Full time minister at Defence Ministry good news for industry waiting at the line

ET INTELLIGENCE GROUP: Defence modernisation projects could gain speed with the defence ministry now getting a full-time minister. If Nirmala Sitharaman could repeat her performance at the commerce ministry here, it would bode well for several Indian companies. The principal beneficiaries in such a scenario would be Larsen & Toubro, Tata Power, Tata Motors, Cochin Shipyard, Bharat Electronics, Reliance Defence, Ashok Leyland and Bharat Forge, which have all been waiting for years for a portion of India’s sizeable defence capital expenditure.

India has been one of the largest arms importers — it accounts for 13% of global import, according to think tank International Peace Institute. As the public sector units that the defence forces depend on locally are marred by obsolete technology and low productivity, the reliance on foreign supplies has been going up. India bought arms worth Rs 82,496 crore between 2013 and 2016, according to a Lok Sabha document.

Several mission critical projects such as to manufacture submarines, frigates, battlefield management systems, artillery guns and tactical communication systems are yet to be executed.

Local companies stand to benefit if these are fast tracked, more so because of the government’s increased focus on indigenisation and participation of the private sector in the contracts. Analysts say India’s defence outlay could reach $250 billion over the next 10 years. That means, the 30% local sources rule that apply on defence orders alone would offer a minimum opportunity of $75 billion for domestic players.

In the medium term, the biggest opportunity for Indian companies is in artillery guns.

Good News for Defence Sector
This appears to be low-hanging fruit and may require the participation of multiple players if all the guns that the forces are looking for are acquired by 2022.

Tatas, L&T and Bharat Forge are among the companies that have made tangible progress to tap this potential business.

India’s private players in defence have not received any order so far despite the government’s ‘Make in India’ focus. With a full-time minister to take care of the sector, the $700 million order that L&T has won for 100 self-propelled howitzers could now be formally awarded. It could drive growth in order inflows and boost the margin for the company. L&T is also ranked No. 1 in pre-qualification tests for futuristic infantry combat vehicles, an $8 billion contract.