2015 a mixed year for defence FDI & 'Make in India'; will 2016 be better for the sector?
In a fillip to the government's 'Make In India' drive, Russia's Rostec will form a JV with Indian PSU HAL for manufacturing Kamov 226T military helicopters in India.
By Ruchi Bambha, ET Online | Updated:
NEW DELHI: Even as Prime Minister Narendra Modi-led NDA government aggressively pushed for 'Make in India' in the defence sector in 2015, it failed to attract Foreign Direct Investment ( FDI) in the sector with a paltry amount of Rs 56 lakh coming in since last year when norms were first eased by it.
Latest data shared by Minister of State for Defence Rao Inderjit Singh in parliament shows that in the period between October 2014 - September 2015, the FDI equity inflow into Defence Industries is a just Rs 56 lakh, at the bottom of the list of sectors that received foreign money.
Follow @ETDefence Twitter handle for comprehensive coverage on other buzzing Defence stories
This lackluster response of foreign investors is also the likely reason for another set of big changes that the government announced in November in defence FDI. The changes included FDI upto 49 percent through automatic route, permissions to be taken from FIPB beyond 49 percent, besides FVCI and portfolio being also permitted 49 per cent through automatic route.
The government has also made amendments to offsets policy by allowing "flexibility to the vendors in offset contracts." Also, delineating from past, 'services' has been restored as eligible offsets for military contracts, opening up a business potential of over $3 billion in immediate projects.
According to an ET report, the defence ministry is set to announce a set of radical changes in its offsets policy that will bring in investments worth billions of dollars into the defence and aerospace industry from foreign vendors that win Indian military contracts. With some new rules, set to be part of the Defence Procurement Policy 2016, the defence ministry and the armed forces buying the equipment will specify what they want as offsets for a particular deal.
The much anticipated defence deals during PM Modi's Russia visit did not come through, with only an agreement to jointly manufacture 200 Kamov 226T choppers saw the light of the day. Similarly, the deal for US-2 amphibious aircraft with Japan did not materialize during Shinzo Abe's India visit. The deal to buy 36 Rafale jets from France is now hoped to be signed during Francois Hollande's India visit as chief guest for Republic Day celebrations.
However, one cannot refute that 'Make in India' has opened a huge array of possibilities for private partnership in defence which can bolster manufacturing sector. FDI may not have come in as expected yet the ray of hope lies in many Indian companies steering towards indigenous production of defence items. In a significant boost for the Indian Navy, indigenously developed nuclear-powered ballistic missile submarine INS Arihant is undergoing sea trials and is likely to be part of International Fleet Review 2016 to be held in Visakhapatnam. First of the Scorpene class submarines 'Kalvari' built by Mazgaon Dock was set afloat in October and will undergo extensive sea trials before commissioning into the Navy late next year.
The Indian Navy has unveiled a 15-year plan to achieve full indigenisation in all phases of warship construction, from ship-building to systems to weapons, and aligned it PM Modi's 'Make in India' dream.
We take a look at some prominent deals signed under 'Make in India' in 2015 and those that are expected to see a push in 2016:
> Russia's Rostec to form JV with HAL for making Kamov 226T choppers
In a fillip to the government's 'Make In India' drive, Russia's Rostec will form a joint venture with Indian PSU HAL for manufacturing Kamov 226T military helicopters in India.
During Prime Minister Narendra Modi's Russia visit an agreement was signed between the Russian Federation and the Republic of India on cooperation in the field of helicopter manufacturing. The document was signed in the presence of Russian President Vladimir Putin and Prime Minister Narendra Modi.
In pic: Ka-226T
According to the document, the State Corporation Rostec will organize in India the production of the Russian Ka-226T and its modifications in the amount of not less than 200 units. The agreement also provides for the maintenance, operation and repair of helicopters and providing them with technical support.
> Boeing, Tata announce joint venture to manufacture aerostructures for Apache helicopter in India
Aviation major Boeing and Tata Advanced Systems announced a joint venture that will manufacture aerostructures for AH-64 Apache attack choppers, recently ordered by India, and collaborate on integrated systems development opportunities in India.
In pic: Apache helicopter
The joint venture will initially create a manufacturing centre of excellence to produce aerostructures for the AH-64 Apache helicopter and compete for additional manufacturing work packages across Boeing platforms, both commercial and defence.
"Boeing and Tata Advanced Systems intend to grow the JV partnership in the future with a focus on opportunities to collaborate on development and selling of integrated systems," a statement by Boeing said.
