NEW DELHI — Even as the Indian government has given top priority to domestic defense industry to acquire weaponry, estimated around $150 billion in the next ten years, foreign defense companies will remain major players, officials acknowledge.
At present domestic companies are simply not considered mature enough to build large platforms and weapon systems by themselves. However, some select private sector defense companies could "become major defense players in the long run," a senior Ministry of Defense official said.
"Lack of coordination among private players and legal complications could delay the MoD's forthcoming strategic partners policy, part of the 'Make in India' initiative, which allows domestic private defense companies to build large [defense] platforms on a nomination basis," the MoD official added.
But the government cannot wait for the planned policy to hamper defense modernization and new acquisitions, the official said, adding that the defense ministry may permit foreign manufacturers to choose their Indian partners.
"The [Indian] industry may not completely edge out the foreign original equipment manufacturers in the short to medium term as the prime suppliers of defense equipment to the Indian armed forces. Till such time as that happens, foreign companies will continue to play an important, if not a major role, in MoD's scheme of things," says Amit Cowshish, a former MoD financial adviser.
Under the Make in India initiative, MoD plans to allocate tenders worth over 90 percent of the total purchases only to domestic companies in the next five years. But analysts have been skeptical whether the domestic industry will be able to fully meet the needs of the defense forces on their own.
"India continues to source over 60 percent of its weapons needs from overseas, while the domestic defense industry continues to struggle," said another MoD official. "With an annual export of less than $400 million the domestic sector will be able to meet the needs only partially."
With a turnover of over $10 billion, state defense enterprises contribute nearly 90 percent of the total turnover of the domestic sector, with the rest coming from private companies.
Few private sector defense companies are investing in defense infrastructure, research and development that would enable them to evolve from mere systems integrators to become original equipment manufacturers, claimed an CEO of a leading private defense company who requested anonymity.
At the same time, over a dozen private defense companies are preparing themselves to tap the $250 billion defense market and are investing in the infrastructure. However, "orders are not forthcoming quickly to give a quick start to the economic cycle," the executive added.
While MoD claims that the domestic sector will pick up due to the encouragement from the government, the second MoD official said it would take "lot and lot of time" before the private sector commands the Indian defense industry.
"Request for information worth over $30 billion have been given to domestic companies in the last two years but the response has been very encouraging and an insignificant number of RFIs have not turned into 'Make in India' tenders," the official added.
"There is political will to go in for major import substitution of weaponry, but given the scale of domestic defense industry, quality standards of production and technology advancement, the [Indian] government cannot afford to depend solely on domestic sector," the defense official said.
Vivek Raghuvanshi is the India correspondent for Defense News.
