India has drawn up a shopping list for tens of billions of dollars of foreign fighter jets, armored vehicles, submarines and helicopters, but it will only sign the checks if they are made in India. The world's largest defense importer has announced a new policy inviting foreign defense manufacturers to set up shop as minority partners in India.
It initiated the bidding process for submarines in July. Such deals would boost job creation and bring key defense technologies into India. Foreign companies say the opportunity is too good to miss. Europe's Airbus Group, angling to sell its Panther helicopters, has said that if it wins a contract worth several billion dollars and expected to span at least a decade, it would make India its global hub for the multi-purpose choppers. The company currently builds them in Marignane in France. Lockheed Martin says if its F-16 fighter jets are selected -- it will likely compete with Saab for that order of close to $15 billion -- it will "support the advancement of Indian manufacturing expertise."
Germany's ThyssenKrupp Marine Systems and France's Naval Group are eager to compete for a contract of up to $10 billion to build submarines in the South Asian country. Luring foreign defense companies to build in India would be a major and much-needed boost to the economy. Prime Minister Narendra Modi, with less than two years to national elections, is under intense pressure to create more jobs for the hundreds of thousands of people joining the workforce every month. Growth in the first three months of 2017 slowed to 6.1 percent. Experts expect further disruption as businesses adjust to a new nationwide goods and services tax launched in July.
India is seeking to follow other countries that created defense sectors by backing a few big players with long-term defense orders and allowing smaller businesses to develop around them. India currently imports at least 90 percent of its defense equipment, including parts for assembly. It is banking on foreign companies to bring in new technology. The Indian government wants to bring local companies up to global standards to compete for the next round of orders.
China also built up local defense equipment manufacturing by forcing international firms to link up with Chinese companies and to hand over technology. In India's case, the foreign players are still pushing for ownership. The other hurdle in the policy is that transferring defense technology requires government approval. In a strategy similar to one followed by the United States, India puts the onus on foreign partners to get the green light from their respective governments, a challenging task for them.
"But if you want indigenization, this is the only way you'll get it," said PwC's Mathur.