From traditional Indian automakers to large construction giants, Indian private companies are gearing up to tap into the multi billion-dollar Indian defence market.
Even though, firms like Tata, Mahindra and Mahindra, Ashok Leyland, Larsen and Toubro among others have been associated with the Indian military for some years, industry leaders point out that in the coming years, defence would turn out to be a huge market, in which the private players will play a major role.
While the Union Budget 2007-2008 has earmarked Rs. 96,000 crore (Rs 960 billion) for national Defence, industry Chambers like CII, estimates that total defence spending over acquisition and purchases for the next five years would be approximately Rs 1,88,000 crores ($ 45.85 billion).
And, experts point out that this market potential is driving Indian firms to set up R&D and ink JVs with foreign defence players eager to offer their products to the Indian military.
"Though industry estimates have stated that in the next 3-5 years, Indian defence spending is likely to increase to around $ 40 billion, our analysis say that the market figures are underestimated," Mahindra and Mahindra, Vice Chairman and Managing Director, Anand Mahindra told PTI.
He adds, "The market can anywhere be around $ 100 billion and this gives the private players like us a huge market to tap into." He says, at present Defence contributes to just about Rs 100 crore (Rs 1 billion) to the firm's annual income. Not just the Mahindras, but Tata, one of the largest private industrial groups in India, is also keen to tap into the defence market.
"Defence is one sector that we are keenly looking at. We have been associated with this sector for a very long time. We will continue to play a major role in this sector in the coming years," says V S Noronha, Head of Defence Business in Tata Motors, refusing to elaborate.
Even, Ashok Leyland, one of the largest heavy vehicle manufacturers and a supplier of heavy vehicles to the Indian armed forces, is now focusing on building light armoured vehicles for the Indian army. The firm is also working on developing a mine-protected vehicle and is in talks with overseas firms to partner it in the project.
"The defence market offers great growth. We have been front-runners in offering land systems to the Army. We have already launched our new vehicles including a light specialist vehicle, which is currently in trial with the army. We have set out eyes not only on the domestic market but as well as the foreign market," says B. Khaitan, Special Director, Specialist Vehicles, Ashok Leyland.
Defence experts point out that with liberalisation and opening up of the defence market to private players, a new and huge market previously dominated by public sector has opened up for the Indian private firms.
Experts also point out that after considering the capital intensive nature of defence industry sector as also the need to infuse foreign technology and additional capital including FDI, Government decided in May, 2001 to open Defence industry for private sector participation up to 100 per cent with FDI permissible up to 26 per cent - both subject to licensing.
Now with this policy change all defence related items have been removed from Reserved Category and transferred to the licensed category, as a result of which private sector can manufacture all types of defence equipment after getting a licence, they say.
"After the announcement of policy changes, there has been a paradigm shift in the role of private sector in the field of indigenisation, that is, from the role of supplier of raw materials, components, sub-systems, they have now become partners in the manufacture of complete advanced equipment/system," says a senior CII official.
"The market is still growing for the private players. There are a few hiccups, which the government needs to take care of. We as a firm are not associated with defence just because of the market alone but also because of a national commitment," says Jayant D Patil, Vice President, Heavy Engineering Division, L&T.
L&T is one of the largest private players in the defence market especially in Naval systems. Agreeing that the income generated from defence products is very small to the annual turnovers of the companies, officials point out that, it is the growth potential of the market that excites them.
"The turnover generated by Mahindra Defence Systems (MDS), which is our defence arm is small compared to our overall revenue. But, we are investing in R&D to offer the best services to our armed forces. In terms of market, then it is the future that we are looking at," says Mahindra.
M&M is hoping to bid for an estimated $ 3 billion for land systems to the Indian military in the next 3-5 years with its new stable of five specialised armoured vehicles - Mahindra Axe, Marksmen, Striker, Up Armoured Scorpio and Mine Protected Vehicle. MDS, which is primarily into land defence systems, like bulletproof vehicles among others, is aggressively looking at diversifying into other peripheries, Mahindra added.
Similarly, Tata Motors recently unveiled its new range of tactical and armoured vehicles, which can be used by armed forces for special missions and to turn the tide in counter insurgency operations.
This is the second major foray by the company in the defence sector after it won the bid to make Pinaka multi barrel rocket launchers. Though there are reports that the Tatas plan to form an independent defence industrial entity, its top executives present at the launch were tight lipped about the matter.
But, it is not just the big players with deep pockets who are concentrating on the defence sector, but also much smaller firms. "Defence is one sector where we see ourselves growing. In terms of revenue, it is a small market for us at present but we are constantly coming out with new products for the armed forces," says Vishwanath S H, Marketing Manager, EDS Technologies, a Bangalore based company, which is into making computer software for Defence establishments.
Senior officials of the firms that PTI spoke to admit that it is not just the domestic market that attracts them but also foreign markets. "Domestic market is a different thing. Overseas markets also throw up huge scope for us to offer our products. It is now becoming a win-win situation for us," says a senior official of a major private defence player.