India — The World Is Hungry For A Piece Of India’s Defence Pie

Indi­an bil­lion­aires Mukesh Ambani, Azim Pre­mji and Adi Godrej made their for­tunes in oil refin­ing, soft­ware and toi­let soaps. These days the moguls see big mon­ey in bul­lets, bombs and bal­lis­tics.

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India is the world’s largest weapons importer, rely­ing on for­eign sup­pli­ers, includ­ing Boe­ing and MiG Russ­ian Air­craft, for about 70 per cent of its US$35 bil­lion (S$45 bil­lion) mil­i­tary budget. 

Now, Asia’s third-biggest econ­o­my is revis­ing its rules to give domes­tic pri­vate-sec­tor com­pa­nies a bet­ter shot at more of the spending. 

The new pro­ce­dures added a “buy and make Indi­an” pro­vi­sion. For con­tracts that require cer­tain exper­tise, only local com­pa­nies, includ­ing joint ven­tures with over­seas firms, can enter bids. India also tweaked rules gov­ern­ing local pur­chase requirements. 

That has got big Indi­an com­pa­nies such as Premji’s Wipro, the country’s third-largest soft­ware exporter, set­ting up weapon-mak­ing units, form­ing new part­ner­ships with for­eign defence com­pa­nies or eye­ing acqui­si­tions overseas. 

“This is a sexy mar­ket with a huge cap­i­tal acqui­si­tion pro­gramme,” said Mr Dhi­raj Math­ur, an Exec­u­tive Direc­tor at Price­wa­ter­house­C­oop­ers’ India unit. 

“The advan­tage the big play­ers have is that they are large, have deep pock­ets and the resources.” 

Domes­tic pri­vate-sec­tor com­pa­nies now account for only 10 per cent of India’s defence spend­ing, most­ly as sub-con­trac­tors to state-owned enti­ties, which con­tribute about 20 per cent, accord­ing to a March report by Boston Con­sult­ing Group. 

Mr Godrej, chair­man of Mum­bai-based Godrej Group, whose con­sumer unit is India’s third-largest mak­er of per­son­al-care prod­ucts, said “defence will be a major area of expan­sion” for Indi­an com­pa­nies in the next few years. 

His group was “look­ing at all oppor­tu­ni­ties” to expand into the seg­ment and dis­cussing part­ner­ship pos­si­bil­i­ties, he added. 

The tilt to domes­tic com­pa­nies comes as India ramps up its defence bud­get, look­ing beyond its tra­di­tion­al rival­ry with Pak­istan to counter China’s ris­ing power. 

India tripled mil­i­tary out­lay over the last decade to become the world’s sev­enth-largest defence spender last year. Chi­na is the sec­ond largest at US$105 billion. 

In the next five years, KPMG Inter­na­tion­al esti­mates, India will seek bids for US$42 bil­lion of mil­i­tary hard­ware — from fight­er jets to artillery guns. 

Source:
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