Boeing had recently received an order for 22 AH-64E Apache attack helicopters and 15 CH-47F Chinook heavy-lift helicopters.
> Aequs signs pact to supply components for Boeing's Chinook helicopter
Dutch firm Fokker Technologies, a division of GKN Aerospace, and Karnataka-based aerospace manufacturer Aequs Ltd signed an agreement to supply machined components for Boeing's Chinook heavy lift helicopter that India is also buying.
In pic: Chinook helicopter
Aequs was selected after a careful process of qualification, proving the ability and affordability through trial production, Boeing said in a statement.
> L&T outguns global rivals to bag Rs 5,000-crore Indian Army deal
India is finally set to get its own mobile howitzers that will reverse the longheld Pakistani battlefield edge on artillery guns.
The guns Pakistan have were supplied by the US ostensibly for the 'war on terror'. In a deal that would also fit the 'Make in India' mandate, domestic manufacturer Larsen and Toubro has emerged as the finalist for a $750-million (about Rs 5,000 crore) contract to supply 100 self-propelled artillery guns to the Indian Army.
In pic: K9 VAJRA-T howitzer
The 155 mm artillery guns are specially designed for operation in the desert areas bordering Pakistan and have been a longstanding requirement of the Army, officials said. India's concerns over Pakistan acquiring an edge in conventional warfare escalated in 2009 when the US supplied it 115 of the modern M 109A5 cannons as a "reward" for its assistance in the war on the Afghanistan border.
The Army had then accelerated its plans to procure a similar system, but the process dragged on for many years, with the defence ministry finally taking a call on the winner last week. Sources told ET that the K9 VAJRA-T howitzer, pitched by L&T in partnership with Samsung, has been shortlisted for the contract.
> Airbus & Mahindra to jointly manufacture military helicopters
Airbus Helicopters and Mahindra Defence, a Mahindra Group subsidiary, announced a plan to produce helicopters to cater to India's military requirements.
The joint venture will be set up in the coming months, a statement by the two companies said.
"The tie-up is in line with our intent to develop an indigenous industrial ecosystem dedicated to helicopters," Guillaume Faury, Airbus Helicopters' president and CEO said in the statement, announcing the memorandum of understanding.
The two companies will now get into discussions to finalise the formation of the joint venture which, once set up, will act as the prime contractor for India's military helicopter tenders including the Reconnaissance and Surveillance Helicopter, the Naval Utility Helicopter and the Naval Multirole Helicopter procurement programmes.
> India, Russia to sign pact on spares for Su 30 fleet
Russia's top aircraft manufacturer Sukhoi is exploring the possibility of investing in an Indian joint venture (JV) for the maintenance and spares production of its combat aircraft Su 30 in what could make India a hub for the fighter fleets operating in the region.
In pic: Su 30
Atop Sukhoi executive told ET that the liberalised foreign direct investment (FDI) norms have opened the possibility of a JV and the Russian manufacturer is in talks with Indian private sector companies.
> India to buy 36 Rafale jets in fly-away conditions from France
Crossing a significant milestone in negotiations for the 36-aircraft Rafale fighter deal, India and France have firmed up an understanding on the offsets segment under which the French have agreed to invest 50 per cent of the deal's worth in related sectors.
In pic: Rafale fighter jet
Even as the deal was being reached, French aircraft manufacturer Dassault had already reached out to Indian companies in the defence and security industry for possible Make in India partnerships. Estimated at $4.5 billion, or about Rs 30,000 crore, this will make it one of India's biggest-ever offsets deals.
> BAE Systems offers to make 'ultralight' guns in India
BAE Systems, the world's leading gun maker, is yet to identify its main Make in India partner for the M777 ultra-light howitzer project.
The project, being set up as part of the recently cleared $700-million, or about Rs 4,450-crore, deal to acquire 145 M777 howitzers for the Indian Army, will benefit as many as 40 small and medium enterprises in the country.
In pic: M777 ultra-light howitzer
The US firm also plans to shift the final production unit of the howitzer to India and that this new facility would be its hub for worldwide orders. A total of over $200 million investments are to be made by BAE in India as part of its offset obligations for the deal under the 'Make in India' programme.
Latest data shared by Minister of State for Defence Rao Inderjit Singh in parliament shows that in the period between October 2014 - September 2015, the FDI equity inflow into Defence Industries is a just Rs 56 lakh, at the bottom of the list of sectors that received foreign money.
