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September 2014 Eye on Defence

A combination of various factors has left the Defence Industrial Base (DIB) unable to cope with the ever-increasing demands of the Indian Armed Forces. While the private sector has started investing in infrastructure and participating at the lower tiers of the manufacturing value chain, the increasing security needs of the nation have demanded huge direct imports from foreign OEMs in the past. A major landmark shift in policy regime was achieved last year, when DPP 2013 made it official to grant preference to the indigenous manufacture of defence equipment in the categorization of projects. This was intended to spark off technology arrangements between Indian firms and foreign OEMs. In

this edition, we try to understand the current state of the Indian DIB and study the effects of the policy statement on the categorisation of projects since DPP 2013. This will help manufacturers understand the intent of the Indian Government in defence procurement and planning, thus enabling them to plan accordingly for future projects.

The newly elected Government has made self-reliance in defence indigenisation and growth of the DIB the cornerstone of its overall defence policy. This has been reiterated in policy statements and the recently announced policy reforms, with the key among them being an increase in the FDI limit from 26% to 49%, streamlining of defence industrial licensing regime and the latest announcement of a framework for streamlining defence exports. The current edition aims to study the state of aerospace and defence exports in India, present the highlights of the recently announced reforms and make recommendations to complement these reforms from an operational point of view.

Among the regular sections, we have industrial license applicants, RFIs/RFPs released, new projects and investments, joint ventures and alliances, country-level deals and the latest buzz in the industry.

I hope you find this issue useful. It has been our constant endeavour to make this publication increasingly relevant to you, and we will appreciate your comments and suggestions in this regard.

K. Ganesh Raj Partner and LeaderAerospace and Defence practice

Contents

Defence procurement categorisation and impact on self-reliance 2

India as a destination for defence goods sourcing — exports enabled 9

Request for Information (July 2014 - September 2014) 14

Request for Proposal (July 2014 - September 2014) 15

List of Industrial Licenses (ILs) filed for July 2014 – August 2014 18

New projects/investments/ contracts 18

JVs/alliances 21

Industry buzz 25

2 | Eye on Defence

The current inventory profileA combination of various factors, has delayed the indigenisation of defence manufacturing in India in the last decade. As a result, inventory has slowly and steadily been depleting. Maintaining adequate force levels with weaponries is important, both in terms of numbers and technology. An immediate concern for India’s armament strategy has been to strike a balance in the holding and the problem of replacement of obsolescent weapon systems. The country has had to resort to buying from various foreign countries; at times, it buys variants of a weapon system for the same end use. This has resulted in issues such as increase in lifecycle logistics of variants and design, spares and maintenance and consumables. The figure below depicts the average age profile of defence equipment in India. It indirectly reflects the vintage of technology of major defence systems and, resultantly, the scale of obsolescence that prevails within the Armed Forces. Inventory has also been depleting in the absence of fresh induction. To overcome gaps in the desired number and the existing force level, time-bound manufacturing and induction is inescapable.

Defence procurement categorisation and impact on self-reliance

Increasing foreign dependenceDefence Public Sector Undertakings (DPSUs) and Ordinance Factories (OFs) are the major providers of weapons to the defence forces. They continue to dominate domestic defence production and Research & Development (R&D) facilities in India. Over the years, these undertakings have grown both in size and their portfolio of items. They have gained added capability through license agreements for tanks, Infantry Combat Vehicles (ICVs), missiles, frigates, submarines, aircraft and electronic devices. However, they lag behind in undertaking innovation for technology upgrades. India’s DIB has neither been able to absorb technology for the in-house production of major subsystems or major hi-tech subsystems, nor has it been in a position to carry out significant upgrades on its own. India imports defence equipment worth approximately US$20 billion a year, accounting for about 64% of its total requirements. Even for upgrade and life cycle support, the country has had to resort to imports. In addition, the country’s import contents have been increasing, as shown in the figure below:

12%

40%42%

30%

46%

30%

0%5%

10%15%20%25%30%35%40%45%50%

Existing platform Desired platform

0-10 years

Source: Indian Naval Production & Procurement Compendium 2013-14 and Indian Defence Production & Procurement (Land & Security Systems) Compendium 2014-15 Published by Q-Tech Synergy

10-20 years 20 years and above

45.2 42.2 37 36.3 36.4

54.8 57.863 63.7 63.6

010203040506070

1 2 3 4 5

Perc

enta

ge

Self dependency on indegenous in perentage

Indigenous dependency in %Import dependency in %

Source: IDSA

02000400060008000

1000012000140001600018000

2006-07 2007-08 2008-09 2009-10 2010-11

Indigenous dependency

Source: IDSA

Direct imports Indirect imports

Foreign content index

3Eye on Defence |

Existing defence industrial capabilityThe broad capability level of Indian DIB is captured in the table below. In the product technology segment such as naval, missile, combat engineering, aeronautical design and engineering, the maturity levels have been broadly assessed on a scale of 1 to 5. The numbers are reflective of an industry that is still in the early stages of maturity, as follows:

Segment level Design and development Manufacturing Integration Maintenance Overall Average

Aeronautics 2.3 2.7 2.8 3 2.75 2.7

Missiles 2.7 2.7 3.1 3 2.9 2.9

Naval 3 3.2 3.3 3.2 3.3 3.2

Electronics 3.3 3.5 3.6 3.3 3.5 3.5

Armaments & Combat Engr.

2.7 3.1 3.1 3.1 3 3

Average 2.8 3 3.2 3.1 3.09

High-5 Competent-4 Adequate-3 Less than adequate-2 Low-1

Source: Defence ProAc Biz News May-June 2013 issue (Survey Conducted by Q-Tech Synergy & CII)

Recent policy initiatives to encourage indigenisation In 2001, the Government of India (GoI) had allowed 100% participation by the private sector in defence, with FDI permissible up to 26%, both subject to licensing and Government approval. However, after almost over a decade, the Government has come to realise the need to strengthen the ecosystem in defence manufacturing by encouraging public-private partnerships for production and research on transformative and emergent technologies. In line with this, the Defence Procurement Procedure 2013 prioritised procurement categories in a descending order of priority, starting with “Buy (Indian)”, followed by “Buy and Make (Indian)”, ”Make (Indian) ”, ”Buy and Make” and

”Buy (Global)”. This hierarchical arrangement of defence procurement categories is expected to give a boost to the Indian defence industry, as it provides impetus to developing technologies within the country. Furthermore, the Technology Perspective and Capability Roadmap (TPCR) has offered a range of opportunities to help select a particular area and develop capability.

Recent steps taken in this direction are permitting foreign investments up to 49% and prioritizing “Make” category acquisitions over other categories such as “Buy & Make (Indian)”, easing the Industrial Licenses (IL) regime and export policies and allowing manufacturers to build more defence components without licenses, thus making it easier for Indian firms to partner with foreign OEMs.

4 | Eye on Defence

Market projections and the likely impactDue to the degree of obsolescence within the Armed Forces, the Indian defence market is poised to grow considerably in coming years. Projections depict that India would be acquiring defence weaponries worth about US$250 billion during 2014–2027. Some of the major platforms projected are:

Requirements Broad categories Likely spending in US$ billion

Main platforms

Air

Combat & Trainers 40–45 MMRCA, FGFA, Mirage Upgrade, Mig-29 Upgrade, Jaguar Engine Upgrade, Trainer

Transport & Support 24–27 AVRO, Amphibious aircrafts, Mid-Air Refulers, P-8Is, AWACS; MTA

Helicopters 15–17 Naval, Multirole Helicopter, LUH, Attack, Heavy Lift, Light Combat, Naval LUH

Sea

Surface Vessels 33–37 Project 15B, Project 17A and 17B, Project 28A, Project 71

Submarines 77–79 Project75. 75I, Midget

Support 7–8 LCUs, LPDs

Land

Combat 25–27 FICV, FMBT, Arjun Tanks, Special/ Armoured Vehicles

Artillery 6–7 155mm Gun various Variants

Missiles 5–6 ATGMs, SRSAM, MRSAM, QRSAM

Infantry Systems 1.5–2.5 FINSAS

C4ISRAirborne, Land, Naval 1–2 Surveillance Equipment’s, Optro Electronic Devices, NVDs,

Radars/ Sensors, advanced EW Systems, Flares

Likely Total Spending US$ 235 - 260 billion

Source: Compiled by Q-Tech Synergy from various open sources accessed between 1 to 20 September 2014

The above projections cover all the three segments, namely, air, land, naval, of the defence sector. The aerospace segment is the largest of them, considering the ongoing and future procurement programs. Local demand for air platforms, both in defence and civil, would be the major driver for aerospace manufacturing growth in India. Market projections indicate that there is a requirement of military/commercial aircraft, and an almost equal number of helicopters valued at above US$200 billion will be procured by India in the next 20 years. Acquisitions during the Twelfth and Thirteenth plan period will almost double the number of military aircraft and helicopters produced in the next five years. In the backdrop of growing Indian defence acquisition needs, enhanced momentum will be placed on indigenous defence production and procurement.

