1. Contents title
Contents subjects
March 2015
Eye on Defence
Dear readers,
The navy is the most indigenized force with capable design bureaus and
a vibrant industrial base serving the various needs of Indian shipyards
engaged in manufacture of warships and other auxiliary vessels. However,
one area in which the capability of the naval force has lagged behind,
and in the recent times suffered several setbacks, is the force projection
of submarines. This edition of Eye on Defence tries to gauge the current
inventory of the Indian armed forces in terms of the force readiness of
submarines and also lists the various acquisition programs currently in the
pipeline. Probable competitors of these programs are highlighted along with a capability map of
Indian companies engaged in this segment.
India’s Union Budget for the fiscal year 2015–16 was presented in the Parliament on 28 February
2015. With a view to meet industry expectations, the Finance Minister unveiled a pragmatic
Budget with a key focus on giving an impetus to the manufacturing sector and bringing about an
investor-friendly economic climate in the country. The Government has increased its allocation on
defence expenditure to US$41.12 billion as compared to last year’s figure of US$ 38.17 billion
— an increase of 7.74%. The Finance Minister mentioned in his speech that it is the intent of the
Government to promote transparency and the “Make in India” initiative in defence manufacturing.
This edition of the Eye on Defence studies the effect of the Budget on the armed forces’ planned
acquisitions and identify lacunae in the budgetary planning process, which if removed, may lead to
enhanced efficiency and accountability.
Among the regular sections, we have included details of applicants for industrial licenses, RFIs/
RFPs released, new projects and investments, joint ventures (JVs) and alliances, country-level
deals and the latest buzz in the industry.
I hope you find this issue useful. It has been our constant endeavor to make this publication
increasingly relevant for you, and we would appreciate your comments and suggestions in this
regard.
K. Ganesh Raj
Partner and Leader
Aerospace and Defence practice
Contents
Introduction 1
Indigenous submarine capabilities and
warship- manufacturing programs:
issues and concerns 2
Defence budget 2015–16 11
Request for information 16
Request for proposals 17
List of Industrial Licenses (ILs) filed in
November 2014 – February 2015 19
New projects/investments
/contracts 21
Joint ventures and alliances 23
Country-level deals and initiatives 26
Industry buzz 28
2. 2 | Eye on Defence
Naval capability plan
The Navy’s Maritime Capability Perspective Plan (MCPP) 2005–
2022 envisages that force levels will not to dip below the existing
127 warships (including 13 conventional submarines, 65 of which
comprise major combatants such as aircraft carriers, destroyers,
frigates and corvettes). The navy owns around half the submarines,
destroyers and frigates it needs at present. Considering their
service lives of around 30 years and replacement of warships
that are to be decommissioned after completing their life-cycles,
around five ships need to be acquired each year just to replace old
warships.
The need to have a credible submarine force is recognized by the
defence establishment as the existing inventory has been depleting
at a very fast rate. Projections indicate only five to six of their
number will be operational by 2020. The focal point of the Indian
Navy’s modernization plan revolves around acquisition of ships/
vessels and submarines as well as strengthening its aerospace arm.
In the recent past, the Navy’s submarine capabilities have been a
matter of serious concern for various reasons including delayed
procurement planning, delays in their production resulting in ageing
inventory, over-exploitation, and lack of maintenance as well as
spares and indigenous capabilities. The Comptroller and Auditor
General (CAG), in its report for the year 2006–07 (published in
2008), noted that India’s submarine fleet is ageing, and by 2012,
63 % of the vessels would have completed their operational lifespan.
It pointed out that if the construction plan for new submarines is
not expedited, around two-third of the existing fleet would have
completed their prescribed life by 2012 by the time the first
new submarine is inducted according to the present schedule.
Furthermore, the CAG indicated that due to the ageing fleet and
prolonged refit schedules, the average operational availability of
submarines is as low as 48%.
Currently, availability of submarines with the Indian Navy is
much below the envisaged force level and a large number in the
existing fleet will become due for de-commissioning very soon,
leading to a sharp decline in the fleet. It seems that ageing is not
the only factor adversely affecting the submarine fleet. The CAG
has also discovered that they are being overexploited. Timely
refit and maintenance is essential for ensuring their operational
availability and readiness. In the absence of these measures being
implemented, we have seen slippages in the domain. This assumes
grave importance on the backdrop of a series of accidents involving
various naval platforms, e.g., submarines INS Sindhurakshak and
Sindhuratna.
According to the CAG report of 2008, the Indian Navy’s projected
requirement for a submarine fleet was approved in 1997, but the
contract with Armaris, a JV between DCN and Thales, was only
Indigenous submarine capabilities and warship-
manufacturing programs: issues and concerns
completed in October 2005. This was despite the fact that the
Navy’s force level was depleting fast. Moreover, it took almost
a decade to finalize the contract for construction of 25% of the
envisaged force level. Consequently, the first submarine that was
expected to be operational by 2012 is not yet ready.