Follow @ETDefence Twitter handle for comprehensive coverage on other buzzing Defence stories
This lackluster response of foreign investors is also the likely reason for another set of big changes that the government announced in November in defence FDI. The changes included FDI upto 49 percent through automatic route, permissions to be taken from FIPB beyond 49 percent, besides FVCI and portfolio being also permitted 49 per cent through automatic route.
The government has also made amendments to offsets policy by allowing "flexibility to the vendors in offset contracts." Also, delineating from past, 'services' has been restored as eligible offsets for military contracts, opening up a business potential of over $3 billion in immediate projects.
According to an ET report, the defence ministry is set to announce a set of radical changes in its offsets policy that will bring in investments worth billions of dollars into the defence and aerospace industry from foreign vendors that win Indian military contracts. With some new rules, set to be part of the Defence Procurement Policy 2016, the defence ministry and the armed forces buying the equipment will specify what they want as offsets for a particular deal.
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The much anticipated defence deals during PM Modi's Russia visit did not come through, with only an agreement to jointly manufacture 200 Kamov 226T choppers saw the light of the day. Similarly, the deal for US-2 amphibious aircraft with Japan did not materialize during Shinzo Abe's India visit. The deal to buy 36 Rafale jets from France is now hoped to be signed during Francois Hollande's India visit as chief guest for Republic Day celebrations.
However, one cannot refute that 'Make in India' has opened a huge array of possibilities for private partnership in defence which can bolster manufacturing sector. FDI may not have come in as expected yet the ray of hope lies in many Indian companies steering towards indigenous production of defence items. In a significant boost for the Indian Navy, indigenously developed nuclear-powered ballistic missile submarine INS Arihant is undergoing sea trials and is likely to be part of International Fleet Review 2016 to be held in Visakhapatnam. First of the Scorpene class submarines 'Kalvari' built by Mazgaon Dock was set afloat in October and will undergo extensive sea trials before commissioning into the Navy late next year.
The Indian Navy has unveiled a 15-year plan to achieve full indigenisation in all phases of warship construction, from ship-building to systems to weapons, and aligned it PM Modi's 'Make in India' dream.
We take a look at some prominent deals signed under 'Make in India' in 2015 and those that are expected to see a push in 2016:
ADVERTISEMENT
> Russia's Rostec to form JV with HAL for making Kamov 226T choppers
In a fillip to the government's 'Make In India' drive, Russia's Rostec will form a joint venture with Indian PSU HAL for manufacturing Kamov 226T military helicopters in India.
ADVERTISEMENT
During Prime Minister Narendra Modi's Russia visit an agreement was signed between the Russian Federation and the Republic of India on cooperation in the field of helicopter manufacturing. The document was signed in the presence of Russian President Vladimir Putin and Prime Minister Narendra Modi.
In pic: Ka-226T
According to the document, the State Corporation Rostec will organize in India the production of the Russian Ka-226T and its modifications in the amount of not less than 200 units. The agreement also provides for the maintenance, operation and repair of helicopters and providing them with technical support.
> Boeing, Tata announce joint venture to manufacture aerostructures for Apache helicopter in India
Aviation major Boeing and Tata Advanced Systems announced a joint venture that will manufacture aerostructures for AH-64 Apache attack choppers, recently ordered by India, and collaborate on integrated systems development opportunities in India.
In pic: Apache helicopter
The joint venture will initially create a manufacturing centre of excellence to produce aerostructures for the AH-64 Apache helicopter and compete for additional manufacturing work packages across Boeing platforms, both commercial and defence.
"Boeing and Tata Advanced Systems intend to grow the JV partnership in the future with a focus on opportunities to collaborate on development and selling of integrated systems," a statement by Boeing said.
Boeing had recently received an order for 22 AH-64E Apache attack helicopters and 15 CH-47F Chinook heavy-lift helicopters.
> Aequs signs pact to supply components for Boeing's Chinook helicopter
Dutch firm Fokker Technologies, a division of GKN Aerospace, and Karnataka-based aerospace manufacturer Aequs Ltd signed an agreement to supply machined components for Boeing's Chinook heavy lift helicopter that India is also buying.
In pic: Chinook helicopter
Aequs was selected after a careful process of qualification, proving the ability and affordability through trial production, Boeing said in a statement.
