Tatas to Reliance: India's defence sector gets a private sector boost

The buzz in India’s defence sector is getting louder after the Modi government’s push for the larger role of the private firms in this multi-billion industry. As of now, the country’s defence industry is bereft of any major participation from  private players. “Our defence industry in private sector is still small. But, it already employs thousands of people. This is despite the fact that nearly 60 percent of our defence equipment continues to be imported. And, we are spending tens of billions of dollars on acquisitions from abroad. There are studies that show that even a 20 to 25 percent reduction in imports could directly create an additional 100,000 to 120,000 highly skilled jobs in India. If we could raise the percentage of domestic procurement from 40 percent to 70 percent in the next five years, we would double the output in our defence industry,” Prime Minister Narendra Modi said while inaugurating the Aero India-2015 Air Show today in Bengaluru. [caption id=“attachment_1051919” align=“alignleft” width=“380”]  Reliance Group chairman Anil Ambani. Reuters[/caption] Buoyed by the backing of the Centre, some private players are already looking to make the most of India’s potential defence business. While  Anil Ambani-owned Reliance Group plans to build a defence smart city of around 5000 acres to house a fully integrated defence and aerospace infrastructure facility, Mahindra and Mahindra is reportedly in talks to acquire stake in Pipavav Defence for Rs 3000 crore. Even the Tata Group is looking to enhance its presence in the defence and aerospace sector. Dubbed as the country’s first such defence park to be planned, a Times of India report said that Reliance “plans to capture a slice of the $100-billion worth of opportunities that the sector would soon throw up”. To be named as Dhirubhai Ambani Defence Park, Reliance is already in touch with the state governments of Maharashtra, Uttar Pradesh, Madhya Pradesh and Rajasthan for the required land. “The defence smart city, as the company calls it, will support import of components, systems and subsystems as also export of finished products, along with a fully developed airfield and road connectivity to the nearest port."— The Times of India report said. The first move of the group would be through Reliance Defence & Aerospace, which would bid for the 387 Army Reconnaissance & Surveillance Helicopters and 100 Naval Utility Helicopters, estimated to be valued at Rs 25,000 crore. The tenders for these equipment are expected to be out soon. However, the company did not divulge if any talks are on with any foreign firms for collaboration. India’s need for enhancing its military capability is immediate as the threat perception in South East Asia has grown manifold while the country’s military is mostly dependent on Soviet-era equipment. “India, the world’s largest arms importer, will spend $250 billion in the next decade on kit, analysts estimate, to upgrade its Soviet-era military and narrow the gap with China, which spends $120 billion a year on defence."— a report in The Economic Times said. The Tata group is already associated with the country’s defence sector in a significant way with 14 of the conglomerate’s entities manufacturing defence materials. The key Tata firms related with defence production are TAL Manufacturing Solutions, Tata Advanced Systems, TCS, Tata Elxsi, Tata Industrial Services, Tata Motors, Tata Power (Strategic Electronics Division) and Titan. Ahead of the Defexpo India 2014, Mukund Rajan, brand custodian and chief ethics officer, Tata Sons, had said, “Our aggregate revenues for financial year 2013 from the defence sector was over Rs 17 billion. For financial year 2014, we expect revenue growth would be at least 40 percent. The order book size for our businesses in the defence sector are currently in excess of Rs 80 billion.” Other Indian private entities are increasingly looking to expand their footprint in the defence arena. “Larsen is putting $400 million into a yard to build ships for the navy, while Mumbai-based Mahindra Group is expanding a facility that makes parts for planes, including for the air force, and investing in armoured vehicle and radar production."— The Economic Times report said. The seriousness of the government to expand the defence industry can be gauged by the prime minister’s words in Bengaluru today. “We are expanding the role of private sector, even for major platforms. Our goal is to provide a level playing field for all. We speak in terms of national capacity, not public sector or private sector,” Modi said. So far, the business part of the Indian defence sector has been largely dominated by public sector enterprises. Public firms like Bharat Earth Movers Ltd, Bharat Electronics Ltd, Electronics Corporation of India Ltd, Garden Reach Shipbuilders & Engineers Ltd, Goa Shipyard Ltd, Hindustan Aeronautics Ltd, Mazagon Dock Ltd etc. have always called the shots due to lack of competition from the private players. The prime minister also made it clear the the government is willing to scale down the paper work and policy bottlenecks to boost defence production. “We have raised the permitted level of Foreign Direct Investment to 49 percent. This can go higher, if the project brings state-of-the art technology. We have permitted investments up to 24 percent by Foreign Institutional Investments. And, there is no longer a need to have a single Indian investor with at least a 51 percent stake. Industrial licensing requirements have been eliminated for a number of items. Where it is needed, the process has been simplified,” Modi said.