No of helicopter and aircraft to be procured during the plan period

600620640660680700720740760

12th plan 13th plan

Num

ber

of p

latf

orm

s

Plan periodSource: http://planningcommission.gov.in/aboutus/committee/wrkgrp12/wg_aerospace%20_sector.pdf

5Eye on Defence |

For the Armed Forces alone, around 650 aircraft, including helicopters, are estimated to be procured during the Twelfth Plan period from indigenous sources, as compared to around 300 during the last 5 years. The robust growth potential of the Indian aerospace market presents a lucrative and extensive opportunity for domestic companies to expand across the supply chain. Apart from the development and manufacturing of the complete product, there is a huge market for components, considering that engine, airframe and MR blade and hubs facilities are non-existent. Furthermore, the retro-fitment of essential components such as CVRs, FDRs, transponders, sand filters and even interiors is needed urgently. Augmenting in-country manufacturing capacity and technical capability is the need of the hour.

Moving towards indigenisationAs aerospace manufacturing requires heavy investment in facilities, HAL remains the leader in India with its 19 production units. Private sector participation in aerospace manufacturing has a minor share in the local aerospace manufacturing segment. Most of the private sector industries and SMEs are only actively engaged as suppliers and fabricators to DPSUs. Lately, the private sector has been granted the opportunity to become a Tier 1 supplier in military contracts. This gives foreign firms greater flexibility in their choice of local partners. Some of the major private players do have requisite technological capabilities to undertake manufacturing for the sector; however, they

are rarely system integrators or recipients of technology. Essentially, private companies face hurdles due to the high capital cost involved, low volumes and long gestation period of projects. To resolve this concern, the Government has recently been enforcing “Make“ or “Buy and Make (Indian) “ classification for all key defence contracts. In addition, it is mandating that the prime contractor should be an Indian entity. This decision is critical to provide Indian manufacturers with the scale and exposure required for the industry to move forward. The Government needs to further boost the private sector by encouraging participation in future aerospace acquisition programs and ensuring fair competition in the tendering and selection process.

In the past, India has been spending billions of dollars for acquiring defence weaponries/technologies to strengthen its Armed Forces. It now needs to invest in R&D for defence and develop indigenous defence technologies. This, in turn, would not only save valuable foreign exchange/money, but also generate employment and other spinoffs such as technical knowhow and human resource development. Maruti is a prime example, as it alone led the auto revolution in the country, giving India a strong holding in the global auto sector. In sectors such as communication and electronics, the Indian industry has achieved world-class standards and is well placed to contribute in the defence arena as well. Also, technology infusion is more sustainable in the backdrop of privatisation. The private sector employs technology to overcome competition by lowering production cost, and improving product quality and service levels simultaneously. As a result, bringing defence programs under the “Buy and Make (Indian)” and “Make” categories will prove to be beneficial for Indian vendors and, in turn, for the development of a robust Indian indigenous defence industry. Under the “Make (Indian)” category, for instance, only domestic companies will compete and subsequently design and develop equipment. The Defence Ministry will fund 80% of the development costs, so that companies are relieved of the huge investments entailed in developing a system.

6 | Eye on Defence

The recent decisions of the Government on certain defence programs bought under the “Buy-Make (Indian)” and “Make Indian” categories seem to be in tune with the Government’s mantra of promoting indigenisation. Some of the decisions taken by the DAC since the announcement of the DPP 2013 include:

S No. Stage Project Categorisation Anticipated Size (INR Crore)

1 Categorization* Light Utility Helicopter (400 Nos.) Buy and Make Indian* 6,000

2 RFP Replacement of Avro Transport Aircraft (56 Nos.)

Buy and Make Indian 13,500

3 RFI Project P-75 I 6 Nos.) Buy and Make Global 50,000

4 RFI Basic Trainer Project (106 Nos.) Buy and Make India -

5 CNC Black Shark Torpedo (98 Nos.) Buy and Make Global 1,200

6 AON Mid Life Upgrade of Submarines (6 Nos.)

Nominated to Mumbai Naval Dockyard, MDL and Rosoboronexport

4,800

7 AoN Arjun Mk-II Tanks Indigenous manufacture by OFB (Repeat order)

6,600

8 Nomination Advanced Light Helicopter (32 Nos.) Nominated to HAL 7,000

9 AoN Offshore Patrol vehicles and Fast Patrol vehicles (5 Nos. each)

Nominated to GRSE and Goa Shipyard

2,360

10 AON Fleet Support Ships (5 Nos.) Indigenous procurement 9,000

11 Start of CNC Naval multi Role Helicopter (16 Nos.) Buy Global 6,000

12 CNC Chinook (15 Nos.) and Apache (22 Nos.) procurement from Boeing

Buy Global 5,600

13 TEC Landing Platform Docks (4 Nos.) Buy Indian 15,000

14 AON Integrated Anti-Submarine Warfare Suites and ATAS for warships (11 Nos.)

Buy Global 1,770

15 AON Catapult Self Propelled Guns (40 Nos.) Nominated to OFB 820

16 RFP Barak 1 Missiles (262 Nos.) IAI 650

17 RFI Light Armoured Multi-Purpose Vehicles (700 Nos.)

Buy Global 1,200

18 Nomination Handheld Thermal Imagers (Nos. 4000) Nominated to BEL 1,400

19 Nomination Thermal Imaging Sights for Land Systems including T-72, T-90 and BMPs

Nominated to BEL 3,000

20 Nomination Light Machine Guns (11000 Nos.) Nominated to the OFB -

21 RFP Surface Surveillance Radar Buy and Make Indian 1,800

22 RFP Portable Diver Detection Sonar Systems Buy and Make Indian 400

Source: Compiled by EY from various open sources accessed between 1 to 20 September 2014

7Eye on Defence |

This compilation is a clear indication of two things: almost 90% of the projects, especially those undergoing new categorisation, contain elements of indigenous production (though a large percentage is still nominated to DPSUs); in addition, despite the lack of clarity on the procurement processes for “Buy and Make Indian” and “Make” methods of procurement, projects are being announced under these categories.

Since DPSUs are beginning to assume the role of integrators and are vacating a larger portion of the tier II and tier II space for the private sector, these programs envisage a huge opportunity for the private sector in terms of technology know-how and revenues. A case in point is that of the 197 light-utility helicopters (LUH) contract opened for the Indian industry; it is anticipated to eventually bring in US$7 billion of business. This will include manufacturing a larger number of helicopters, as well as creating a supply chain for spare parts and maintenance. Taking into consideration the deals mentioned above, the private industry could be in to benefit from more than US$16 billion opportunity.

The Indian defence industry has proven its mettle, especially in the naval segment, where the country has successfully achieved a high degree of indigenisation. The Indian industry is likely to emerge competitive and efficient. This is best understood by analysing the role played by the Indian defence industry in developing artillery gun systems on their own without any assurance of an order from the Government. It is a known fact that India needs artillery gun systems, as procurements have been delayed for various reasons. The opportunity has encouraged Indian organisations and defence companies such as DRDO, OFB, TPSED, Bharat Forge and L&T to develop variants of these systems through JVs and collaborations. All of these systems are NATO designed and use in-house indigenous ammunition. The cost of guns developed in this manner is likely to be almost half of that of imported guns.

