With the Indian economy slowing down, top companies are now eyeing the "recession-proof" defence sector to prop up their topline. Indian companies are targeting orders worth $247 billion expected from the Indian defence establishment in the next four years which, they say, will help them to fight the ongoing slowdown.
While many companies like L&T and Pipavav Defence have already set up huge infrastructure, others like the Tatas and Mahindras are expected to follow suit.
Last week, Pipavav Defence became the first Indian company to start construction of a war ship for Indian Navy in its Gujarat facility. Till date, construction of warships was a domain of public sector companies and will take many years to exhaust the order backlog from navy and coast guard.
Its rival L&T – which set up a facility in Tamil Nadu – is also getting into the act to bag orders from Indian Navy, coast guard. Till now, these orders were going to public sector companies or to foreign companies. The average cost of each war ship is around Rs 3,000 crore onwards which is not including the missiles and gun systems.
While L&T is closely associated to build INS Arihant – India's first nuclear powered submarine, Pipavav has started the production of a navy patrol vessel - fitted with 76mm guns. The Oto Melara guns will be state of the art and will be delivered to Indian Navy. Unlike time taken by other countries, the aim is to deliver the vessel before time, say Pipavav officials.
Alion USA is the provider of technology and the ship construction in Gujarat will be overseen by Indian Navy's well qualified naval engineers, architects and constructors, say company officials.
Analysts say the construction of warships at the private yard is expected to generate huge interest among other players in the naval defence field both in India and across the globe. Pipavav is working to build warships like frigates, destroyers and aircraft carriers taking the advantage of its mammoth dry docks which is second largest in the world.
Pipavav became the first company in the country to receive the licence and contract to build warships and also the first private company to form joint venture with the state owned naval defence major Mazagon Dock Ltd. This JV will now bid for orders with other private companies from Indian Navy and coast guard.
Taking a cue from other countries which are promoting their home grown companies, the Indian government is also encouraging Indian companies to enter the defence sector. Apart frm alloweing 49% FDI, the Ministry of Defence policy has allowed private sector to participate in the defence production. Many big players including Reliance, Tatas, the Mahindras, Piramal, Godrej, Hinduja, Wipro, Kalyani Group have evinced interest to get into defence production in a big way. These orders include fighter jets, submarines, frigates, aircraft carriers, offshore patrol vessels, Corvetts, missile systems, and other military hardware.
Besides, analysts say the Defence Procurement Policy announced this year gives right of first refusal to Indian companies and till Indian companies refuse, military hardware cannot be imported. This is a big shift as for last 65 years, India has been dependent on countries like Russia, UK, Germany, Italy, France, USA etc. for 80% of its military hardware requirement.
The recently announced FDI policy for defence is also expected to generate lot of interest among the investors globally, though 49% FDI is subject to approval by Cabinet Committee on Security. Global private sector companies get a lot of support from their own governments.
The big boys of the global industry including Lockheed Martin, BAE, General Dynamics, Northrop Grumman, Raytheon, ThyssenKrupp and Babcock get a lot of support from their own governments to bag orders from all over the world.
Similarly, analysts say, India can also develop few large and capable private sector enterprises in the defence and aerospace industry which is vital for India's national security and in future go global to bag orders.
