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  • Writer's pictureDavid Keynan

The Indian Defense Industry ​ By David Keynan, Vice Chairman FIICC

In recent years, as part of its efforts to become a world power, India has significantly increased its defense budgets and has promoted a strong domestic defense industry. The Indian army is the second largest in the world in terms of number of soldiers, and the defense budget (about $63 billion in 2018) is the fourth largest in the world after the US, China, and Russia. About one-third of India's defense budget (about $ 21 billion) is directed to purchase equipment, of which $8 billion towards domestic production and $17 billion towards imports.

         Like The Indian high-tech industry, the Indian defense industry dates back to the conversion of British units into the aviation, electronics, weapons systems and munitions plants of the newly born state. Today the industry is divided into two main groups:

Government Owned Organizations (DPSUs) -

1. HAL- Quite similar to the IAI, has a licensed production of military aircraft, maintenance of military,  civilian aircraft and the creation of large assemblies for international civilian producers. The flagship products are licensed for local production of Sukhoi-30, a training aircraft for the Israeli Air Force and a military transport helicopter.

2. BEL is a military electronics manufacturer who specializes in radar, sonar, tactical communication systems etc. In recent years BEL has become an integrator of comprehensive systems ranging from control cars to communications systems.

3. Ordinance factories: According to the Indian law, the manufacturing of weapons (ammunition and firearms) is permitted only to government ordinance factories, making the Indian ammunition complex one of the largest in the world.

4. DRDO- The Defense Research and Development organization is built from dozens of laboratories, each with strong roots in technology and a military unit. In recent years, the DRDO has become a supervisory body and approves purchasing technology from external companies.

    The warm relations between the DPSUs and the Indian army has created a virtual preference for government contracts and therefore most Israeli defense manufacturers maintain good ties with them.

        In the past decade, mainly due to the Indian purchasing requirements, a series of privately owned Indian defense manufacturers have emerged, which are divided into two main groups:

1.  A defense arm of the large Indian holding companies:

     In the past decade, the Indian conglomerates have tried to enter the defense and aviation sector. Tata, which has a long-term relationship with US defense manufacturers, has launched a range of activities from armored vehicles to the main bars of the Boeing 787. Reliance, which enjoys warm relations with Modi’s government, established a joint venture with French company Dassault to create full offset procurement commitments around the Raphael deal. The Mahindra group has extensive defense activity based on the Group's automotive capabilities, as well as cooperation with a variety of foreign manufacturers. There is a delicate balance of power between government companies that are reluctant to transfer power to private companies and international manufacturers who are interested in government relations, but on the other hand, appreciate the performance capabilities of the private companies.

2.  Specialized Defense Companies:

       Most of these companies have been established around the DPSUs in Bangalore, Hyderabad, Delhi, and Pune, but mainly for international manufacturers as part of offset procurement schemes. The field of specialization range from the electronic assembly, aviation cabling, machining, metal casting and more. These companies usually enjoy a management that integrates graduates from American universities and is, therefore, are more comfortable cooperating with foreign companies.

       In spite of the above, the Indian defense industry still lacks some key capabilities such as complex systems design, radar systems design, composite materials and hard metal processing, all of which are areas in which the Israeli defense industry specializes. The top three Israeli Defense Integrators maintain large sales offices in India while establishing a set of sub-contractors that "mirror" their Israeli subcontractors.

        Barak Granot, the Commercial Consul at the Israeli embassy in India, adds that Israel has a long-term interest in cooperating with the Indian defense industry. "Cooperation in the field of defense production is of importance to both sides."



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