An IDC Analysis


New Delhi, 18 February 2004

The demise of the cold war and the winds of globalisation, which were sweeping over India and ramping up the economy, had led to a sea change in India痴 defence purchase options. India had shifted from being a seller痴 market for defence goods, to a more open buyer痴 market. Indian defence planners can choose vendors and partners for large projects, though Russia followed by Israel continued to be India痴 largest defence suppliers for the present.

The permitting of 100% private participation and 26% FDI in defence industries saw new Indian defence kids on the block, like Larsen and Tubro and Tatas. Both reported revenues from this sector, which is set to rise. There was larger outsourcing by the Ordnance Factory Board, PSUs, Armed Forces and DRDO. In 200304, out of the budget of Rs 65,300 crores ($15 bill) which included the unspent part of the previous year, there had been quicker clearances for imports and the two major deals for 66 AJTs and the Gorshkov package alone accounted for $2.8 billion. The Army was sanctioned Rs 3000 crores ($700 million) for much needed modernisation and the process of inducting surveillance and communication equipment, specialized rifles and grenade throwers had begun. In 20022003 the defence sector purchased spares worth Rs 5166 crores ($1.3 billion) from Industry while the Ordnance Factors Board made purchases worth Rs 3192 crores ($800 mill). Private participation in DRDO projects had increased and is now welcomed.

Even the USA had lifted restrictions to share a piece of India痴 defence cake. America蜂ndia strategic relations were getting warmer, and large companies from USA痴 military industrial complex including Raytheon, Boeing Defence, Northrop Grumman, Honeywell, General Dynamics and Lockheed had opened shop and made impressive presentations to the Indian Armed forces on their range of advanced systems and Airborne Early Warning AEW planes. USA had recently supplied 98 badly needed spares for Sea King helicopters of the Navy, and two out of 12 Raytheon ANTPS 37 Fire Finder weapon locating radars at a cost of $140 million, were  supplied under the US Foreign Military Sales scheme, to the Army.

Finance Minister Jaswant Singh recently steered a Rs 66,000 crores ($16 billion) Defence Budget, which had more than 20 percent import content. The Government also announced a Rs 25,000 crore ($ 5.8 bill) non lapsable defence fund for capital expenditure. This shows India is back to 殿 roll on plan for defence, as opposed to the stop and start policy for acquisitions, witnessed in the past. If the planned purchases and collaborations like the 6 Type 75 Scorpene submarines and other ships sanctioned for the Indian Navy, the large 155mm Gun deal and modernization of the Army and the Phalcon AWACS go through in 2004, India will rank as one of the largest importers of defence goods competing with China and the Middle East.

It was under this changed attractive atmosphere that Defexpo 04, India痴 third bi-annual Land and Naval systems exhibition attracted 370 exhibitors from India and 19 foreign countries to display their wares over some 20,000 sq meters of space in Delhi痴 Pragati Maidan. Defence Minister George Fernandes inaugurated the show on 4th February and it was 30% larger than the last show and was predicted to mark a watershed in India痴 defence. Foreign media highlighted George Fernandes opening remarks by pointing out that India had shed its Gandhian reticence about its arms industry and wanted partners to develop and sell the kind of high-tech weapons the United States used in two Iraq wars. In this context it is apt to quote what Fernandes had said, 填ntil not so long ago, India was shy to display its weapon making capabilities. That coyness may have had Gandhian overtones once upon a time. We are looking at the production of spare parts (under) license since we have a lot of equipment, which needs spares that are hard to come by. India痴 military export earnings have grown from US$17.4 million in 19992000 to US$47 million in 20022003, and earnings for the current financial year ending March 31 are expected to show further growth. The two Gulf wars have demonstrated to us the meaning of revolution in military affairs. Information technology and electronic warfare are the sheet anchors of this revolution.

