India’s $19 billion weapons blitz wooing global companies

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An Indian Army Pinaka 214mm multi-barrel rocket launcher is seen during the Army Day parade in New Delhi. An Indian Army Pinaka 214mm multi-barrel rocket launcher is seen during the Army Day parade in New Delhi.

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Prime Minister Narendra Modi has cleared $19 billion of arms procurement proposals since taking power in May, almost double India’s spending on weapons in the last fiscal year as he tries to modernize the country’s military.
The blitz of 41 approvals spans heavy guns to submarines as Modi seeks to counter China’s rising military heft and take a firmer stance on border disputes with Pakistan. The vice chief of the Indian Air Force, for one, has never seen anything like this pace from the nation’s Defence Acquisition Council.
“I don’t recall the council clearing these many number of procurement proposals within six months and in four meetings,” Air Marshal R. K. Sharma, who has served in the air force for four decades, said in an interview in New Delhi on Dec. 4. “The indication from the government is that this trend in decision-making will continue.”
The approvals add to Modi’s other steps, such as allowing more foreign investment in defense and trying to overcome a history of graft scandals that slowed purchases. The changes are stirring interest: Larsen & Toubro Ltd. (LT), India’s largest engineering business, said Europe’s Airbus Group NV (AIR) is assessing whether to boost its stake in their defense joint venture. Boeing Co. (BA) is already looking for investment options.
Modi in July increased the limit on foreign-direct investment in defense to 49 percent from 26 percent.
Airbus
That’s part of a plan to stoke domestic production after India surpassed China in 2008-2012 to become the world’s largest importer of major conventional weapons. The premier is also seeking to rely less on state-run companies that have failed to help replace obsolete weapons.
“We’re very happy to increase the scope in the joint venture” with Airbus, Larsen & Toubro’s Heavy Engineering President M. V. Kotwal said in a Dec. 9 phone interview. “They are still under discussion at their end, so I can’t mention about a time-line. They have expressed that they would like to look at their presence in India in a bigger way.”
Larsen & Toubro and Airbus Defence & Space GmbH set up their L&T Cassidian Ltd. venture in 2011, focusing on products such as radar, avionics and electronic warfare. Mumbai-based Larsen & Toubro holds 74 percent and Airbus the rest.
Sunny Guglani, a spokesman for the Indian aerospace unit of Airbus, said the company doesn’t comment on speculation. Yves Guillaume, the president for Airbus in India, said the nation’s push to improve its defenses is encouraging.
BAE systems
BAE Systems Plc (BA/), based in London, said the new government has given global defense companies reasons to be optimistic. The rise in the investment cap “substantially increases the attractiveness of the Indian market as a place to transfer technology and develop know-how,” BAE’s India and Southeast Asia Managing Director John Brosnan said in an e-mail interview.
Nuclear-armed India has approved 41 proposals at a cost of 1.2 trillion rupees ($19 billion) since June, Defense Minister Manohar Parrikar told parliament in New Delhi this month. Spending on defense equipment in the 12 months ended March 2014 was 669 billion rupees, he said.
The proposals include 190 billion rupees for submarines, a 158 billion-rupee purchase of artillery -- the first acquisition of large-caliber guns since the 1980s -- and a 32 billion-rupee deal to buy 8,356 Spike anti-tank guided missiles and 321 launchers from Rafael Advanced Defense Systems Ltd.

India's Prime Minister Narendra Modi. The blitz of 41 approvals for everthing from heavy guns to submarines is more than double India’s spending on weapons last fiscal year, as Modi seeks to counter China’s military heft and take a firmer stance on border disputes with Pakistan.
Among pending deals is a contract for 126 Rafale combat planes from Dassault Aviation SA for about $11 billion, the world’s biggest order of fighter jets in about two decades.
50-year low
Chicago-based Boeing is close to winning a $2.5 billion deal to supply 22 Apache helicopters and 15 Chinook heavy-lift transport aircraft to the Indian Air Force. Airbus is jointly bidding with Tata Sons Ltd. to provide C295 transport aircraft.
Modi faced defense spending near a 50-year low as a percentage of the economy when he swept to power. The military’s reputation has been tarnished by accidents such as the deadly sinking of navy vessels and a fighter jet that ejected its pilots without warning before crashing.
Modi’s challenges include reducing the risk of future graft scandals. Parrikar, who became defense minister last month, has vowed quick and transparent decision-making.
Concern also lingers that preventing foreign companies form controlling joint ventures may curb inflows. Lockheed Martin Corp. said in July that though Modi’s move to raise the overseas investment limit is positive, the government needs to do more to lure big-ticket products involving intellectual property.
Even so, Modi is “serious” about modernizing the armed forces, said Nitin A. Gokhale, a New Delhi-based independent national security analyst. “This government is speeding up processes,” he said.

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