The “Make India” momentum is picking up due to the skill, commitment and spirit of the defence enterprise. The Government needs to ensure that it promotes the “Make” and “Buy-Make (India)” categories for future defence procurements and that imports is last resort. It will also need to build in fair competition and level-playing field during bidding. While there may be scepticism with regard to delays, concerns around delays and cost overruns have been prominent features of not just development programs, but also acquisition programs such as the INS Vikramaditya, Hawk Jet Trainers, Project 75, P-75I and refits.

India has a cost advantage in basic design and engineering services, components and assemblies manufacturing, coupled with competitive labour rates, as shown below.

01020304050607080

Engineeringdesign

labourcost

Source: Estimates Analysis from various open source accesssed beween 1 to 20 September 2014

Manufacturingmaterial

cost

Manufacturinglabour

cost

IT Systemlabour

cost

Cost

Sav

ing

Perc

enta

ge

Cost component

Cost saving through defence manufacturing in India

8 | Eye on Defence

Considering the country’s cost saving edge, we can safely assume a saving of above 20% on major defence platforms in case they are produced in India with or without ToT/JV. The country is likely to save over US$50 billion during 2014–27, translating into an average yearly saving of US$3 billion approximately.

Way forwardThe new Government has realised that the Indian security apparatus is not adequately equipped and that self-reliance in defence production is the only alternative. The Government’s initiative to encourage greater private participation in the defence sector and emphasise on other mandatory local manufacturing requirements, including offset and opening up the sector to more overseas investments to persuade foreign companies to transfer technology, is bound to go a long way in achieving the desired level of self-reliance. The recent decision of mandating Project 75(I) being built in India, bringing the LUH program under the “Make (Indian)” category and opening up of the AVRO replacement tender for private sector companies seem to be game changers and are indeed bold and progressive steps in the direction of self-reliance.

If the “Make in India” mandate is implemented, as envisaged by the new Government, we could progress from being mere service providers and components manufacturers to becoming sub-system integrators. The percentage share of indigenous sources could improve to over 60% from the slightly over 30% at present, and import contents may come down from 62% to 40% by 2027. Even if we consider a conservative ratio of about 35% as expenditure on indigenous production and domestic market size of approximately US$5 billion in 2012–17, the domestic market is set to grow to US$16 billion by 2022 and to US$30 billion by 2027.

Success in the industry will now depend on the ability of the MoD to develop clear and flexible strategies and on the ability of industry players to build on these strategies using

62%57%

50%

40%

23% 25% 25%30%

15% 18%25%

30%

0%

10%

20%

30%

40%

50%

60%

70%

2012 2017 2022 2027

Imports Public Indian company Private Indian company

Source: Defence ProAc Biz News Sep-Oct 2014 Issue (Article on Delayed even at Start: When “Make” Procedure will make a Headway?)

Share of import vs. indigenous in public and private sector

innovative models and methods. Critically, these strategies must also be supported with appropriate, agile bureaucratic and governance processes. Fortunately, the current defence climate indicates willingness to implement the requisite reforms. Indeed, besides improving certainty for business, simplifying regulations and allowing market forces to ensure competitiveness, the Government needs to consider the industry as a stakeholder in its attempt to cover the gap in defence production.

References1. “Report of Working Group on Aerospace Sector”,

Planning Commission Report, Year 2012;

2. Pranav Kulkarni, “Make in India kicks off with defence deals”, Indian Express, 30 August 2014;

3. “Defence Procurement Procedures”, MoD Website, http://www.mod.nic.in Defence Procurement Procedure 2013.htm, accessed 10 September 2014;

4. “Defence ministry scraps Rs 6,000cr tender for purchase of 197 helicopters”, PTI, 29 August 2014

9Eye on Defence |

India as a destination for defence goods sourcing – exports enabled

IntroductionThe current Government has a vision of transforming India into a destination for high-end manufacturing and superior design, while positioning it as “Digital India” and a repository of knowledge. A global transformation in military affairs has made armaments/weapons a major component of defence capability. The exponential growth of technology has resulted in the “cutting edge” advantage being eroded rapidly, thereby necessitating the constant upgrade/replacement of defence hardware. There are many conflicts to attend to and, in this process, India must not make the error of living in the past and addressing the requirements of the past. It should rather look deep into the future to generate such knowledge and skills, so that the necessary capability is automatically generated.

In accordance with the Government’s view on the subject, self-reliance and indigenisation in defence are important for both strategic and economic reasons. Although India has made rapid strides in defence technology and industrial base in the recent past, it is yet to cover significant ground in terms of new product development and has to achieve a certain necessary scale of production.

Defence exports have the potential to enhance manufacturing and generate huge employment, along with strengthening economic security and paving the way for security dominance, both at the regional and global levels. Defence exports can usher in huge avenues of investments in the defence sector, leading to economic growth. They can also be a source of motivation for technology transfers, which may directly benefit the growing defence industry in the country through employment generation and product quality.

The Indian defence industry is challenged to meet the demand for sophisticated weaponry for our Armed Forces. Investment in the industry is a function of demand and supply, and this equation can best be optimised through enabling exports in an aggressive manner in the defence sector. By opening up additional markets for the areas of competence in our DIB, we may bring sustainability and stability to an industry suffering from uncertainty of orders and cyclicity. The idea is to reduce the dependability of our DIB on the Indian MoD.

Exports and international trade aid in driving active research based on unique global demand, besides strengthening bilateral relations. They also provide intangible benefits,

such as information ascendancy, perception management, positive influence on foreign policy and others. Presently, aerospace and defence exports are a meagre 0.2% (approximately) of global exports. They account for 1.68% of the total exports from India, mostly derived from the small industries sector. These numbers clearly need to be enhanced.

17552198

2452

2011-12 2012-13 2013-14

India's defence exports (in US$ mn)

0.8%

0.5%

1%

0.2%0.2%

0.1%

2007 2008 2009 2010 2011 2012

India's arms exports as a share of global transfers

0200400600800

100012001400

2011-2012 2012-2013 2013-2014

US$

MN

India’s strategic exports

Composites Aircraft-spacecraftComponents of Aircraft-Spacecraft Armoured vehiclesVessels of war Weapons (small)Components of weapons (small)

Source: Ministry of Commerce and www.trademap.org <http://www.trademap.org/> accessed between 10-20 September 2014

10 | Eye on Defence

A deeper dive on these exports numbers reveals the following:

• Domination of components: A large portion of the export numbers for aerospace parts and components is accounted for by component level products for civil aerospace. Some Indian companies (e.g. Aques and Dynamatics Technologies) have been able to penetrate the global supply chain of foreign OEMs and are, thus, able to export components for the latter’s civil aerospace programs. These exports are not solely motivated by offsets, but by considerations of low-cost, high-quality manufacture.

• Also, JVs of Indian companies with foreign OEMs (notably Tata Lockheed Martin Aerostructures) have started contributing to aerospace exports, though the exports of complete systems are mainly undertaken by space-related services companies to European nations.

• Other than aerospace related exports, there is little or no military export, except for some military assistance to friendly countries aimed at geo strategic ends (some naval assistance with Singapore, etc.).

• Future exports are likely to include those of missiles systems to interested nations, as global interest increases in indigenous initiatives such as BRAHMOS Missiles, which is a supersonic cruise missile developed through a JV between the Indian DRDO and Russia’s NPO Mashinostroeyenia.

Indian aerospace and defence exports mainly comprise components and sub systems currently. The Government needs to play an active role in promoting exports, and some small steps have already been taken in this direction. It is keenly pursuing a strategy to promote and enhance exports from the defence sector. the MoD has also placed a vision statement on its website in this regard.

The primary question is, “What can we actually export”? The principle of ownership says that a country can export only that which it owns. There are a few areas in which the DRDO has achieved technological excellence with the support of home-grown technologies and ownership of all generated IPs. We must first focus on the segments of our core competence The second principle of export states

that you can export all that you can support and sustain through its lifetime. Once again, the requirement of domain knowledge arises to address any problems that may crop up during the life time. This expertise is also residing in the DRDO. The third principle of export is that you need to be able to customise the product to suit the requirement of the target country’s Armed Forces. This calls for a great deal of design expertise and industry interface, which has become an area of focus for the defence establishment. An enabling exports policy incentivised through well thought out government schemes is a natural recipe to strengthen the DIB of the country.

