On an industrial estate in Hyderabad in south India, work is underway on developing advanced technology that replicates the experience of driving a tank through a war zone or using firearms against enemies in jungle terrain.
Zen Technologies is a two decade-old Indian company that designs and manufactures training equipment used by the country’s armed forces, including flight, combat vehicle and hand grenade systems.
But India is keen to see firms designing and building more home-grown military equipment beyond simulators.
India is one of the world’s largest importers of weapons and manufacturing is still at a nascent stage, but there are strides being made in the defence sector as the country finally starts to try to break away from its dependence on imports.
“For the first time in the history of Indian defence procurement the importance of design and development has been recognised by the ministry of defence,” says Ashok Atluri, the managing director of Zen Technologies, who is very optimistic that India can transform itself into a top producer of weapons. “This is going to ensure huge inflow of funds into research and development and will ensure that the scientific talent in India is engaged in developing cutting-edge technologies in defence. India can become a hub for trail-blazing defence exports from being a destination for outdated defence equipment.”
He says Zen has its own plans to “grow its exports business and emerge as a reliable indigenous defence player for supplying products to the Indian and global market”.
New Delhi has hugely ambitious targets to reduce its defence imports. Narendra Modi, the prime minister, has said that its aim is for India to manufacture 70 per cent of its weapons at home by 2020. Currently, it relies on imports for about 70 per cent of its equipment, which is extremely costly for the country.
Mr Modi is pushing for India to become a global manufacturing centre under his “Make in India” campaign, and the defence and aerospace industry is a key part of this. Two years ago, India opened up the defence sector to 49 per cent foreign direct investment (FDI) from a previous limit of 26 per cent. In June this year, the government liberalised the rules even further, permitting FDI of 100 per cent in the sector.
The role of the private sector in India’s defence industry is growing and Indian firms are eager to cash in the opportunity.
“Tata, Mahindra, Hero and Reliance are spending a lot on enhancing the defence manufacturing in India, bidding for big contracts and partnering with foreign companies to assemble or manufacture in India,” says Ajay Pal Singh, who used to work as a scientist for India’s Defence Research and Development Organisation before becoming an entrepreneur.
Larsen and Toubro (L&T) and Godrej are other Indian firms that have entered into weapons manufacturing.
But Mr Singh says that for the time being at least Indian armed forces need to keep buying from abroad to “stay modern”.
Over the next eight to 10 years, about US$200 billion is to be spent on defence capability expansion, and a further $150bn on ramping up homeland security capability, according to Roland Berger Strategy Consultants.
“India is seeing significant growth in the aerospace and defence opportunity currently,” says Wilfried Aulbur, the managing partner for India at Roland Berger. “On an extremely broad level, this growth is due to the combination of three major factors, which are sustained geopolitical threats, increasing internal security threats and significant spends needed to address the need for new equipment as well as for addressing obsolescence related issues.”
India recently proposed a $15bn deal where it would buy up to 300 fighter planes from abroad on the condition that the aircraft are made in India with a local partner, Reuters reported a week ago, citing air force officials. India’s air force desperately needs to boost its operational strength after it reduced an order with France’s Dassault for fighter jets to just 36 planes from an original order of 126. In a major development for India’s defence industry, Reliance a month ago announced a joint venture with Dassault to help build the planes.
American military industries firm Lockheed Martin is talking to India about partnering with the country to produce its F-16 jets in India, according to reports. The US is the second-biggest supplier of arms to India after Russia, which India has been heavily dependent on for arms imports since the Soviet era.
And Sweden’s Saab has indicated that it would be keen to make its Gripen fighter jet in India.
The Reliance Group chairman Anil Ambani said a couple of weeks ago that Reliance has identified two sites in the central state of Madhya Pradesh for setting up defence manufacturing facilities.
India last month signed defence deals with Russia worth billions of dollars, including for Russia’s S-400 air defence missiles and for four warships, as well as an agreement for Russian Helicopters and India’s Hindustan Aeronautics to jointly produce military helicopters to be used by India.
Ketan Makhania, the head of India defence collaboration at Cyient, an Indian engineering company, says that the ratio of imports to indigenous production is improving and that defence exports are set to grow as India increasingly focuses on ramping up manufacturing within the country.
But there is more that will need to done to inspire confidence in Indian defence equipment, experts say.
“The absence of credible quality assurance and a certification agency and process is one of the main challenges when we talk of defence manufacturing in India,” Mr Makhania says.
There are promising signs that there is scope for much growth, with the UAE showing interest in India’s defence manufacturing industry. Last year, India and the UAE revealed plans to cooperate on defence issues and manufacturing following a visit by Mr Modi to the UAE, when the two countries announced plans for a $75bn fund to invest in Indian infrastructure and production of military equipment and space technology. Reliance Defence and Abu Dhabi Ship Building last year signed an agreement to look at a possible strategic partnership to build naval ships for the GCC.
With British prime minister Theresa May’s three-day visit to India starting today, there are expectations that defence deals between the UK and India could emerge.
But there are hurdles that the sector is facing.
Mr Singh says that the “massive corruption involving imports results in more inclination to buy [from abroad rather] than build” weapons in India.
Creating indigenous technologies is also difficult, he says. India for the past 30 years has been trying to produce its own single-engine fighter plane, but only two of these Tejas combat jets have been delivered, despite there being an order for 140 aircraft.
“Our neighbourhood is one of the most disturbed ones in the world, so India prefers to be prepared all the time, rather than affording a gestation period for development and manufacturing of new technologies,” Mr Singh says. “And the research and development budget is too low compared to any other large country.”
India lags very far behind Russia, France and China as a defence exporter, he adds. Still, he does see potential for the market. “I think India will slowly increase its share of global defence exports, but it will still remain small for the next few years.”
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