This week, in Defense Industry Daily, Avascent’s Aleksandar Jovovic and Sebastian Sobolev examine the challenges to both foreign and domestic defense firms when dealing with India’s centralized procurement practices.
The choice of whether to import, co-produce, or indigenously develop a defense capability is made at the political level of the executive and Defense Ministry bureaucracies…This structure also governs how foreign suppliers interact with indigenous industries…”
India’s modernization program is driven by national security concerns vis-à-vis Pakistan, and competition for the naval, air, and land domains with China, and therefore presented an attractive opportunity to outside suppliers as its “military procurement accounts…grew at an annual rate of 14% between 2005 and 2010.” However, India remains focused on developing indigenous defense industrial capacity. Therefore the government retains the power to centrally dictate the distribution of contracts thereby circumventing true competition between publicly controlled companies, privately owned firms, and the foreign defense manufacturers that would be willing to team with either in order to do business. This centralization is a hold-over from the Cold War, when developing the defense sector was a “strategic economic and security priority.” Modi’s new administration has only exacerbated the situation by increasing FDI requirements from 27% to 49% since he took office.
India’s private defense firms are eager to enter the market, with the Tata Sons conglomerate, Larson and Toubrou, and Mahindra touting major defense investments, expansions in naval ship building, and advancements in radar and aerospace production respectively. However, the government has yet to shift its policies in their favor. Meanwhile, foreign suppliers face stringent terms and requirements for opportunities, which has resulted in situations such as a dearth of viable bids to date for the Avro replacement program. A few successful western sales of foreign equipment to India keep hopes alive. These include the Boeing sale of AH-64E Apache attack helicopters, and the Tata-Lockheed joint venture to supply components to the J-series Super Hercules, procured from Lockheed’s C-130 franchise. However, all stakeholders should take into account India’s “desire for more indigenous development and production…in an avowedly nationalist government,” before attempting to do business with or within this nation.
Read the full article here: “The Evolving Landscape of Indian Defense Procurement“