The secondary question is “Why should foreign OEMs buy form us?” While India has proven its expertise in design and engineering, slowly traversing the product maturity curve from “validation and verification” to “product conceptualisation and design”, much remains to be achieved in the domain of manufacturing. We may concentrate on areas where we may have a cost competitiveness, such as aerostructures and machined components, tooling, cables and harnesses, and avionics LRUs or those where we may attain technological leadership such as power management systems, radar components, hydraulic systems, command and control systems, composites and fuzes. This may bring rich dividends to a vibrant DIB waiting to realise its potential.

Export procedural reforms and challengesAs part of the higher reform process and in continuation of the reforms in industrial licensing and the liberalisation of the FDI policy in defence, reforms were announced by the Department of Defence Production in early September for defence exports. These include:

• Strategy for Defence Exports (SDE): The SDE is not a policy statement but merely a framework. It refers to a set of guidelines and a statement of intent to promote exports in the Indian defence industry

• Standard Operating Procedures (SOP): for the issue of no-objection certificate (NOC) for the export of military stores by the Indian defence industry

11Eye on Defence |

Some highlights are mentioned in the table below:

S No. Earlier provisions Changes/Improvements

1 No governmental assistance for defence export

• It calls for the setting up of an export promotion/facilitation body with representatives even from the industry. The body will act as an advisory nodal point of MoD to coordinate export promotion.

• Governmental assistance will be provided for the promotion of exports to friendly countries through delegations and defence diplomacy.

• The financing of defence exports will be deliberated in consultation with other stakeholders. Financing may be sought through the Line of Credit facility, EXIM bank or some other mechanism.

• Indian Missions abroad will assist companies in exporting weapons.

2 The issuing of export license was undertaken by the Director General of Foreign Trade, in consultation with other ministries. There was no other government body to direct defence exports both on a policy and operational level

An interdisciplinary body known as the Defence Export Steering Committee (DESC) has been proposed. It would be headed by the Secretary DDP, with other members being drawn from the Armed Forces, the DRDO, the Department of Defence (DoD), MEA and DGFT. Under the DESC, a Standing Committee has been set up under the chairmanship of Joint Secretary, Defence Industrial Promotion (JS DIP). While the JS-led Standing Committee will look after day-to-day decision making for exports, the higher committee chaired by Secretary (DDP) would consider export proposals relating to indigenously developed sensitive defence items.

How will the functions and responsibilities of these agencies differ from those of the inter-ministerial group under the DGFT remains to be seen.

3 The process to obtain an NoC for the export of military stores was unclear and cumbersome, mainly due to the lack of clarity on the definition of military stores

• The recently announced list of defence products will be applicable while applying for an NOC under the first category of products that may be exported. Furthermore, the process of obtaining an NoC has been streamlined and simplified.

• Clarity on the treatment of products that do not appear in the defence items list (e.g., dual use items) is still awaited.

• Furthermore, a simpler and clearer procedure to obtain an end-user certificate will be notified soon by the DDP.

4 Process is offline and cumbersome

Process to obtain an NOC will be made available online.

12 | Eye on Defence

Recommendations and the way forwardIn addition to the steps already taken by the Government to streamline defence exports, following are some of the recommendations that may complement the reforms that are underway and strengthen the proposed framework:

• A commercial arm of the MoD, under the leadership of the DRDO, will be the key to harmonise various strengths of the industry and work intimately with the Government for attaining the highest degree of efficiency. A successful model already exists in the form of the Antrix Corporation, which may be emulated for implementation.

• Existing arrangements for exports on government-to-government levels may be continued and enhanced. Defence products can easily be classified into three layers, namely “Green – those that are freely allowed for exports”, “Red – those that are reserved for indigenous requirement”, and “Yellow – those that are neither in Green or Red”. The fundamental principle guiding Green, Red and Yellow items may be the strategic importance of items. Fully developed and manufactured weapon systems such as Agni missiles, which could have a direct impact when used against own country, may deserve a “Red” classification; whereas, components, sub-systems and parts and accessories thereof will always be under the “Green” items list. Similarly, all products sourced as part of offsets contracts by OEMs may be classified as “Green”. All services and all commonly available products in the international market will be in “Green”. The MoD, in consultation with the DRDO, may identify systems that have export potential and place them in the “Green” items list. Products falling under “Red” will have adequate justification, as determined by the MoD, in consultation with the DRDO and the industry.

• Similarly, countries could be classified into various tiers, basis inputs from the MEA and MOD. Tier 1 may be the most preferred destinations, while preference may dwindle as we go down to tier 2, 3 and so on. This list of countries and their categorisation into tiers could be a continuously updated and maintained as a dynamic list. It may or may not be placed in the public domain. This can, however, act as a guiding post for steering clearances.

• As a corollary, all “Green” items under export to Tier 1 countries may be given deemed clearance based on self-certification. “Green” items to countries other than Tier 1 ones can easily be granted clearance within 5 to 10 working days. In fact, deemed clearances could be given in some other categories also, as determined by the Government. Similarly, as a part of process control, “Yellow” items/other tiers of countries could undergo a process of consultation and be given NOC/export clearance within 10 to 15 working days. “Red” items and countries in the least preferred tiers may require more deliberate consultations, and a decision might be reached and communicated in 40 to 60 working days. The exports of technology and cases of technology transfer may need thorough deliberation and would be classified accordingly.

• The MoD has for long been focused on procurement and imports. It has, hence, been able to refine procurement policies (read DPP). The MoD may provide impetus for exports through the effective utilisation of our embassies abroad and strengthen these with technology and trade representatives to create trade commissions abroad with a view to export. The commercial arm so instituted will synergise the strengths of engineering design, IT and ITES with those of manufacturing for holistic export potential. A robust design has the potential to realise a quality product and, hence, due importance will be given to engineering design while boosting manufacturing.

• A compendium or online resource may be created that captures the capability sets of all companies working in the aerospace and defence sector. This will not only provide the Indian industry with partnership opportunities among themselves, but will also provide foreign OEMs with a window to Indian DIB capability.

13Eye on Defence |

References:1. 1“Standard Operating Procedure (SOP)

for issue of No Objection Certificate (NOC) for Export of Military Stores by Public as well as Private Sector Units”, MoD website, http://ddpmod.gov.in/showfile.php?lid=159 , accessed 10 September 2014;

2. 2“Strategy for Defence Exports”, MoD website, http://ddpmod.gov.in/showfile.php?lid=158, accessed 10 September 2014 ;

3. http://www.trademap.org/, aerospace and defence related custom searches, accessed 5 September 2014;

ConclusionIn conclusion, we reiterate that the objectives of any exports policy must be to:

• Create a conducive environment for defence exports

• Promote defence exports in a holistic manner

• Strengthen the DIB in the country

• Incentivise research, development and manufacturing

• Synergise strengths in IT/ITES/R&D and develop a formidable defence industry

14 | Eye on Defence

Request for information (July 2014 – September 2014)

Date of issue RFP details/equipment Response date Issued by Remarks

4 July 2014 Mine Field Breaching System 30 July 2014 E-in-C Br For IA

10 July 2014 125 MM FSAPDS Amn For Tank T-72 and T-90

5 Aug 2014 MGO PPO For IA

11 July 2014 Installation of Docking Aid System for Naval Dockyards and NSRYs, Qty: Approx. 04

14 Aug 2014 Directorate of Information Tech

For IN

30 July 2014 Quick Erection Protection Sets (QEPS)

31 Aug 2014 Combat Engineeers Directorate

HQ MoD (Army)

