The orders are pouring in:
Mahindra Defence Systems' Brig. (retd.) Khutub A. Hai
reclines on one of the Rakshak light combat vehicle his company
makes for the Army
a hot Delhi afternoon, Bharat Malkani circles his index finger over
the titanium-plated Citizen on his wrist, as he talks. Malkani,
a 37-year-old masters in electronics engineering from Washington
University, is a self-styled "maverick" who quit a lucrative
career as a defence equipment analyst for McDonnell-Douglas, to
come back home. Today, Malkani, as the Managing Director of Max
Aerospace, is doing his bit for his country.
Malkani's eight-year-old firm set up the first
black box shop in India, catering to defence needs. Max Aerospace
is perhaps also the first to indigenise the technology behind the
engine gearbox for helicopter. Malkani's is one of many private
sector companies that have eagerly grasped the emerging opportunities
for India's private sector in manufacturing for the defence sector.
The Rs 4,112-crore military equipment market that has been thrown
open to private companies isn't huge. But it's growing. Estimates
suggest, the market could balloon to Rs 10,000 crore in another
five years. And people like Malkani are getting in on the ground
floor before that happens. Recently, Max and three other private
players were handed out eight letters of interest for strategic
security equipment, ranging from bullet-proofing to a variety of
vehicles, radars, warships, missiles and avionics-a clear departure
from the past when defence production was seen as the preserve of
hand-picked PSUs. Malkani's next objective: to make unmanned aerial
vehicles (UAVs) and assemble choppers.
Aerospace & Aviation Ltd
||Chopper assembly; repair
and maintenance of aircraft; manufacture of simulators, aircraft
electricals; and radio systems. Plans to get into the manufacture
||Components for satellites;
systems for missiles; torpedo launchers. Plans to manufacture
weapons systems for ships, submarines, and armoured vehicles
||Light armoured vehicles;
specialized software; and installation of surveillance centres.
Plans to make mine-proof vehicles
||Field artillery vehicles;
light recovery vehicles; and water carriers.
and water carriers.
||Building a computer-aided
action information system for the Navy
Oil Engines Limited
for Agni missiles; production of hardware and subsystems for
cryogenic rocket engines
Made In India
At Manesar in Haryana, about 31 kilometres away
from Delhi, Brig. (retd.) Khutub A. Hai of Mahindra Defence Systems
(MDA), is getting ready to wheel in light armoured vehicles for
which his company has already teamed up with Israel's Ramta last
year. Simultaneously, MDS is working on software and installation
of surveillance centres-radars and the like. Besides, the company
already has an agreement with the UK-based Lockheed Martin Info
Systems to jointly develop simulators for the forces. However, the
57-year-old Hai maintains that his company will stick to its core-manufacturing
vehicles for the armed forces-with toppings (such as surveillance
mounted trucks) never served before, as he proudly reclines on the
bonnet of one of the company's made-in-Manesar bullet-proof Rakshaks.
A light combat vehicle, the Rakshak is dear to Hai and his crack
team of researchers and engineers at MDS. He claims the Army fired
41 rounds in test trials and even exploded a grenade beneath the
vehicle, but the Rakshak managed to hold fort, "unlike the
competition, which could resist a maximum of 21 rounds."
Hai's firm is awaiting an order of 200 Rakshaks
(at Rs 15 lakh a pop) from the Army alone and has already sold 70
of them to state police and the paramilitary. MDS was set up in
2000 as a division of tractor and utility maker, Mahindra &
Mahindra, and "will break even this year, irrespective of whether
the Army's order comes through", informs Hai. Yet the former
brigadier is wary of the pitfalls. He insists, for instance, that
discrimination still exists between domestic and foreign players.
"While Indian companies receive 95 per cent of the payment
only when the item reaches the consignee and 5 per cent later, foreign
players are often handed out down payment and some are even given
letters of credit," says Hai. The brigadier has come a long
way from his first day at the 3rd Cavalry Regiment on a cold misty
morning in a Punjab railway station when the first vehicle he got
into was a Mahindra left-hand drive jeep. He's now thinking in terms
of manufacturing mine-proof vehicles and "is in the process
of acquiring a suitable chassis from outside".
"My next objective:
to make unmanned aerial vehicles (UAVs) and assemble choppers"
, MD, Max
Not very many years separate Hai from the 54-year-old
M.V. Kotwal, Executive Vice President (Heavy Engineering Division),
Larsen & Toubro, but then, the distance does. From its hi-tech
facilities in Mumbai, L&T, clearly the big daddy among the defence
manufacturers in the private sector, has been churning out defence
equipment over the last 20 years-from nuclear to aerospace research
and has worked on satellite projects like augmented satellite launch
vehicle (ASLV), polar satellite launch vehicle (PSLV) and geostationary
satellite launch vehicle (GSLV). The company has already manufactured
launching systems for the Nag missile carrier, missile carrying
systems for Trishul, multi-barrel rocket launchers for the navy,
torpedo launchers, stabilised platform for ships, designed platform
for launching the Dhanush missile, launchers for Pinaka, a multi-barrel
mobile rocket launcher system used by the Army, and components for
the Akash missile. That's quite a list, yet Kotwal rues the fact
that the gestation period in the business is very long and a lot
of time, money and effort has to be sunk in. L&T has been working
on the Pinaka project for 15 years and expects it to be completed
But L&T has already applied for licences
in five different areas-weapon systems; ships and submarines; radar,
sonar and electronic warfare; armoured vehicles and airborne systems.
