India has drawn up a shopping list for tens of billions of US dollars of foreign fighter jets, armored vehicles, submarines and helicopters, but it will only sign the checks if they are made in India.
The world’s largest defense importer has announced a new policy inviting foreign defense manufacturers to set up shop as minority partners in India. It initiated the bidding process for submarines last month.
Such deals would boost job creation and bring key defense technologies into India.
Foreign companies say the opportunity is too good to miss.
Europe’s Airbus Group SE, angling to sell its Panther helicopters, has said that if it wins a contract worth several billion dollars and expected to span at least a decade, it would make India its global hub for the multi-purpose choppers.
The company currently builds them at Marignane in France.
Lockheed Martin Corp said if its F-16 fighter jets are selected — it will likely compete with Saab AB for that order of close to US$15 billion — it would “support the advancement of Indian manufacturing expertise.”
Germany’s ThyssenKrupp Marine Systems and France’s Naval Group are eager to compete for a contract of up to US$10 billion to build submarines in the nation.
Luring foreign defense companies to build in India would be a major and much-needed boost to the economy.
Indian Prime Minister Narendra Modi, with less than two years to national elections, is under intense pressure to create more jobs for the hundreds of thousands of people joining the workforce every month.
Growth in the first three months of this year slowed to 6.1 percent. Experts expect further disruption as businesses adjust to a new nationwide goods and services tax launched last month.
India is seeking to follow other countries which created defense sectors by backing a few big players with long-term defense orders and allowing smaller businesses to develop around them.
“Countries that have a robust defense industry have a few large companies that are supported by their government with large, long-term defense orders,” said Amber Dubey of the KPMG consultancy in India. “They in turn create an ecosystem of large and small suppliers to stay competitive.”
India currently imports at least 90 percent of its defense equipment, including parts for assembly. It is banking on foreign companies to bring in new technology.
The lowest bid is one key selection criteria that worries some of the competitors.
“We’d like to see the Indian government work with the US government to ensure that these acquisition policies don’t disadvantage US companies just because we can’t get the lowest price,” former US deputy assistant secretary of defense for southeast Asia Cara Abercrombie told a recent panel in New York.
Under the strategic partnership policy, India will line up domestic companies that foreign players have to choose from to set up local plants.
For the Indian companies, which would hold the majority stake, it is a big win, said Dhiraj Mathur, an aerospace and defense specialist for the PricewaterhouseCoopers (PwC) consultancy.
“You know nothing about defense manufacturing and you’re going to partner with a global leader to make highly sophisticated equipment, and the only reason they’re talking to you is because the government has told them to,” he said.
The Indian government wants to bring the local companies up to global standards to compete for the next round of orders.
China also built up local defense equipment manufacturing by forcing international firms to link up with Chinese companies and to hand over technology. In India’s case, the foreign players are still pushing for ownership.
“Let us take a lead, let us be the majority,” Airbus vice president for industrial development Ashish Saraf said. “Or let the Indian guys assume full liability [as per the policy]. Assuming liabilities on an aircraft is not easy.... If a product fails, we are talking about hundreds of millions.”
His suggestion is a middle road where foreign companies could hold the majority stake, which could be pared back over time as the Indian partner gains in knowledge and experience.
“It takes years to transfer [technology] and to get proven products. These are complex products that need to perform in battles,” Saraf said.
The other hurdle in the policy is that transferring defense technology requires government approval. In a strategy similar to one followed by the US, India puts the onus on the foreign partners to get the green light from their respective governments, a challenging task for them.
“But if you want indigenization, this is the only way you’ll get it,” Mathur said.
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