For IA

1 Aug 2014 Passive Directional Sonobuoy for IL38SD Aircraft

29 Aug 2014 Directorate of Naval Air Staff For IN

5 Aug 2014 Short Range Surface to Air Missile (SRSAM) System

31 Aug 2014 Directorate of Staff Requirements Navy

For IN

6 Aug 2014 Intelligent Message Terminal (IMT) 30 Sep 2014 Dte Gen of Signals For IA

8 Aug 2014 Trajectory Correctable Munitions (Course Correctable Fuze) for all Calibres of 155mm Gun System

30 Sep 2014 Arty Dte For IA

12 Aug 2014 Jaguar Darin III and Jaguar Darin II Full Mission Simulators

10 Sep 2014 PD Projects For IAF

14 Aug 2014 Light Bullet Proof Vehicles 12 Sep 2014 Provost Marshal (Air) For IAF

1 Sep 2014 Ku-Band Satellite Communication System (SATCOM) for Submarines of Project 75

10 Oct 2014 Project Director, Project- 75, IHQ MoD (Navy)

For IN

15Eye on Defence |

Request for proposal (July 2014 – September 2014)

Date of issue RFP details/equipment Response date Issued by Remarks

2 July 2014 7.6 MTR FRP Speed Boat 22 July 2014 Naval Academy PO Ezhimala

For IN

3 July 2014 Aerial Surveillance Device Day and Night

30 July 2014 The Infantry School MHOW

For IA Qty: 02 Nos

3 July 2014 Hazardous Duty Lifejacket 28 Aug 2014 Controller of Procurement

Material Organisation (Mumbai)

For IN Qty: 2200 Nos

10 July 2014 122MM How High Explosive (Full Charge) Ammunition, 17,029 quantity of round

7 Oct 2014 MGO PPO For IA

7 July 2014 Single Scull, Double Scull, Coxless Pair and Coxless Four Boats

6 Aug 2014 Comdt, CME, For IN

11 July 2014 Cartg. Trg For 81mm Mor. Bomb3b (Empty etc.)

26 Aug 2014 Ammunition Factory, Kirkee,

Issued by DRDO Qty: 10,531 Nos with 50% option

14 July 2014 Submarine Emergency Position Indicating Radio Beacon (SEPIRB) systems along with suitable SSE sleeves

31 Oct 2014 Directorate of Information Tech

For IN

Qty: 30 Nos.

16 July 2014 Signal Flare (ASSY) 22 July 2014 IN Issued by OFB

19 July 2014 Protective Mask, Dope Face Piece (Medium) 3m

30 July 2014 3 Base Repair Depot Air Force Station

For IAF Qty: 10 Each

22 July 2014 Indigenous Test Station For P-Series Missile

1 Aug 2014 INS Kalinga For IN

23 July 2014 Upgradation of Global Maritime Distress Safety System Simulator

28 Aug 2014 INS Venduruthy For IN

19 July 2014 Integrated Weapon Training Simulator

5 Aug 2014 GSO1 TRG For IA

18 July 2014 Design Dev of Pod Hydro Jet For Propulsion System of Wheeled Infantry Combat Vehicle

26 Aug 2014 VRDE*Vehicle Research & Development Establishment

Issued DRDO Qty: 06 Nos.

16 | Eye on Defence

Date of issue RFP details/equipment Response date Issued by Remarks

25 July 2014 Airframe Models for MLG and NLG (Main Landing Gear and Nose Landing Gear)

12 Aug 2014 CVRDE*Combat Vehicles Research & Development Estt.

Issued by DRDO

30 July 2014 Impact Delay Fuze for penetrating Bomb

4 Sep 2014 Armament Research & Development Establishment

Issued by DRDO

27 July 2014 Improvised Explosive Devices (IED) Lane

19 Aug 2014 — For BSF

30 July 2014 Tactical Vest 20 Aug 2014 EME Branch For IA Qty: 1040

1 Aug 2014 Short Range Lidar Sensor 18 Sep 2014 Vehicle Research & Development Establishment

Issued by DRDO

1 Aug 2014 Medium Range 3D Lidar Sensor 18 Sep 2014 Vehicle Research & Development Establishment

Issued by DRDO

3 Aug 2014 NBC Filter FPT-200M 5528 TY AND 5531 PC

1 Oct 2014 Ordnance Factory Medak

Issued by OFB

5 Aug 2014 Laser Gun 13 Aug 2014 Air Force Station Tambaram

For IAF

8 Aug 2014 Digital Theodolite 18 Sep 2014 ACSFP Cell For IA Qty: 47 Nos

8 Aug 2014 SU-30 Recce System Items 9 Sep 2014 For IAF

11 Aug 2014 Fuze 213 MK-5(M-3) for 81MM ILLG

22 Aug 2014 Ordnance Factory, Dehuroad

Issued by OFB

12 Aug 2014 Bullet Proof Jackets – M.892, M-1774, L-1774

12 Sep 2014 Dte of PM (Air) For IAF

13 Aug 2014 Impact Delay Fuze for Aircraft Bomb

18 Sep 2014 Armament Research & Development Establishment

Issued by DRDO

20 Aug 2014 Fuze Mine 4A ND Empty Assembly

12 Sep 2014 Ordnance Factory Badmal

Issued by OFB

Qty: 15315 Nos.

18 Aug 2014 Thermal Imager Sight 30 Sep 2014 Vehicle Research & Development Establishment

Issued by DRDO Qty: 02 Nos

23 Aug 2014 Mobile Lightning Protector 24 Sep 2014 GOC-in-C For IA Qty: 113 Nos.

25 Aug 2014 Drivers Enhanced Vision System 16 Sep 2014 CVRDE Issued by DRDO

Request for proposal (July 2014 – September 2014) (cont’d.)

17Eye on Defence |

Date of issue RFP details/equipment Response date Issued by Remarks

25 Aug 2014 Ka Band Doppler Radar System 18 Nov 2014 Proof & Experimental Establishment

Issued by DRDO

26 Aug 2014 Vehicle/equipment tracking system for upgradation of assessment of Air Defence equipment deployment

17 Sep 2014 Army Air Defence College, Gopalpur

For IA

26 Aug 2014 Initial Class Room Ground Training (MCF) and Simulator Training for Boeing 737-200 Aircraft

7 Oct 2014 Directorate of Ops (IEW)

For IAF

26 Aug 2014 Modification of MI-17 V5 Helicopters for VVIP Role

30 Sep 2014 Directorate of Enginee ring H

For IAF Qty: 05

28 Aug 2014 Night Binocular with Compass and Range Finder

22 Oct 2014 DTE of Special Operations and Diving

For IN

Qty: 60 Nos

1 Sep 2014 Quotation for follow on support for five C 130J Super Hercules Aircraft for IAF RFP on STE basis

29 Oct 2014 JS G AIR For IAF

2 Sep 2014 Explosive Contamination Sensor 9 Oct 2014 Research & Development Establishment

Issued by DRDO

3 Sep 2014 High Frequency Electromagnetic Field Simulator

16 Oct 2014 Terminal Ballistics Research Laboratory

Issued by DRDO

4 Sep 2014 Mini Flying Test Bed 22 Oct 2014 Aeronautical Development Establishment

Issued by DRDO

4 Sep 2014 High Resolution Binocular 25 Sep 2014 HQ Central Command Aviation Branch

For IA

Request for proposal (July 2014 – September 2014) (cont’d.)

18 | Eye on Defence

List of Industrial Licenses (ILs) filed for July 2014 – August 2014

New projects/investments/contracts

Application no. and date Name of the applicant Item of manufacture

301 21/08/2014

Nathu Lal Choudhary Explosives, class 2 detonating fuse, PETN

300 19/08/2014

IDL Explosives Limited Bulk emulsion explosives

299 19/08/2014

Jiby John Weapon and ammunition fabricated metal

298 19/08/2014

Manish Satyanarayan Nuwal AN melt oxidizer, blend solution, emulsion matrix, site mixed bulk explosive, calcium nitrate melt

297 19/08/2014

Thomas Varughese Military avionics systems and test systems for use onboard fighter aircraft

296 23/07/2014

Ideal Industrial Explosives Limited Explosives ― slurry

Name of entity Project details Value*

GoI and Boeing • The GoI is planning to acquire Chinook and Apache helicopters from Boeing.

• Under the deal, Boeing would supply 15 CH-47F Chinook heavy-lift helicopters and 22 AH-64D attack helicopters to the IAF.

• The acquisitions will help India in its goal of modernising its armed forces.

INR150 billion

IAF and Lockheed martin

• IAF awarded a support contract to Lockheed Martin for six new C-130J-30s.

• The contract includes three years of post-delivery support after the delivery of the first aircraft.

