BANGALORE, India — The Indian private sector's ambitions to build large military aerospace platforms and other major systems are unrealistic because of its continued dependence on foreign original equipment manufacturers for critical technologies, according to a top Indian Ministry of Defence official.
The private sector is also hobbled by a lack of in-house capability and inadequate funding, the official added.
Under the government's Make in India initiative, the domestic private sector aims to bag aerospace orders around $50 billion in the next 15 years to manufacture single- and twin-engine fighters, helicopters, transport aircraft, UAVs, electronic warfare systems, radar systems, missile systems, and other critical technologies.
"Currently, [the] Indian private sector only possesses random engineering capabilities including design and analyses, aero structures, component-level manufacturing, and assembly capability. All the big players are fighting among themselves for major programs and there is [a] complete lack of synergy and complementary/consortium-oriented approach to aerospace programs. This factor is further complicated by very few defense orders being handed out to the private sector," the official said.
"The big private players are all trying to cut each other in every [aerospace] program by offering unrealistic production-related prices. In [the] current situation, it is highly unlikely that without any long-term commitment any of the private foreign OEM partnerships will fructify," the official added, referring to original equipment manufacturer coalitions.
A senior executive of an industry lobbying agency, who spoke on condition he not be named, said the reason the private sector does business is to make profit.
"If a long-term commitment or visibility of [an] order book doesn't exist for any business, then they will not simply make investments," he said. "In the near future, i.e., over the next five to seven years, India will definitely be dependent on foreign OEMs for critical aerospace programs and technologies."
According to a senior executive with Larsen & Toubro, a private technology and engineering firm, who spoke on condition of anonymity, military aerospace programs are mainly "capital intensive with long gestation periods."
"Large corporate houses have somewhat accepted the long gestation characteristic of this industry but nevertheless look forward for a profitable business output. Therefore, the assurance required from MoD on each of the programs is a healthy order book that can justify the investments to be done," the senior executive said.
Private industry has the capability to only meet an indigenous content requirement of between 30 to 60 percent depending on the type of aerospace program. However, this is complicated by the fact that it has no past experience of working as the systems integrator for large and complex systems, remarked a senior MoD defense production official.
A CEO of private sector company who requested not to be identified said, "Single- and twin-engine fighters and helicopters are very unrealistic business cases for the private sector, as technology for building fighters is difficult to imbibe and large business case does not exist, even for helicopter programs as well. Keeping in mind realities of business, foreign OEMs may open manufacturing facilities in India."
In the wake of all of this, India's private small and medium enterprises have been demanding that the MoD not award big-ticket aerospace programs to large private players on nomination under the proposed Strategic Partners policy, as it will lead to monopolies and kill open competition.
Indian private sector big-ticket projects, such as single-engine fighters and helicopters, are slated to be given on nomination under the Strategic Partners policy.
"The concept of Strategic Partners is to provide MoD the option to execute capital-intensive programs in an expeditious manner through competent private sector companies. This way MoD does not have to go through the long and circuitous bidding process, which delays the program," the Larsen & Toubro executive said.
According to the MoD defense production official, the Strategic Partners policy is unlikely to implemented until private sector stakeholders recommendations are heard.
A senior Air Force official said the service faces a severe resource crunch as 10 key defense contracts await signatures despite being approved. The rising U.S. dollar against the Indian rupee plus lower budget allocation by the ruling National Democratic Alliance government in India are the main cause of the resource crunch.
Vivek Raghuvanshi is the India correspondent for Defense News.
