Government pact to clear way for $10 billion submarine deal with Germany

New Delhi: India is set to sign a multi-billion dollar deal to construct next-generation conventional submarines by the end of March, with an Intergovernmental Agreement (IGA) finalised with Germany for long-term support and export clearances and cost negotiations with Mazagon Dockyards Limited (MDL) completed.

Sources said the IGA was finalised recently and the German defence minister is expected to visit India by end of March for the final signing. While the main contract will be signed between MDL and the defence ministry, the IGA will give a larger umbrella of assurances for technology transfer, training of personnel and administrative clearances.

As reported by ET, the bid by MDL in partnership with Germany's Thyssenkrupp Marine Systems (TKMS) had been given the go ahead in January 2025 by a technical oversight committee that looked into the bidding process. The past year was spent on finalising costs and technical details, with MDL taking the lead. While the final price of the contract has not yet been revealed, it is likely to be around $10 billion, which would include significant technology transfer and create thousands of jobs in India by creating an industrial ecosystem.

Given the enormity of the project-six submarines have to be built in India with a high degree of technology transfer-the first of the new boats is expected to enter service almost seven years after signing of a contract. A key capability the new submarines will bring is the AIP system that will give the boats the ability to stay underwater for up to two weeks, greatly enhancing stealth.

The high value contract can also place India as a warship building hub for the German company that is seeking new markets and estimates that Indian shipbuilders can bring down costs significantly, enabling joint exports in the region.

The navy is keen to sign the contract in the current financial year, given that it is facing a severe shortage in underwater platforms. The mainstay Kilo class submarines are being retired as they have reached end of service life and the only additions in the past two decades have been six of the Kalvari class submarines, also manufactured by MDL. The navy also has financial provisions in the current year that need to be utilised and would be used for the first payments to MDL for the mega contract.