• With this additional deal, the total cumulative cost of the C-130Js will be INR126 billion.

INR34 billion

Ministry of Defence (MoD) and MBDA

• The MoD signed a contract with MBDA to equip its Sepecat/Hindustan Aeronautics Jaguar strike aircraft with the company’s Advanced Short Range Air-to-Air Missile (ASRAAM).

• The weapon will provide both close combat and near beyond-visual-range capabilities for the aircraft.

• Part of the Jaguar upgrade program involves integrating a helmet-mounted display on which ASRAAM can offer digital interface and functionality.

INR25 billion

19Eye on Defence |

Name of entity Project details Value*

IAF • India plans to buy three airborne early warning and control aircraft A-50 from Russia.

• The A-50s will be used to detect and track air targets and surface vessels, and warn automated systems of command posts and control airplanes in sighting.

NA

Indian Navy • The GoI approved the Indian Navy’s proposal to purchase 16 multi-role helicopters from Sikorsky.

• Finmeccanica also placed a bid. The deal was put on hold for quite some time due to India’s investigation on corruption charges against Finmeccanica.

NA

HMT Machine Tools • HMT Machine Tools ventured into defence manufacturing by successfully producing Directing Gears, a critical on-board equipment for naval application.

• It would be used for supporting and calibrating the 4.5-ton sensor array of the SONAR system.

NA

Government of Tamil Nadu

• The Tamil Nadu Government will establish an Integrated Aerospace Park in the state.

• The state government has identified about 300 acre land for the park in Sriperumbudur.

• The park will host companies engaged in the designing, engineering, manufacturing, servicing and maintenance of aircraft.

• The Tamil Nadu Industrial Development Corporation (TIDCO) will be responsible for developing the Integrated Aerospace Park.

NA

Government of Telangana

• The Telangana Government is planning to set up two aerospace and defence clusters in the outskirts of Hyderabad.

• It has identified 1,000 acres land for each of the two new parks. While one of the new parks will be located near the existing aerospace park at Adibatla in the South of Hyderabad, the other park will come up in the Northern side of the city.

• The new parks will be developed by the Telangana State Industrial Infrastructure Corporation.

NA

New projects/investments/contracts (cont’d.)

*The values of the deals have been converted to Indian Rupees using Oanda currency conversion tool

1US$ = INR60

20 | Eye on Defence

Sources:

1. “India nears deal for Boeing military helicopters”, Washington Business Journal online, 2 September 2014, via Factiva, © 2014 American City Business Journals, Inc. All rights reserved.

2. “Air Force Awards Lockheed Martin Potential $565 Million Modification For India C-130J-30s”, Defence daily international, 27 July 2014, Copyright © 2014 Access Intelligence, LLC. All Rights Reserved.

3. “India nears deal for Boeing military helicopters”, Washington Business Journal online, 2 September 2014, via Factiva, © 2014 American City Business Journals, Inc. All rights reserved.

4. “India may buy AEW&C aircraft from Russia”, 16 August 2014,Qtech newsletter

5. “Rolls Royce to open Research and Development centre in Bangalore”, Auto Business News,1 September 2014, via Factiva, (c) 2014, Electronic News Publishing. All Rights Reserved.

6. “Pilatus and Tata Announce Manufacturing of Green Aircraft”, RIA-Oreanda news, 28 August 2014, via Factiva, © [2014] RIA OREANDA. All Rights Reserved

7. “Advanced Metal Finishing Facility Begins Operations”, HTITWO, 7 August 2014, via Factiva, Copyright © 2014 Nine Dot Nine Mediaworx Pvt. Ltd. All Rights Reserved

8. “HMT develops directing gears”, 6 September 2014, via QTech newspaper

9. “Government Of Tamil Nadu; Plans To Establish Integrated Aerospace Park Project In Tamil Nadu”, Project Tiger, 16 July 2014, Copyright 2014. e-Procurement Technologies Ltd.

10. “Two more aerospace, defence clusters to come up in Adibatla” Times of India website,17 September 2014, via Factiva Copyright © 2014. Bennett, Coleman & Co., Ltd.

11. “JK provides indigenous technical support to Armed forces” India strategic site, via Factiva , accessed 15 September 2014

New projects/investments/contracts (cont’d.)

21Eye on Defence |

JVs and alliances

Name of the entities Nature of transaction Value

Aerospace Processing India (API)

• ― API started operations at a metal finishing and processing facility in the QuEST Global Precision Engineering SEZ in Belgaum, Karnataka.

• ― The facility would be focused on processes for aluminum, titanium and stainless steel components for aero-structure and aero-engine components.

• ― API is already working with Airbus and Boeing to meet rigorous aerospace specifications and secure approvals.

NA

BEL and Thales • ― Bharat Electronics and Thales formed a JV, BEL-Thales Systems Limited.

• ― The JV will be involved in the design, development, marketing, supply and support of civil and defence radars for the Indian and global markets.

• ― BEL holds a 74% stake in the JV, while Thales hold the remaining 26% stake.

NA

GE Aviation and Mahindra Aerospace

• ― GE Aviation and Mahindra Aerospace have signed an MoU to pursue opportunities for manufacturing aero structures and aircraft component in India.

• ― The partnership will help GE Aviation expand its international supply chain.

• ― It will help Mahindra Aerospace leverage GE Aviation’s experience and expertise in the aerospace industry.

NA

JK Group • ― JK Group’s subsidiary, Global Strategic Technologies Ltd. (GST), signed an MoU with major European and North American players for partnering in the defence sector in India.

NA

L&T and Thales • ― L&T Technology Services formed a JV by acquiring 74% of the equity capital of Thales Software India Pvt. Ltd. The JV capitalises on the existing strong relationship between the two groups, L&T and Thales, and ensures a long-term partnership in the engineering services domain.

• ― Furthermore, the transaction would enable Thales to select L&T as its Indian offset partner, resulting in the inflow of offset-related revenues in the JV.

NA

OIS AeroSpace and Logic S.p.A

• ― OIS AeroSpace entered a strategic relationship with Logic S.p.A. for its avionics business.

• ― OIS AeroSpace will be Logic S.p.A’s OEM in India. It will manage a range of activities including the marketing, manufacturing, supply and maintenance of avionic products.

• ― OIS aims to advance its avionic products across the civilian and military aviation sectors.

Pilatus and Tata • ― Pilatus Aircraft and Tata Advanced Systems have partnered to manufacture and supply Pilatus PC-12 Green Aircraft Aero structures to the Tata Advanced Systems facility in Hyderabad, India.

• ― This will include the assembly of complete airframe for the aircraft, including integrated fuselage, wing, cockpit, ailerons, fins and rudders.

• ― The agreement spans 10 years. At present, Pilatus is supplying its PC-7 Mk II basic trainer aircraft to the Indian Air Force.

NA

22 | Eye on Defence

Name of the entities Nature of transaction Value

Tata and AgustaWestland

• ― Tata and AgustaWestland got clearance from the GoI to start their JV, Indian Rotorcraft Limited (IRL).

• ― IRL planned to begin assembling helicopters in 2011, but the timeframe was extended to 2014 due to delay in getting clearance from the GoI.

• ― IRL will assemble and sell AW119Kx helicopters in the Indian domestic market for civilian use.

NA

Tata Advanced Systems Limited (TASL) and Chobham

• ― TASL and Cobham signed an agreement for equipment manufacturing in India.

• ― TASL will manufacture for Cobham’s fifth generation air-to-air refueling equipment at TASL’s facility in Hyderabad, India.

• ― The agreement will help Cobham establish a supply chain footprint in India.

Wipro Infrastructure Engineering (WIN) and international aerospace players

• ― WIN tied up with two international aviation majors for manufacturing high-precision components.

• ― One of the companies partnering with WIN is Compañía Española de Sistemas Aeronáuticos(CESA), a subsidiary of EADS; the name of the other partner was not revealed.

NA

Sources:

1. “Bharat Electronics JV with Thales in Radar Business”, Dion News Service, 2 September 2014, via Factiva © 2014. Dion Global Solutions Ltd.