> L&T outguns global rivals to bag Rs 5,000-crore Indian Army deal
India is finally set to get its own mobile howitzers that will reverse the longheld Pakistani battlefield edge on artillery guns.
The guns Pakistan have were supplied by the US ostensibly for the 'war on terror'. In a deal that would also fit the 'Make in India' mandate, domestic manufacturer Larsen and Toubro has emerged as the finalist for a $750-million (about Rs 5,000 crore) contract to supply 100 self-propelled artillery guns to the Indian Army.
In pic: K9 VAJRA-T howitzer
The 155 mm artillery guns are specially designed for operation in the desert areas bordering Pakistan and have been a longstanding requirement of the Army, officials said. India's concerns over Pakistan acquiring an edge in conventional warfare escalated in 2009 when the US supplied it 115 of the modern M 109A5 cannons as a "reward" for its assistance in the war on the Afghanistan border.
The Army had then accelerated its plans to procure a similar system, but the process dragged on for many years, with the defence ministry finally taking a call on the winner last week. Sources told ET that the K9 VAJRA-T howitzer, pitched by L&T in partnership with Samsung, has been shortlisted for the contract.
> Airbus & Mahindra to jointly manufacture military helicopters
Airbus Helicopters and Mahindra Defence, a Mahindra Group subsidiary, announced a plan to produce helicopters to cater to India's military requirements.
The joint venture will be set up in the coming months, a statement by the two companies said.
"The tie-up is in line with our intent to develop an indigenous industrial ecosystem dedicated to helicopters," Guillaume Faury, Airbus Helicopters' president and CEO said in the statement, announcing the memorandum of understanding.
The two companies will now get into discussions to finalise the formation of the joint venture which, once set up, will act as the prime contractor for India's military helicopter tenders including the Reconnaissance and Surveillance Helicopter, the Naval Utility Helicopter and the Naval Multirole Helicopter procurement programmes.
> India, Russia to sign pact on spares for Su 30 fleet
Russia's top aircraft manufacturer Sukhoi is exploring the possibility of investing in an Indian joint venture (JV) for the maintenance and spares production of its combat aircraft Su 30 in what could make India a hub for the fighter fleets operating in the region.
In pic: Su 30
Atop Sukhoi executive told ET that the liberalised foreign direct investment (FDI) norms have opened the possibility of a JV and the Russian manufacturer is in talks with Indian private sector companies.
> India to buy 36 Rafale jets in fly-away conditions from France
Crossing a significant milestone in negotiations for the 36-aircraft Rafale fighter deal, India and France have firmed up an understanding on the offsets segment under which the French have agreed to invest 50 per cent of the deal's worth in related sectors.
In pic: Rafale fighter jet
Even as the deal was being reached, French aircraft manufacturer Dassault had already reached out to Indian companies in the defence and security industry for possible Make in India partnerships. Estimated at $4.5 billion, or about Rs 30,000 crore, this will make it one of India's biggest-ever offsets deals.
> BAE Systems offers to make 'ultralight' guns in India
BAE Systems, the world's leading gun maker, is yet to identify its main Make in India partner for the M777 ultra-light howitzer project.
The project, being set up as part of the recently cleared $700-million, or about Rs 4,450-crore, deal to acquire 145 M777 howitzers for the Indian Army, will benefit as many as 40 small and medium enterprises in the country.
In pic: M777 ultra-light howitzer
The US firm also plans to shift the final production unit of the howitzer to India and that this new facility would be its hub for worldwide orders. A total of over $200 million investments are to be made by BAE in India as part of its offset obligations for the deal under the 'Make in India' programme.
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With a lot of emphasis being laid on indigenisation and 'Make in India', India's defence preparedness got a series of boosts during 2015. Indian Navy saw many achievements in this regard, with many lethal weapons achieving various stages of success. Adding to this, the government is determined to up India's power to deter attacks and several deals were signed and many others are in the pipeline.
From the launching and undocking of many warships to a chopper fleet and Rafale boost for IAF, we look at fifteen developments in India's defence space that had everyone excited:
With a lot of emphasis being laid on indigenisation and 'Make in India', India's defence preparedness got a series of boosts during 2015. Indian Navy saw many achievements in this regard, with many lethal weapons achieving various stages of success. Adding to this, the government is determined to up India's power to deter attacks and several deals were signed and many others are in the pipeline.
From the launching and undocking of many warships to a chopper fleet and Rafale boost for IAF, we look at fifteen developments in India's defence space that had everyone excited:
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