Defence shows are where buyers meet sellers and the activity this time around was very positive for business. Many Indian defence products and services on display showed potential to compete in the world market, and Lord Bach, UK痴 Minister for Defence Procurement noticing the cost advantage and improved quality, invited Indian companies to take part in UK痴 procurement. India痴 quest for defence exports can now move forward with marketing and support from the Government in easing the procedures. Three seminars were held concurrently with the show on Offsets in Defence, Foreign Direct Investments and Research and Development. It was heartening to see senior bureaucrats including Defence Secretary Shri Ajay Prasad, Secretary Defence Production and Supplies Shrimati Uma Pillai and Dr V K Aatre DRDO Chief personally taking active part alongside other foreign delegates and Captains of Indian industry. The conclusions were that India can easily become a manufacturing base for many systems, and greater quantum of FDI is the key for this. India can now demand transfer of technology but it has to also to devise a policy for offsets, which will make it mandatory for the country that India is buying or collaborating with, to do reverse trade.

Many foreign delegates found to their surprise that there was potential to collaborate with Indian companies, and Israel had taken the lead, by transferring technology and products for co manufacture. Mr Shimon Eckhaus Vice President Israel Aircraft Industries explained how IAI had taken on the marketing of India痴 ALH Dhruv, which HAL will showcase at Asian Aerospace at Singapore, and IAI will market in Chile in end March. He also disclosed five other collaborations in radars and communications, UAVs and electro-optical systems by Israeli companies with Bharat Electronics Ltd and Hindustan Aeronautics Ltd. This he claimed had enabled India to clinch a deal to export the Indian built Dornier 228 to Mauritius with an Israeli Elta radar. Ramta had already transferred technology to Goa Shipyard Ltd, which had delivered two Advanced Fast Attack Craft of the Super Dvora class to the Navy. Rafael of Israel, which had supplied the Litening EW pods to the Indian Air Force, was now close to manufacturing the Barak missiles in collaboration with Bharat Dynamics Ltd, which was at the show and emerging as India痴 missile maker.

In today痴 weapon systems software inputs and simulation form a large part of the system as the battlefield is getting digitised in what is called Revolution in Military affairs (RMA). Indian private companies like L & T, Tatas, Macmet and Zen Technologies had shown strength in this sector at the show and had produced world-class solutions and manufactured simulators for the Armed Forces. Most DRDO products and collaborations were on display. This trend is set to increase. Russia痴 and India痴 very successful BrahMos supersonic cruise missile project was the darling of the show where Larsen and Toubro displayed the firing control console being made operational for the Navy. 

What was interesting about Defexpo 04 was that the show attracted many more official delegations including those from UAE, Zimbabwe, Italy, UK and USA while non exhibiting visitors came from other countries. The 吐eel good factor was being transmitted to the Defence sector. This time around, the main organizers of the show the Confederation of Indian Industries (CII) added fillip and greater commercialism into the show, with suave marketing. The MOD also renovated the entire permanent Defence Pavilion at Pragati Maidan, including a chalet with five star facilities to entertain VIP guests from India and abroad.

The large Indian private players in defence, like Larsen and Tubro, Kirloskars, Tata group, Mahindra Defence Systems and Treveni Engineering displayed their wares alongside Government shipyards, DRDO, Ordnance Factory Board and PSUs. A fact missed by many was that India痴 paramilitary and police forces had been given substantive budgets to upgrade their forces and their shopping list includes military hardware and systems similar to the Indian Armed Forces.

India痴 Intelligence services had also received enhanced budgets post 9/11, and a new set up, the NTFO the National Technical Facilities Organisation to keep a listening watch on communications had been carved out of the RAW. The Border Security Force took part in the show and the show was visited by paramilitary force and intelligence agencies for the learning it provides. An India company with foreign collaboration Shoghi Communications showed off digitized secrecy communications equipment and reported good orders, while Speck and Rolta were strong on space imaging and GIS both virgin niche markets.

Disclaimer   Copyright