2. “Pilatus and Tata Announce Manufacturing of Green Aircraft”, RIA Oreanda-News, 28 August 2014, via Factiva, © [2014] RIA OREANDA.

3. “Aviation and Mahindra in aerospace cooperation”, Vayu Aerospace & Defence Review VAEROD, 28 August 2014, via Factiva, ©2014. Vayu Aerospace & Defence Review.

4. “Thales considering “larger cooperation” with HAL”, Vayu Aerospace & Defence Review VAEROD, 28 August 2014, via Factiva © 2014. Vayu Aerospace & Defence Review

5. “India,United Arab Emirates,United States : FALCON AVIATION & RAMCO SYSTEMS signed comprehensive aviation suite agreement”, Mena Report7 August 2014, via Factiva, © 2014 Al Bawaba

6. “Tata- Agusta venture gets a green signal”, Mail Today, 1 August 2014, via Factiva, © 2014 Living Media India Ltd.

7. “Cobham, TASL Announce Metallic Structures Manufacturing Agreement”, RIA Oreanda-News, 22 July 2014, via Factiva, © [2014] RIA OREANDA

8. “India, United States : P&W to collaborate with IBM on engine monitoring”, Mena Report, 18 July 2014, via Factiva © 2014 Al Bawaba

9. “OIS Aerospace Partners with Logic S.p.A, Italy for Avionics in India”, Mail Tod Wireless Newsay, 17 July 2014, via Factiva, (c) 2014. Close-Up Media, Inc.

10. “WIPRO INFRA TIES UP WITH GLOBAL AVIATION COMPANIES FOR COMPONENTS,” Indian Business Insight, 15 July 2014 © 2014 Informatics (India) Ltd.

11. “L&T forms JV with Thales,” ATSMAI, 1 July 2014 © 2014 SP Guide Publications Pvt. Ltd

JVs/alliances

23Eye on Defence |

Country-level deals and initiatives

Country Nature of transaction Additional details

Afghanistan • ― India’s DPSU, HAL, is preparing to deliver three Cheetal light helicopters to the Afghanistan Air Force.

• Unarmed helicopters will be transferred via a commercial cargo plane to the Kabul International Airport from HAL’s Helicopter Division located in Bangalore.

Germany • ― German Foreign Minister Frank-Walter Steinmeier had discussions with the Indian Prime Minister Narendra Modi and External Affairs Minister Sushma Swaraj during his India visit.

• The topics of discussion were trade, investment, high-tech cooperation and renewable energy collaboration.

• Officials from the two countries also discussed the possibility of India acquiring 126 Eurofighter Typhoon combat aircraft from Germany for about US$9.8 billion.

Japan • ― Japan will supply amphibious aircraft, produced by ShinMaywa Industries,.

• ― The specialised sea plane, the US-2, will be Japan’s first overseas military sale in nearly 50 years.

• The deal is indicative of the intent of Asia’s second-and third-largest economies, India and Japan, to counter an increasingly aggressive China.

Japan • Japan lifted the ban on HAL and five other Indian entities, which had been imposed in the aftermath of the 1998 nuclear tests.

• The ban was lifted after Prime Minister Narendra Modi’s Japan visit. The Prime Minister asserted that cooperation between the two countries in defence and security will be given a new direction.

• The removal of the ban will enable these companies to sign cooperation agreements with Japanese firms, including for the transfer of technology.

Russia • Russia has offered to upgrade India’s Project 877 EKM (Kilo Class) diesel-electric submarines designed by the Rubin Central Design Bureau for Marine Engineering.

• This offer is in light of the Indian MoD recently clearing a midlife upgrade proposal worth US$2.8 billion for 6 Russian origin submarines.

• India has nine such submarines that are in need of repair; others have suffered accidents in the past.

• The service life of many of India’s Project 877 EKM submarines can be extended up to 10 years.

The UK • India’s Air Chief Marshal, Arup Raha, Chairman Chiefs of Staff Committee (COSC) and Chief of the Air Staff (CAS) were on an official four-day goodwill visit to the UK.

• The Air Chief called on Philip Dunne, the UK’s Under Secretary of State and Minister of Defence Equipment Support and Technology, to discuss bilateral issues around the ongoing defence cooperation between the two countries.

24 | Eye on Defence

Country Nature of transaction Additional details

The US • The space agencies of India and the US, ISRO and NASA, respectively, are in discussions for potential scientific collaborations.

• The two agencies plan to mutually share data from their respective Mars probes

• In addition, the two space agencies are talking about setting up a Joint Mars Working Group to coordinate their plans for studying the planet.

The US • ― Chuck Hagel, Secretary of Defence of the US, officially visited India during August 2014.

• ― During the visit, he held meetings with India’s Defence Minister Arun Jaitley, Prime Minister Narendra Modi, External Affairs Minister Smt Sushma Swaraj, National Security Advisor Shri Ajit Doval and Chairman of the Chiefs of Staff Committee and Air Chief Marshal Arup Raha.

• Issues discussed included the US’ sales of weaponry to India and restrictions on technologies export, as well as the possibilities of joint development programs between the two countries for a maritime version of the US Army’s Black Hawk transport helicopter and a five-inch naval gun.

Sources:

1. “PM concludes successful Japan visit, leaves for home”, Press Trust of India, 3 September 2014, via Factiva 2014 ©The Press Trust of India Limited

2. “Japan lifts ban on six Indian entities”, Bureaucracy Today, 2 September 2014, via Factiva © 2014 Bureaucracy Today

3. “HAL readies Cheetal delivery for Afghanistan air force”, Flight International, 27 August 2014, via Factiva © 2014 Reed Business Information Limited

4. “Russia Plans to Supply India With A-50 Aircraft – Aircraft Company”, RIA Novosti, 26 August 2014, via Factiva 2014 ©2014 RIA Vesti

5. “Exec: Russia’s Sukhoi, Indian firms to jointly develop cargo plane”, Prime News, 18 August 2014, via Factiva 2014 © 2014. Prime

6. “U.S., India Talk Defence”, Aviation Week & Space Technology, 11 August 2014, via Factiva 2014 © 2014 Penton Business Media

7. “Russia offers to upgrade India’s Kilo class submarines”, Indian Defence Production & Acquisition newsletter, 6 September 2014

8. “India to buy bird detection and monitoring radars”, Indian Defence Production & Acquisition newsletter, 23 August 2014,

9. “India may buy AEW&C aircraft from Russia”, Indian Defence Production & Acquisition newsletter, 16 August 2014

10. “US, Indian probes prepare to go into Mars orbit”, Business Line website, 18 September 2014, http://www.thehindu.com/sci-tech/science/us-indian-probes-prepare-to-go-into-mars-orbit/article6420029.ece, accessed 19 September 2014

11. “India Considers Buying 126 Eurofighters from Germany”, RIA Novosti, 8 September 2014, via Factiva 2014 © 2014 RIA Vesti;

12. “Air Chief Visit to the United Kingdom”, Press Information Bureau website, http://pib.nic.in/newsite/AdvSearch.aspx, accessed 22 September 2014;

13. “US Secretary of Defence visits India”, Press Information Bureau website, http://pib.nic.in/newsite/AdvSearch.aspx, accessed 22 September 2014;

25Eye on Defence |

IAF taking over maintenance; will help save INR10 billion

The IAF has decided to undertake the in-house maintenance of its equipment. This will mean that it will do away with annual maintenance contracts (AMCs) signed with defence PSUs for managing its aircraft and a wide range of systems such as radars, missiles and ground equipment and other hardware. It will either get technology transferred from PSUs or take up maintenance work directly under the base repair depots (BDRs) of its maintenance command, wherever possible. The IAF will be saving over INR10 billion, earmarked for these contracts, during the next 4 to 5 years.

(Source: Shishir Arya, “Maintenance command to help IAF save Rs 1000 crore”, Shishir Arya, The Times of India, 11 August 2014, via Factiva)

Private sector players to enter military aerospace in India for the first time

The GoI has formally given its nod to the first-ever sole production of a military transport aircraft by the private sector. It will replace the IAF’s ageing Avro aircraft fleet. Global aircraft majors such as Illyushin of Russia, Antonov of Ukraine, Alenia Aermacchi of Italy, SAAB of Sweden, Boeing and Lockheed Martin of the US and the Aibus of Europe have expressed interest in the project. The chosen foreign company will have to tie up with an Indian Production Agent (IPA) to assemble the aircraft. This opens up opportunities for Indian private companies such as Reliance, Tata and Mahindra, which have operated in the defence sector aviation wings. In addition, the move would boost the capacity of private defence players in India.

