manufacture of the Spike Anti-Tank Guided Missiles (ATGM) in India. The Kalyani Group is already working on developing a 155mm Artillery Gun for the Indian Army.
The Tata Group has been associated with defence production for the last fifty years. The Group has formed several companies to address the defence needs of the three forces. In 2009, Tata Advanced Systems signed an agreement with Sikorsky, a leading American helicopter manufacturer, to make the S-92 Cabins that is used in the VIP fleet which flies the US President.
In October 2014, the company established another partnership with Airbus to manufacture 56 medium transport aircrafts for the Indian Air Force.
Tata Power SED is developing a 155/52mm towed, tracked and wheeled Artillery Gun and other weapon systems which include the Multi-Barrel Rocket Launcher (PINAKA), AKASH Air Defence Missile Launchers and a range of control systems and sensors for various weapon systems.
The Tata Group already has an order book of Rs 10,000 crore in hand and is best geared to take full advantage of the new opportunities opening up in defence.
Leading companies like L&T have been in defence production for quite a few years. The company developed expertise in building nuclear submarines as it was involved in a major way in building India’s first indigenous Nuclear Submarine, INS Arihant. With the Prime Minister announcing India’s intention to build another 8 nuclear submarines, the company will certainly be a serious contender to participate in the project.
L&T has been involved in developing warships, weapon platforms, High speed boats, a range of Radars, Sonar systems, Arms and Armaments for land forces, Airborne assembly systems for aircrafts, helicopters and UAVs.
Airbus Group NV announced that it is in advanced talks with L&T to manufacture a range of Radars and Surveillance products in India.
The Anil Ambani-led Reliance Group has announced its foray into the defence space with the forming of Reliance Defence and Aerospace (RDA), Reliance Defence Technologies Pvt. Limited and Reliance Defence Systems Pvt. Limited.
RDA plans to bid for 387 Reconnaissance and Surveillance Helicopters for the Army and 100 Utility Helicopters for the Navy. The total business opportunity is around Rs 25,000 crore. The company is said to be in advanced discussions with several leading helicopter manufacturers.
Furthermore, the group also plans to invest in a 5,000 acre Smart City focused on defence production and export. The company is in the process of identifying suitable land to set up the project named Dhirubhai Ambani Defence Park (DADP).
Mukesh Ambani-led Reliance Industries has been interested in defence production and has an agreement with Dassault of France for supply of components for the Raphael MMRCA Fighter Aircraft that India has finalised to augment its air power.
The Group has an earlier agreement with Boeing for manufacturing the P8I Naval Reconnaissance aircraft in India, as also with Raytheon for various sub systems. For Homeland security solutions, the group has an agreement with Siemens AG.
Mahindra Defence Systems Limited, part of the Mahindra Group, has been manufacturing a range of armoured vehicles under the ‘Rakshak’ brand along with several weapon systems. The group plans to do business worth $450 million by FY16.
The Mahindra group is actively competing with Munjal family controlled Hero Group for taking a stake in Pipavav Defence and Offshore Engineering Company Limited, which owns India’s largest private shipyard.
The Coming Decade
India is laying the foundation for a strong military-industrial base and the coming decade will give it the necessary military weight to firmly establish itself as a regional superpower. It’s now for the Indian industry to stand up and live up to its potential.
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