The heavy engineering division accounts for roughly 10-12 per cent
of L&T's total Rs 8,359-crore turnover. And, defence, nuclear
and aerospace equipment account for roughly 20 per cent of the turnover
of this heavy engineering division. That's nearly Rs 184 crore.
At a conservative rate, says Kotwal, this proportion would increase
to 30 per cent over the next three years. L&T, reveals Kotwal,
is also planning a foray into the aircraft industry. "We plan
to develop aircraft with HAL and have started a dialogue in this
direction," he proudly proclaims.
Down south in Chennai, R. Seshasayee, truckmaker
Ashok Leyland's Managing Director, is playing his part as a private
supplier to the armed forces. The company started out with supplies
of Hippo, the popular heavy trucks for a general service role way
back in the seventies. Since then, it has made inroads into the
production of field artillery tractors, high mobility vehicles,
light recovery vehicles, water carriers and the like. "The
Stallion 4x4 logistics vehicle has come to be the mainstay of the
Army and in the last five years, more than 20,000 vehicles have
been inducted into the Services," says Seshasayee. Defence
equipment production accounts for 20 per cent of Ashok Leyland's
The Rs 4,112-crore military
equipment market could balloon to Rs 10,000 crore in the next
For Mumbai-based Tata Engineering, the opportunity
lies in the high-tech needs of the defence sector. It isn't a newbie
in the business, having supplied equipment to the forces since 1958.
But now, says Executive Director, commercial vehicles business,
Ravi Kant, it is actually looking at bigger things. While, like
other players, it is exploring opportunities in surveillance, armouring
and mining, Kant believes Tata Engineering is capable of developing
a 100 per cent indigenised combat vehicle for the army, replicating
its civilian world success with the 407 light commercial vehicle,
which after its introduction in the 1980s, outsold the LCVs made
by Indo-Japanese joint ventures.
Ready To Explode
India Inc.'s private sector warriors also include
software major Tata Consultancy Services, which is building a computer-aided
action information system for the Navy; Kirloskar Oil Engines Ltd.,
which specialises in ship engines and, strangely enough, Godrej
Aerospace under Godrej & Boyce, which reportedly provides a
critical application for the Agni missiles. According to the Indian
Space Department, Godrej is one of the companies that contributed
to the production of hardware and sub-systems for India's cryogenic
"We plan to develop aircraft
with HAL and have started a dialogue in this direction"
, Exec. Vice
President (Heavy Engineering), L&T
Defence manufacturing in India began with the
establishment of 39 ordnance factories and eight defence PSUs. The
idea was to indigenise defence production through state-owned enterprises.
Although the public sector units did involve a few private players,
their participation was limited to manufacturing nuts, bolts and
washers. However, in May 2001, the government decided to open up
segments of the defence sector for private participation and allowing
FDI of up to 26 per cent. Says Narendra Sisodia, Secretary (Defence
Purchase & Supply): "This signals a complete paradigm shift
in the role of the private sector-from being mere suppliers of raw
materials, components and sub-systems, to becoming partners in the
manufacture of complete defence equipment and systems."
Still, the Confederation of Indian Industries
(CII), which is spearheading the privatisation drive by assimilating
the various domestic companies into a consortium, remains skeptical.
Says a concerned S. Sen, Deputy Director General, CII: "The
26 per cent FDI can never work out unless the Ministry of Defence
indicates the projected demand." Moreover, he explains, procedures
need to be simplified and the prevailing distinction between the
private and foreign players blurred. "When a foreign player
quotes an equipment price, it is exempted from paying customs duty,
unlike domestic players," he complains.
Of India's current defence procurement of Rs
34,707 crore, 70 per cent is imports. Out of the remaining 30 per
cent, a sizeable chunk goes to the psus, leaving a minuscule amount
of Rs 4,112 crore to the private players. But the government's policy
change has signaled opportunities and Indian businesses-both entrepreneurs
like Malkani as well as heavies like L&T-are upbeat about that.
Indeed, the Ministry of Defence estimates that the rules of the
game could get reversed by 2020 when 70 per cent of defence equipment
could be made indigenously and 30 per cent procured from outside.
Says a defence analyst Atul Bharadwaj: ''Indigenously manufactured
defence equipment on an average would cost half, if not less, that
of their imported counterparts.'' But Bharadwaj also admits that
privatisation in defence is also a mechanism to prop up industrial
growth, bypassing the rigorous WTO route. "Defence and national
security do not come under the purview of the WTO," says the
38-year-old analyst. As for the future, emphasises Bhardwaj, defence
will operate only on its "core competency"-maintaining
and managing combat operations. The rest, he is categorical, "will
be privatised." India Inc. should be getting its ammo ready.