(Source: “Finally, private cos fly into def sector”, The Times of India, 20 July 2014, via Factiva, © Bennett, Coleman & Co., Ltd.)

Increasing use of surveillance drones in India

The country has started using drones to monitor public gatherings and events that are difficult for law enforcement bodies to control from the ground. In the case of the recent violence in Saharanpur, Uttar Pradesh, the state police used drones for the surveillance of the region. Previously, drones

Industry buzz

were used for disaster management during the 2013 flood in Uttarakhand in India.

(Source: “India starts using drones for surveillance”, RIA Novosti, 6 August 2014, via Factiva)

India inducts fist indigenous anti-submarine warship to catch up to Chinese naval power

India has unveiled its first indigenous anti-submarine warship in a move to deter China from conducting underwater patrols near its shores. Defence Minister Arun Jaitley commissioned the 3,300-ton INS Kamorta at the Vishakapatnam port. The move comes a week after Prime Minister Narendra Modi introduced the largest indigenously built guided-missile destroyer and vowed to bolster the country’s defence. China has built 20 such warships in the past 2 years. It had sent a nuclear submarine to the Indian Ocean in December for a two-month anti-piracy patrol.

(Source: “India plays catchup to Chinese naval power”, Energy Monitor Worldwide, 25 August 2014, via Factiva, © Global Data Point)

The GoI plans to reduce stake in HAL

The GoI is looking to sell a 10% stake in HAL in the current fiscal year. In the 204–15 Union Budget, the Government aspires to collect INR434 billion from selling stake in PSUs, including HAL, and another INR150 billion from the sale of residual stake in government companies. In line with its budget plans, the GoI is expected to launch an IPO in FY15 to partially divest its share in HAL.

(Source: “GoI to sell part stake in SAIL, RINL, HAL in F15”, Free Press Journal, 6 August 2014, via Factiva, © Indian National Press Bombay Ltd)

New FDI policy to encourage foreign and domestic investments in defence

In the new FDI policy, the GoI has raised the upper limit for FDI in defense to 49%, from the earlier 26%. Furthermore, for investments involving state-of-the-art technology, the GoI will allow 100% FDI, subject to clearance by the Cabinet Committee on Security (CCS).

26 | Eye on Defence

The new policy also allows more than one Indian company to hold 51% share in defence JVs with foreign players, unlike the earlier norm that mandated that only a single Indian entity should own and control the entire 51%. This move will encourage more domestic players to enter the defence sector.

(Source: “Cabinet approves 49% FDI in defence”, Hindustan Times, 7 August 2014, via Factiva)

Indian firms investing heavily in defence

Some of India’s biggest companies are pouring billions of dollars into manufacturing guns, ships and tanks for the country’s military. In this, they are being encouraged by the new Government’s commitment to the indigenisation and modernisation of the Forces. The new Government increased defence budget by 12% to around US$37 billion in FY15.

Tata Sons plans to invest heavily in the next 3 years to expand into new areas, with focus on the defence sector. L&T is putting US$400 million into a yard to build ships for the navy, while Mahindra Group is expanding its facility to manufacture aircraft for the IAF. It is also investing in armored vehicle and radar production.

(Source: “Indian firms tool up for defence orders on Modi’s ‘buy India’ pledge”, Reuters News, 21 August 2014, via Factiva)

The US surpasses Russia to become the largest defence supplier to India

The US became the largest supplier of defence equipment to India in the last three years. Almost 40% of India’s defence budget was spent on acquiring equipment from the US, followed by 30% on acquisitions from Russia. Some of the largest deals between India and the US in the last three years are the C17 transporters deal, the P 81 maritime reconnaissance aircraft and additional orders for C 130 J special operations aircraft.

(Source: “US beats Russia as India’s largest military equipment supplier”, Mail Today, 13 August 2014, via Factiva, © Living Media India Ltd)

The MoD to develop defence export strategy

The MoD is planning to develop a strategy to promote defence exports to boost the defence industry’s revenues and capabilities. The plan is currently under discussion, and it is expected to cover the following key points:

• Setting up the Defence Export Steering Committee (DERC) to regulate weapons exports

• Setting up a national defence export facilitation body

• Finance exports to weaker nations to leverage the Line of Credit facility of the Ministry of External Affairs

• Modifying offset policies to promote exports

• Indian missions abroad to help companies export weapons

(Source: “India contemplates developing defence export strategy”, Janes website, http://www.janes.com/article/42966/india-contemplates-developing-defence-export-strategy, accessed 19 September 2014)

India to emerge as an arm exporter

The GoI has set the roadmap to transition India from a major arms importer to an arms exporter in the next few decades. Indigenisation, even to the extent of making modern transport aircraft for troops and equipment in the private sector, will take about eight years. In the last three years, even though India became the world’s biggest arms importer, FDI inflow for defence production was only around US$5 million. Nevertheless, defence production is set to improve, given that the FDI ceiling in defence has been raised to 49%. Major investments by international firms, particularly from the US and Israel, will likely bring India to a level where it would be in a position to export defence equipment.

(Source: “Arms exports to take time”, Deccan Chronicle, 18 August 2014, via Factiva)

India imposes partial ban of Finmeccanica

India officially barred Finmeccanica from bidding for its future weapon supply deals. Nevertheless, it allowed the Italian defence firm to continue with its existing contracts. The legal battle between India and Finmeccanica goes back to 2012, when the Indian Defence Ministry put on hold all

27Eye on Defence |

deals with Finmeccanica after its subsidiary AgustaWestland allegedly breached a pre-contract integrity pact concerning the purchase of 12 VVIP transport helicopters for the IAF.

(Source: “Finmeccanica ban is only partial”, The Times of India, 31 August 2014, via Factiva, © Bennett, Coleman & Co. Ltd.)

India test fires nuclear-capable Agni-1

India successfully test fired Agni-1 missile with a strike range of 700 km. Strategic Forces Command (SFC) launched the missile from Wheeler’s Island, off Odisha’s coast, as part of its periodic training activity. The test fire will further consolidate the operational readiness of the SFC.

(“Agni-1 test-fired successfully”, The Times of India, 13 September 2104, via Factiva)

Mangalayaan set to enter Mars Orbit

India’s Mars Orbiter Mission, Mangalayaan, is set to enter the orbit of the red planet on 24 September. This would give a massive boost to the country’s space program. After completing about 99.4% of its journey, the spacecraft is about 4 million km from Mars. If the mission is successful, India will be the first Asian country to go to Mars, the first country to be successful in its maiden attempt and the fourth in the world to send a mission to the red planet.

(Source: “India’s spacecraft ‘on target’ to reach Mars”, The Financial Daily, 16 September 2014, via Factiva)

ISRO advances GSAT-16 launch by six months

The Indian Space Research Organization (ISRO) plans to launch communication satellites, GSAT-16, in December 2014, six months before plan. The 3,100-kg spacecraft, meant to support public and private television and radio services, large-scale Internet and telephone operations, was originally planned to be flown up around June 2015 on a European Ariane-5 launcher. The decision to advance GSAT-16 launch came after the older satellite, INSAT-3E, expired in March this year.

(Source: Madhumathi D.S, “ISRO advances GSAT-16 launch by 6 months”, The Hindu, 15 September 2014, via Factiva, © Kasturi & Sons Ltd.)

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6th floor, HT House18-20 Kasturba Gandhi MargNew Delhi-110 001Tel: +91 11 4363 3000Fax: +91 11 4363 3200

4th & 5th Floor, Plot No 2BTower 2, Sector 126Noida-201 304Gautam Budh Nagar, U.P. IndiaTel: +91 120 671 7000Fax: +91 120 671 7171

PuneC—401, 4th floorPanchshil Tech ParkYerwada (Near Don Bosco School)Pune-411 006Tel: +91 20 6603 6000Fax: +91 20 6601 5900

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