India Renews Bid to End Its Military's Dependence on Foreign-Made Weapons

India restated its aim to reduce its dependence on foreign arms makers in part by drawing private domestic companies into building weapons for the world’s third- largest active-service military.

While “we will protect and strengthen” India’s eight state-owned arms companies, Defense Minister A.K. Antony told reporters in New Delhi, the private sector will be offered “more and more a level playing field” in bidding for defense contracts. Business groups such as theConfederation of Indian Industry have urged the government to end preferences for state- run companies and let private businesses bid equally for sales.

An eight-page policy paper restated government assertions that defense contracts will be given to Indian companies whenever possible. Weapons development projects expected to exceed 10 years “will by and large be developed within India,” it said. The government will establish a fund “to support research and development,” including by small- and medium-sized companies, the policy said without giving details.

While India has built world-class industrial and software companies such as the Tata Group andInfosys Technologies Ltd., the defense sector is dominated by the state-owned companies and nearly 40 ordnance factories that provide mostly low-technology equipment, said Mrinal Suman, an adviser on arms procurement at the Confederation of Indian Industry.

$220 Billion Modernization

India, which wields the world’s 10th-largest military budget at $32 billion this year, has failed in a decade-long campaign to reduce its dependence on foreign suppliers, which Antony says provide about 70 percent of Indian arms, measured by cost. “This kind of large-scale dependence” on “foreign sources for defense supplies is unacceptable to a country like India” as it seeks a larger role in global politics, Antony said.

India is likely to spend nearly $220 billion by 2017 as part of an “ambitious military modernization plan,” said a report last year by the industry confederation and Deloitte Touche Tohmatsu India Pvt.

India is preparing to spend $11 billion on the world’s biggest fighter-jet purchase in 15 years. The U.S.-based Boeing Co. and Lockheed Martin Corp. are vying against France’s Dassault Aviation SA, Russia’s United Aircraft Corp., Sweden’s Saab AB and the European Aeronautic, Defense & Space Co., based in France, the U.K. and neighboring countries.

Leaders’ Lobbying

Since June, British Prime Minister David Cameron and presidents Barack Obama of the U.S.,Nicolas Sarkozy of France and Dmitri Medvedev of Russia have visited New Delhi in part to lobby for sales to India by their countries’ arms-makers.

The policy announced today follows a Ministry of Defense decision last week to ease a requirement for foreign arms providers to invest part of their profits from India in local defense companies. The ministry now will let the foreign companies aim those investments, called offsets, in aviation or security-related companies.

“That revision is not going to create new foreign investment opportunities because the manufacturers of internal security products -- bulletproof vehicles, counter-insurgency equipment -- are defense-related companies that already were eligible for offsets,” said Suman, a retired army major-general. “In aviation, India has no private manufacturer that can receive investment, as our only aircraft builder is Hindustan Aeronautics,” a state-owned company.

Tejas Jet

The new policy was announced three days after India took a final step toward launching its domestically developed Tejas combat jet that took 27 years to develop. Antony formally awarded the plane an airworthiness certificate, allowing it to be flown by the air force as it gets fitted with its full configuration of weapons systems.

The delays in completing the Tejas included India’s abandoning an attempt to build its engine at home, and powering the plane instead with a U.S.-built General Electric engine. The Tejas is being built by Hindustan Aeronautics.

India has issued repeated policies designed to pull the country’s private firms into making arms for its forces. By last July, nine years after the government allowed private firms to bid for defense contracts, it had issued documents approving 144 deals with private firms “for manufacturing of various defense items,” Antony told parliament July 27.

India in 2001 allowed bidding on arms contracts by domestic private companies that have foreign ownership no greater than 26 percent. Antony last year rejected a trade ministry proposal to let such foreign direct investment rise to 74 percent as a way to improve Indian defense manufacturing and accelerate technology transfer to the country.