About 60% of the defence equipment requirements of the country are met by imports, making India one of the largest arms importers in the world.

India has the third largest armed forces in the world and a defence budget that is not proportional to this status. For fiscal 2015-16, the figure is Rs 2.47 trillion (USD 40.07 billion), a rise of 7.7% over the previous year. In percentage terms this is only 1.75% of the GDP, whereas the United States spends 4% its GDP on defence, China 2.5% and Pakistan 3.5%. The Indian Parliament’s Standing Committee on Defence has repeatedly recommended the gradual raising of defence expenditure to 3% of the GDP, which is a pragmatic suggestion, given that the forces are in need of modernisation. Experts feel that the budgeted amount is not adequate for the process of modernisation.

About 60% of the defence equipment requirements of the country are met by imports, making India one of the largest arms importers in the world. According to a study conducted by the Stockholm International Peace Research Institute, India topped the list of weapons importers and accounted for some 15 per cent of worldwide arms imports from 2010 to 2014. But despite this, the requirements of all three wings of the forces – the army, air force and the navy, are not met, and the large percentage of imports in a strategic sector is detrimental to the national interest.

Until the turn of the century defence manufacturing was a monopoly of the public sector undertakings, ordnance factories and R&D laboratories, with just some low end supplies of machined components, etc., going to the private sector. This monopoly ended in May 2001 when the defence industry was thrown open to investment by the private sector with the government permitting 100% equity with a maximum of 26% Foreign Direct Investment (FDI) component, both subject to licensing. Further impetus was given in 2006 with the Defence Procurement Procedure (DPP) and the concept of offsets (the defence equivalent of Make in India) to encourage local manufacturing by the foreign technology partners. But such policies, including Defence Production Policy 2011 and 2013 plus the Offset Policy Guidelines (2012), which elaborated and improved upon the earlier offset policy of 2006, have not really changed the status quo. Though all these measures did create a buzz and attracted considerable interest, lack of clarity and abundance of small print has ensured that no significant impact has been made to reduce dependence of imports.

It is against this background that the policy initiatives of the present union government led by Prime Minister Narendra Modi have to be seen and evaluated. One of the early and major decisions was the raising of FDI in defence sector to 49% through government route and above 49% through approval of Cabinet Committee on Security (CCS) on case-to-case basis, wherever it is likely to result in access to modern and state-of-the-art technology in the country. Within a year of taking over, the government issued 73 industrial licences in the defence sector compared with just 50 in the period 2011 to May 2014. These included 16 proposals with potential investment of over Rs 613 crore, among them Samtel Thales Avionics, Tatas and Pipavav Defence, which were stuck for several years. The licences are for manufacture of arms and ammunition, and equipment such as helicopters, aircraft, radars, bullet proof jackets and helmets, ammunition fired from artillery, tanks, helicopters and aircraft, rockets and missiles. The government also increased the initial validity period of industrial license for defence sector to seven years from earlier three years, further extendable up to three years, in view of the long gestation period of defence contracts to mature.

Among other recent developments in the defence equipment domain, contracts awarded for procurement or cleared for local manufacturing are:

*Airbus Helicopters joined hands with Mahindra Group subsidiary, Mahindra Defence, to produce helicopters in India in order to meet the country’s military requirements

*Clearance for purchase of four additional Boeing P-8I Neptune long-range maritime patrol aircraft for Rs 43.8 billion: a follow-on order to eight similar platforms the navy ordered in 2009 for USD2.1 billion via the US Foreign Military Sales (FMS) route

*Tata Motors bagged an order worth over Rs 900 crore to supply 1,200 multi-axle trucks to the Indian Army, the single largest order awarded to an Indian company in land systems by the Indian army comprising 1,200 units of high-mobility 6x6 multi-axle trucks

*Larsen & Toubro has been awarded Rs 1432 crore contract for supply of offshore patrol vessels for Indian Coast Guard, for the design and construction of seven offshore patrol vessels (OPVs)

*Magellan Aerospace has signed an MOU with Mahindra Aerospace to develop major structural assemblies, machined components and fabrications for the global market

*The purchase of Boeing’s Apache and Chinook helicopters for the IAF in a deal worth around $2.5 billion, the single biggest defence contract signed in the first 16 months of the NDA government, and

*Replacements for Bofors L-70 40 mm and Soviet-era ZU-23 23 mm AA guns, to be made locally via a joint venture (JV) between a private sector Indian company and an overseas original equipment manufacturer (OEM).

The Tata Group, Mahindra Group, Larsen & Toubro (L&T), Bharat Forge and Reliance Group are among major aspirants for defence projects under the Make in India initiative and have tied up with various global companies for technical collaborations and joint ventures. Among the existing foreign collaborators in India are Airbus (France); BAE India Systems (UK); Pilatus (Switzerland); Lockheed Martin, Boeing India and Raytheon (USA); MBDA (France); and IAI and Rafael (Israel).

The Mahindra Group’s association with the defence services dates back to 1947 and it is one of the largest private sector suppliers to the government with a portfolio of armoured vehicles, land and naval systems, defence electronics and communication systems. Commenting on the collaboration with Airbus Helicopters, S P Shukla, Group President, Aerospace and Defence Sector and Chairman, Mahindra Defence Systems Limited, said “We have extensive expertise in engineering, automotive and fixed-wing sectors and have made substantial investments in aero components manufacturing, while Airbus Helicopters offers best-in-class rotorcraft platforms. Together, we will produce India’s next-generation helicopters that will not only answer our country’s defence needs but will also have the potential for exports in the future.”

Bharat Forge, which had earlier manufactured shells for the Bofors guns at the height of the Kargil crisis as part of an emergency requisition by the army, is now ready with artillery equipment that has been undergoing tests and the company is in contention for the guns contract, for which it has a joint venture with Elbit Systems, an Israeli defence equipment maker.

It is not just large corporates that are engaged with defence manufacturing. A lot of MSMEs are also associated with the defence sector as suppliers of equipment and components. Kolkata-based Oscar Equipments Pvt Ltd, an ISO 9001: 2008 certified company and a specialised manufacturer of hydraulic and pneumatic cylinders, rotary and linear actuators, electro-mechanical actuators and hydraulically operated equipment, caters to the requirements of the defence forces for their special material handling requirements. With its highly dedicated workforce, the company caters to the needs of special hi-tech projects of defence establishments, DRDO units and other strategic applications.

Chennai-based Valeth Group of Industries, one of the leading manufacturers of advanced composite materials and products is another example. The company, which recently celebrated 25 years in the industry, is a supplier of advanced composite materials and products for space, aerospace, defence, marine, aviation and various other fields. Peter P Valeth, Chairman and MD of Valeth Group of Industries, during the company’s silver jubilee celebrations, said, “Starting from a small scale enterprise concentrating on ablative material, today we are standing on the threshold of being a prominent player in the field of aerospace and defense products.”

Bengaluru based Hind High Vacuum Co Pvt Ltd too recently announced that it has developed DLC (diamond like carbon) coatings for the Defence/Military industry. Entirely designed and developed at the Bengaluru facility of HHV, DLC coatings are used in thermal imaging applications where harsh environments may cause damage to standard AR (anti-reflections) coatings. “DLC coating not only acts like AR coating but also protects the whole system from environmental aggressive effects, thereby improving the overall efficiency of the system,” said Mr Prasanth Sakhamuri, Managing Director, HHV. “We are proud to have indigenously developed such a sophisticated coating targeted at the Defence/Military industry.”