Billionaire
Classic case of red tape and bureaucracy. After 12 years they realized that there might be some hurdles, which have to be looked into!
Indias aim to procure 75 percent of its defense supplies locally in a decade is in jeopardy as companies struggle to navigate rules on manufacturing and selling weapons.
Billionaire Baba Kalyanis group, which plans a prototype of Indias first privately-built Howitzer gun next year, will be unable to test it as regulations prohibit firms from using military facilities, said Amit Kalyani, executive director at Bharat Forge (BHFC) Ltd., the flagship firm of the group. Mahindra & Mahindra Ltd. (MM)s proposal for a venture with Rafael Advanced Defense Systems Ltd. was denied by the government, which didnt give a reason for the rejection.
This is not rocket science, Kalyani said in an interview. We need to just study what other countries have done. There are examples of a strong partnership between the defense establishment and the private industry.
The worlds largest importer of arms last year may miss its target to boost local supplies as nebulous regulations threaten to derail Kalyani, Larsen & Toubro Ltd. (LT) and Mahindras plan to tap the annual 867.4 billion rupee ($14 billion) market. Rules dont specify the type of weapons companies can build or the restriction on partnerships.
There is a lot of talk about encouraging private industry in defense, said Deba Ranjan Mohanty, chairman of Indicia Research & Advisory, a New Delhi-based defense researcher. When a state decides to open up its defense production, it needs to devise a strategy to see it through. Otherwise, itll all be empty talk.
Firing Range
India in 2001 allowed local companies with up to 26 percent foreign ownership, to bid for arms contracts. A decade later the country revised its policy on military production to reserve certain manufacturing for Indian companies.
Still, rules to preclude private manufacturers from using defense testing facilities means Kalyani wont be able to use amenities such as the Pokhran range, the countrys largest field firing area. Without testing products, companies wont be able to bid for contracts, said Mohanty.
A venture between Larsen and Cassidian Ltd. formed in 2011 to make avionics, radars and electronic warfare equipment is still awaiting industrial license. Larsen spokesman Deepak Morada declined to comment. Mahindra in an e-mail declined to comment on the governments rejection of the companys partnership with Rafael.
Were looking at this issue, said Satish B. Agnihotri, director general of acquisition in the Ministry of Defence. Its not just Kalyani, there may be others too who are developing products and we may not have a method of taking that into the procedure.
Sensitive Areas
In February, V.K. Saraswat, then adviser to the Indian defense minister, said the government will restrain private ventures pertaining to highly security sensitive areas. He didnt elaborate.
Any change in rules may be slowed by officials sensitivities over corruption scandals in previous purchases, including one that helped drive the ruling Congress party to defeat in 1989 elections.
India ordered a federal investigation into allegations of graft in the purchase of 12 helicopters from Italys Finmeccanica SpA (FNC), claims that led to the Feb. 12 arrest of the Italian companys chief executive officer and which could further slow future deals.
Artillery Guns
The Kalyani Group has invested 1 billion rupees in its defense venture thats building artillery guns, armored vehicles and unmanned ground vehicles. Bharat Forge has separately formed a venture with a unit of Elbit Systems Ltd. (ESLT) to bid for Indian Armys contracts including for towed guns, mounted guns and upgrade of 130 millimeter artillery guns.
Profit at Bharat Forge, Indias third-largest auto components maker by market value, fell 40 percent in the year ended March 31. The companys shares, which have fallen 13.4 percent this year, rose for the first time in five days to 218.30 rupees, or up 1.3 percent, at the close in Mumbai.
Local private companies account for 10 percent of Indias defense spending, mostly as sub-contractors to state-owned firms that contribute about 20 percent, according to a 2012 report by Boston Consulting Group Inc. Foreign suppliers control the remaining 70 percent of the supplies.
Its been 12 years since the sector was opened up, first for foreign direct investment and then to domestic manufacturing, said Nidhi Goyal, director of the aerospace and defense team at Deloitte Touche Tohmatsu Ltd. in India. But theres been no major contract awarded to the private sector. Then whats the benefit for the private investor?
Operation Sunshine
India targets to raise the proportion of defense equipment produced at home to 75 percent from about 30 percent in the next 10 years. Asias third-largest economy plans to spend 2.04 trillion rupees in the year that started April 1, from a revised 1.78 trillion rupees last year on defense. Of the total expenditure, 867.4 billion rupees will be used to modernize its forces, up 25 percent from a year earlier.
A textbook case of how things should be done is joint ownership of programs, said Kalyani, whos building the Howitzer gun under the code name Operation Sunshine.
Classic case of red tape and bureaucracy. After 12 years they realized that there might be some hurdles, which have to be looked into!
