Why this is important to Wisconsin businesses: India imports 90 percent of its weapons and military equipment, and recently created a new framework for foreign companies to partner with Indian firms.
India is the world’s largest importer of defense equipment, importing about 90 percent of its weapons and military equipment, including parts for assembly. Domestic defense manufacturing is dominated by public sector defense undertakings and the Ordnance Factories Board, which together have an 80 to 90 percent share. This means India is banking on foreign companies to bring in new technology.
The recent approval of a new “Strategic Partnership” policy comes as a major boost to local defense manufacturing by effectively picking industry champions to team up with foreign players and make high-tech defense equipment. Under the strategic partnership model, the government will shortlist and then select Indian companies to join forces with foreign firms to supply fighter aircraft, helicopters, submarines and armored fighting vehicles/main battle tanks. For each platform, one private sector strategic partner will be chosen.
In addition, the Indian government has raised the foreign direct investment (FDI) cap for the defense sector, and encouraged collaborations between foreign and local companies under the Make in India campaign, with the Indian partner remaining the majority stakeholder. The government has increased the level of FDI in the defense sector to 49 percent under the automatic route (meaning no government approval is required), but foreign investment may be up to 100 percent subject to government approval.
The private partner will then secure the exclusive right to develop a specific defense program in partnership with a foreign vendor. Under the policy, India will choose a set of domestic companies, which foreign players must then choose from to set up local plants. A pool of six Indian companies will be chosen on the basis of financial strength and technical expertise, and given the opportunity to bid for mega defense production orders expected to be worth over $20 billion.
The policy announcement has been a welcome step for several foreign players. Airbus Group, the largest aeronautics and space company in Europe, is exploring Dholera and Mundra as potential sites for setting up a base for manufacturing its Panther helicopters. The company, which currently builds its helicopters in Marignane, France, is planning to make India its global hub for the multi-purpose choppers.
Under the strategic partnership model, in September, Swedish defense giant Saab and Indian conglomerate Adani Group announced a collaboration in defense manufacturing to bid for a contract worth around $15 billion to manufacture 100 single-engine fighter jets for the Indian Air Force. The project would encompass design, development and production of Gripen jets for India in line with the Make in India initiative. U.S. defense firm Lockheed Martin is also closing in on an international deal for F-16 fighter planes, and has offered to eventually build all the jets at a proposed plant in India. Lockheed is reportedly closing its F-16 production line at Fort Worth, Texas, and has picked Tata Advanced Systems as its partner in India. Germany-based ThyssenKrupp Marine Systems and France's Naval Group are also interested to compete for a contract to build submarines in India.
With the Indian government’s policies to attract investment in the defense sector and provide incentive for local manufacturing, India must be included in U.S. companies’ global strategy. The opening up of the defense sector for private participation is helping foreign original equipment manufacturers (OEMs) enter into strategic partnerships with Indian companies and leverage opportunities in the global market. Opportunities also exist for foreign manufacturers of defense parts to explore the possibility of setting up operations in India.