Indian Acquisitions Explode On Land, In Air



Filled with military deals harvested over the past few years, the Indian defense pie is getting bigger and sweeter, on land and in the air. But the country faces major hurdles in making those plans real.

First, the good news: Over the next five years, India plans to renovate or replace its Soviet-era kit with $50 billion in new equipment, making Asia’s third largest economy a lucrative market for foreign companies such as Boeing and Dassault.

Despite losing out on the roughly $11 billion Medium Multirole Combat Aircraft (MMRCA) program for the Indian air force (IAF), Boeing expects $32 billion in opportunities in India over the next decade. “We see handsome opportunity for growth; not just to be able to sell and market our platforms but to be able to create true partnerships,” Dennis Swanson, international business development vice president for Boeing Defense, Space & Security in India, told DTI in an exclusive interview.

India chose Dassault Rafale to supply the 126-strong MMRCA, although a final agreement is months away and rivals like Boeing are waiting to see if it falls apart. India has several more large programs in the pipeline and the government’s order book is getting thicker with an eye toward the modernization efforts of nuclear-armed neighbors Pakistan and China. Indian defense capital expenditures, for military hardware and technology, grew at a compound annual growth rate (CAGR) of 12.57% from 2005 to 2010. Expenditures are expected to achieve a CAGR of 13.08% during the next five years.

According to a KPMG study, India plans to spend $80 billion for acquiring new equipment in the next five years. Plans call for the IAF to have more than 1,000 fighter aircraft and nearly 60 squadrons by 2030. The country has allocated 1.64 trillion rupees ($33.3 billion) for the defense sector this fiscal year through March, up from 1.47 trillion rupees last year. The budget is nearly double the 890 billion rupees in 2006-07.

The Indian government approved new regulations in February that will allow state-run defense firms to form joint ventures (JVs) with private companies, both local and overseas. The new rules follow the Defense Production Policy released in January 2011, and are aimed at fostering national industry’s ability to produce modern, globally competitive defense products. Besides JVs, the policy allows the formation of consortia and public-private partnerships within the government-approved framework, but also includes provisions for the exit of the state-run defense companies from deals.

Not surprisingly, global defense and aerospace companies such as Boeing, Lockheed Martin and Eurofighter have set up operations in India, including partnerships with private companies. Alliances help the companies meet government offset policies under which companies receiving defense-related contracts in excess of 3 billion rupees have to reinvest nearly 30% of the sum in India. Nationwide, there are currently about $10 billion worth of offset contracts in the pipeline.

The global companies also seek to use their alliances with Indian firms to add low-cost engineering and manufacturing capabilities for their global operations.

However, India is desperate to improve its own capabilities. In a parliamentary report on defense acquisitions, India’s comptroller and auditor general slammed the country’s armed forces and defense ministry for causing “inordinate delays” in procuring artillery guns for more than a decade, leaving troops with an assortment of 1970s-vintage weapons.

Pointing to discussions about the acquisition of 700 new artillery pieces that have dragged on for the past two decades, the report said that procurement of the guns still was not in the “foreseeable future.” The army has expressed a willingness to procure several gun types, including a U.S. foreign military sale for 145 155-mm, 39-caliber ultra-light howitzers from BAE Systems. Efforts to buy these guns began two years ago. The army also has been trying to procure 400 155-mm, 52-caliber towed artillery guns, and more than 140 wheeled and tracked self-propelled howitzers from global vendors.

Beyond major primes, the robust defense growth is pulling in foreign second-level contractors and leading companies from the domestic private sector. India’s Hinduja Group is poised to enter the defense and homeland security hardware manufacturing sector. Ashok Leyland Defense Systems, floated in 2008 by Hinduja, has applied for a Foreign Investment Promotion Board license to manufacture and maintain guns, rockets and missile artillery systems. The company said it would invest $2 million in a manufacturing facility, with a second phase of $10 million.

In March 2011, Ashok announced advanced talks with Chemring Group of the U.K. to establish a defense JV. Chemring, which makes munitions and provides electronic warfare, pyrotechnics and end-of-life ordnance destruction, is an existing supplier to India.

In 2010, Ashok signed an agreement with South African defense systems manufacturer Paramount Group to manufacture mine-protected armored vehicles at a joint assembly plant in India. The vehicle, dubbed Stallion, would combine elements of two Paramount mine-resistant vehicles, the Marauder and the Matador, with Ashok’s low-cost four-wheel-drive running gear and engine.

The Indian army plans to induct about 250 indigenously built main battle tanks and about 1,650 Russian T-90 tanks by 2020. It also plans to obtain 114 Light Combat Helicopters from state-owned Hindustan Aeronautics Ltd. (HAL) and shares a joint requirement for about 400 light helicopters with the air force. HAL is working on 159 Advanced Light Helicopters (ALH) and focusing on producing a fully armed and sensor-equipped ALH for the army.

Another modernization program worth watching is Future Infantry Soldier As a System (F-INSAS), which is expected to be completed by 2020. The first phase is likely to cost more than $5 billion, considering the 1.13-million-person army. F-INSAS is divided into five sub-systems: modular weapons; body armor and individual equipment; weapon sights and hand-held target acquisition devices; communications equipment for complex voice, data and video systems; and portable computers in the shape of wrist displays for soldiers and planning boards for commanders.

