India moves to go local in defence sector

Tata Motors' Kestrel's armoured personnel carrier on display at a defence exhibition in New Delhi in 2014.
Tata Motors' Kestrel's armoured personnel carrier on display at a defence exhibition in New Delhi in 2014. PHOTO: REUTERS

Govt approves plan to make more military equipment at home, cut reliance on imports

NEW DELHI • The Indian government has approved a long-awaited plan to boost local manufacturing of high-tech defence equipment and cut down the reliance on expensive imports.

Under the new Strategic Partnership model, the government will pick Indian firms to tie up with foreign organisations to manufacture fighter jets, armoured vehicles, helicopters and submarines locally.

Prime Minister Narendra Modi's government has raised the limit on foreign investment in the defence sector, and pushed tie-ups between foreign and local firms under the "Make in India" manufacturing campaign.

"The new policy will give a substantial boost to domestic manufacturing and service provision, thereby creating employment," a government statement said.

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"Preference in government procurement will be given to local suppliers," it added.

India has been investing tens of billions in updating its Soviet-era military hardware to counter longstanding tensions with regional rivals China and Pakistan.

But Mr Modi has said he wants to end India's status as the world's No.1 defence importer, and have 70 per cent of hardware made domestically by the turn of the decade.

Mr Modi has said he wants to end India's status as the world's No. 1 defence importer, and have 70 per cent of hardware made domestically by the turn of the decade.

Last year, British defence giant BAE Systems said it chose India's Mahindra group to build a plant for assembling howitzer artillery guns in the country.

The Cabinet also on Wednesday scrapped the Foreign Investment Promotion Board, a government panel seen as being bogged down by stifling bureaucracy.

Foreign investments that require government approval will, in future, be cleared by individual ministries, the government said. "Foreign investors will find India a more attractive destination, and this will result in more inflow of foreign direct investment," it said in a statement.

Indian defence manufacturing is small, and dominated by state-run firms, many of which have been criticised for poor performance.

Private firms such as Larsen & Toubro, the Mahindra Group, Tata Group and recent entrants, the Reliance Group and Adani Group are desperate to muscle in on their business. Foreign manufacturers such as Lockheed Martin, Boeing, BAE Systems, Airbus and Saab also see India as one of the biggest sources of future growth.

Analysts have said the new policy could undermine competition and hand the winning Indian firms a virtual monopoly, but the government decided it has reached enough of a consensus to push the policy through.

Mr Jayant Patil, head of defence and aerospace at Larsen & Toubro, India's largest private-sector engineering firm, said: "We see the policy as doing something good for indigenisation."

Mr Modi was keen to get the project approved before he travels next week to Germany, France, Spain and Russia, where buying weapons will be high on the agenda.

According to draft guidelines of the Strategic Partnership model, the government will use a range of technical and financial criteria to shortlist six Indian firms and several foreign players. The two groups will then begin talks to pitch jointly to the government, with New Delhi choosing the winning team based, in part, on how much technology the foreign firms are prepared to transfer to their Indian partners.

"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," said Mr Pierre de Bausset, president of Airbus in India.

AGENCE FRANCE-PRESSE, REUTERS

A version of this article appeared in the print edition of The Straits Times on May 26, 2017, with the headline 'India moves to go local in defence sector'. Print Edition | Subscribe