A global tender for direct acquisition of around 66,000 advanced assault rifles was floated in November 2011, to be followed by licensed manufacturing to equip the armed forces and 800,000 paramilitary force troops. The army further is planning to buy tripod-mounted 12.7-mm heavy machine guns to boost the firepower of its infantry battalions.

Also in November, India’s defense ministry approved a massive military modernization program that includes a comprehensive overhaul and upgrade of the army’s firepower. The revamp, pegged at about $12 billion, is awaiting the finance ministry’s approval and will be put before the Cabinet Committee on Security for approval and financial sanction, a senior army official told DTI.

The plan includes standing up four new army divisions, two of which would form part of the Mountain Strike Corps for offensive operations. The other two would be independent brigades, one in the Himalayan region of Ladakh bordering China and another in the small northern state of Uttarakhand. Once completed, it would be the Indian army’s biggest expansion along the India-China border since 1962, when the two countries fought a brief but bloody border war.

India has been adding infrastructure such as roads and military airfields close to the China border. The army raised two mountain divisions in the northeast, and three forward landing fields have opened in Daulat Beg Oldi, Fuk Che and Nyoma, all in the last three years.

In addition, India’s Defense Research and Development Organization hopes to test the Agni V nuclear-capable, long-range ballistic missile this year. It will be India’s first strategic missile with a rocket motor case built from composites, unlike the heavier metal construction used in earlier Agni missiles. Scientists at DRDO say the missile should be in service by 2014.

The Agni V’s range—in excess of 5,000 km (3,100 mi.)—represents a significant step forward in India’s strategic weapons arsenal. China has intercontinental ballistic missiles that can reach any part of India, with a range of more than 11,000 km.

“The Indian military is strengthening its forces in preparation to fight a limited conflict along the disputed border, and is working to balance Chinese power projection in the Indian Ocean,” U.S. Director of National Intelligence James Clapper told the U.S. Senate last month. But India’s deputy defense minister, M.M. Pallam Raju, said there was no need for alarm concerning China’s military infrastructure along the borders, as there was “no tension” between the countries on the borders.

Ajay Lele, a former Indian air force wing commander who currently works with the New Delhi-based Institute for Defense Studies and Analyses, told DTI that the current modernization proposal is not China-centric. “India has been trying to modernize its military infrastructure for years and this had to happen at some point.”

Photo: Dassault

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Saturday, March 24, 2012

Indian Acquisitions Explode On Land, In Air


Filled with military deals harvested over the past few years, the Indian defense pie is getting bigger and sweeter, on land and in the air. But the country faces major hurdles in making those plans real.

First, the good news: Over the next five years, India plans to renovate or replace its Soviet-era kit with $50 billion in new equipment, making Asia’s third largest economy a lucrative market for foreign companies such as Boeing and Dassault.

Despite losing out on the roughly $11 billion Medium Multirole Combat Aircraft (MMRCA) program for the Indian air force (IAF), Boeing expects $32 billion in opportunities in India over the next decade. “We see handsome opportunity for growth; not just to be able to sell and market our platforms but to be able to create true partnerships,” Dennis Swanson, international business development vice president for Boeing Defense, Space & Security in India, told DTI in an exclusive interview.

India chose Dassault Rafale to supply the 126-strong MMRCA, although a final agreement is months away and rivals like Boeing are waiting to see if it falls apart. India has several more large programs in the pipeline and the government’s order book is getting thicker with an eye toward the modernization efforts of nuclear-armed neighbors Pakistan and China. Indian defense capital expenditures, for military hardware and technology, grew at a compound annual growth rate (CAGR) of 12.57% from 2005 to 2010. Expenditures are expected to achieve a CAGR of 13.08% during the next five years.

According to a KPMG study, India plans to spend $80 billion for acquiring new equipment in the next five years. Plans call for the IAF to have more than 1,000 fighter aircraft and nearly 60 squadrons by 2030. The country has allocated 1.64 trillion rupees ($33.3 billion) for the defense sector this fiscal year through March, up from 1.47 trillion rupees last year. The budget is nearly double the 890 billion rupees in 2006-07.

The Indian government approved new regulations in February that will allow state-run defense firms to form joint ventures (JVs) with private companies, both local and overseas. The new rules follow the Defense Production Policy released in January 2011, and are aimed at fostering national industry’s ability to produce modern, globally competitive defense products. Besides JVs, the policy allows the formation of consortia and public-private partnerships within the government-approved framework, but also includes provisions for the exit of the state-run defense companies from deals.

Not surprisingly, global defense and aerospace companies such as Boeing, Lockheed Martin and Eurofighter have set up operations in India, including partnerships with private companies. Alliances help the companies meet government offset policies under which companies receiving defense-related contracts in excess of 3 billion rupees have to reinvest nearly 30% of the sum in India. Nationwide, there are currently about $10 billion worth of offset contracts in the pipeline.

The global companies also seek to use their alliances with Indian firms to add low-cost engineering and manufacturing capabilities for their global operations.

However, India is desperate to improve its own capabilities. In a parliamentary report on defense acquisitions, India’s comptroller and auditor general slammed the country’s armed forces and defense ministry for causing “inordinate delays” in procuring artillery guns for more than a decade, leaving troops with an assortment of 1970s-vintage weapons.

Pointing to discussions about the acquisition of 700 new artillery pieces that have dragged on for the past two decades, the report said that procurement of the guns still was not in the “foreseeable future.” The army has expressed a willingness to procure several gun types, including a U.S. foreign military sale for 145 155-mm, 39-caliber ultra-light howitzers from BAE Systems. Efforts to buy these guns began two years ago. The army also has been trying to procure 400 155-mm, 52-caliber towed artillery guns, and more than 140 wheeled and tracked self-propelled howitzers from global vendors.

Beyond major primes, the robust defense growth is pulling in foreign second-level contractors and leading companies from the domestic private sector. India’s Hinduja Group is poised to enter the defense and homeland security hardware manufacturing sector. Ashok Leyland Defense Systems, floated in 2008 by Hinduja, has applied for a Foreign Investment Promotion Board license to manufacture and maintain guns, rockets and missile artillery systems. The company said it would invest $2 million in a manufacturing facility, with a second phase of $10 million.

In March 2011, Ashok announced advanced talks with Chemring Group of the U.K. to establish a defense JV. Chemring, which makes munitions and provides electronic warfare, pyrotechnics and end-of-life ordnance destruction, is an existing supplier to India.

In 2010, Ashok signed an agreement with South African defense systems manufacturer Paramount Group to manufacture mine-protected armored vehicles at a joint assembly plant in India. The vehicle, dubbed Stallion, would combine elements of two Paramount mine-resistant vehicles, the Marauder and the Matador, with Ashok’s low-cost four-wheel-drive running gear and engine.

The Indian army plans to induct about 250 indigenously built main battle tanks and about 1,650 Russian T-90 tanks by 2020. It also plans to obtain 114 Light Combat Helicopters from state-owned Hindustan Aeronautics Ltd. (HAL) and shares a joint requirement for about 400 light helicopters with the air force. HAL is working on 159 Advanced Light Helicopters (ALH) and focusing on producing a fully armed and sensor-equipped ALH for the army.

Another modernization program worth watching is Future Infantry Soldier As a System (F-INSAS), which is expected to be completed by 2020. The first phase is likely to cost more than $5 billion, considering the 1.13-million-person army. F-INSAS is divided into five sub-systems: modular weapons; body armor and individual equipment; weapon sights and hand-held target acquisition devices; communications equipment for complex voice, data and video systems; and portable computers in the shape of wrist displays for soldiers and planning boards for commanders.

A global tender for direct acquisition of around 66,000 advanced assault rifles was floated in November 2011, to be followed by licensed manufacturing to equip the armed forces and 800,000 paramilitary force troops. The army further is planning to buy tripod-mounted 12.7-mm heavy machine guns to boost the firepower of its infantry battalions.

Also in November, India’s defense ministry approved a massive military modernization program that includes a comprehensive overhaul and upgrade of the army’s firepower. The revamp, pegged at about $12 billion, is awaiting the finance ministry’s approval and will be put before the Cabinet Committee on Security for approval and financial sanction, a senior army official told DTI.

The plan includes standing up four new army divisions, two of which would form part of the Mountain Strike Corps for offensive operations. The other two would be independent brigades, one in the Himalayan region of Ladakh bordering China and another in the small northern state of Uttarakhand. Once completed, it would be the Indian army’s biggest expansion along the India-China border since 1962, when the two countries fought a brief but bloody border war.

India has been adding infrastructure such as roads and military airfields close to the China border. The army raised two mountain divisions in the northeast, and three forward landing fields have opened in Daulat Beg Oldi, Fuk Che and Nyoma, all in the last three years.

In addition, India’s Defense Research and Development Organization hopes to test the Agni V nuclear-capable, long-range ballistic missile this year. It will be India’s first strategic missile with a rocket motor case built from composites, unlike the heavier metal construction used in earlier Agni missiles. Scientists at DRDO say the missile should be in service by 2014.

The Agni V’s range—in excess of 5,000 km (3,100 mi.)—represents a significant step forward in India’s strategic weapons arsenal. China has intercontinental ballistic missiles that can reach any part of India, with a range of more than 11,000 km.

“The Indian military is strengthening its forces in preparation to fight a limited conflict along the disputed border, and is working to balance Chinese power projection in the Indian Ocean,” U.S. Director of National Intelligence James Clapper told the U.S. Senate last month. But India’s deputy defense minister, M.M. Pallam Raju, said there was no need for alarm concerning China’s military infrastructure along the borders, as there was “no tension” between the countries on the borders.

Ajay Lele, a former Indian air force wing commander who currently works with the New Delhi-based Institute for Defense Studies and Analyses, told DTI that the current modernization proposal is not China-centric. “India has been trying to modernize its military infrastructure for years and this had to happen at some point.”

Photo: Dassault

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