Taking into consideration the vintage of the Indian navy’s current
fleet of submarines, it is evident that it is facing an acute problem
due to their high average age. The prescribed or designed life
of a submarine is 25 to 30 years. However, around 11 Indian
conventionally powered submarines are more than 20 years old,
and 8 of them more than 25 years old. Out of the four Shishumar
class submarines, three are close to completion of their operational
lives and will need to be replaced from 2016–17 onwards, and the
remaining one a few years later. During this period, the first six
Sindhughosh/Kilo class submarines will also be nearing the end of
their operational lives and will need to be replaced. The figure below
depicts the shelf life of submarines with the Indian Navy.
Age profile of submarines
Class Present age
INS Shishumar (S44) >25
INS Shankush (S45) >25
INS Shalki (S46) >20
INS Shankul (S47) >30
INS Sindhughosh (S55) >25
INS Sindhudhvaj (S56) >25
INS Sindhuraj (S57) >25
INS Sindhuvir (S58) >25
INS Sindhukesari (S60) >25
INS Sindhukirti (S61) >20
INS Sindhuvijay (S62) >20
INS Sindhushastra (S65) >10
INS Chakra (S71) <5
Source: Compiled by Q tech synergy and EY analysis, information
gathered from open sources accessed between 1-10 March 2015
Vintage Spread Submarines
100%
Existing
Platform
Desired
Platform
40% 30% 30%
84%8%
20+
Years
10-20
Years
0-10
Years
8%
Source: Compiled by Q tech synergy and EY analysis, information
gathered from open sources accessed between 1-10 March 2015
4. 4 | Eye on Defence
With dwindling underwater combat capability and readiness
rate owing to the sluggish rate of acquisition of submarines
in the past, the Indian Defence Ministry is now gearing
up to oversee and fast-track its submarine-acquisition
plans to have in place a credible submarine force as well
as augment and match the Indian Navy’s fleet with those
of its neighboring countries. India has been fast losing its
underwater combat superiority over its neighboring country
Pakistan (with 8 submarines) and has fallen far behind China
(with more than 50 submarines). Recently, the Government
has initiated major corrective actions to address the issue
of the Indian Navy’s depleting submarine. These include the
following:
• Acceptance of the need for a service life extension
program for six existing submarines (four of the
Sindhugosh class and two of the Shishumar class):
Implementation of this service life extension program
would ensure their availability for at least another
decade till new submarines are inducted.
• Acceptance of the need for construction of six
submarines under Project 75(I) by Indian shipyards
through a technology transfer arrangement with a
foreign submarine manufacturer (after a prolonged
delay of seven years)
• A Ministry of Defence (MoD) committee under the
stewardship of Sec (DP), with representatives from
the Navy and the MoD, conducted a survey of public
& private shipyards for the issue of EOI for Project
75I. Some of the shipyards under consideration are
Garden Reach Ship-Builders, Hindustan Shipyard, L&T,
Mazgaon Docks, ABG Shipyard and Pipavav Shipyard.
The shortlisted shipyards will then be invited to submit
bids, in partnership with a foreign shipyard that meets
the Navy’s specifications for the submarines.
• DAC clearance for procurement of two midget
submarines
The initiatives taken by the Government seems to be in
the right direction in not only maintaining and augmenting
the Indian Navy’s submarine fleet, but also in developing
a strong submarine-/ship- building manufacturing base
in the country. The recent acquisition of Pipavav Defence
and Offshore Engineering Company Limited, one of the
major Indian private shipyards by Reliance infrastructure,
together with its sole management control, substantiates
the fact that private sector companies are looking forward
to this opportunity to tap growing opportunities that till date
were the preserves of defence shipyards. This though is
just a beginning as more such mergers and acquisitions are
expected in future.
Submarine procurement: an analysis
Submarines are a vital part of a naval fleet and are ideal for
safeguarding maritime borders and sea denial operations,
particularly during war. Since the Indian Navy is trying to
keep its operational fleet seaworthy and fighting fit by
upgrading its submarines, their depleting numbers are
beginning to get worrisome. Some years ago, the Navy
had 18 operational submarines. With phasing out of the
Foxtrot class, India’s submarine fleet currently consists of
13 boats — 9 Russian SSK Kilo (Sindhugosh) Class acquired
in the late eighties, 4 German SSK U209 (Shishumar) Class
and a leased nuclear-powered Improved Akula Class SSN
from Russia (INS Chakra). However, due to the ageing fleet
and prolonged refit schedules, the average operational
availability of submarines, i.e., the actual usable strength of
India’s naval submarine arm, is much less with its existing
readiness being as low as 40 % at present, and dipping
even further in comparison with 48% in 2012 (according
to the CAG report). Out of the total of 13 submarines, only
half are available for deployment and are operating at any
given time, not leaving sufficient numbers to guard India’s
vast coastline or be used against enemy forces in war. This
is due to the fact that more than half of the Indian Navy’s
submarines have completed 75% of their operational
lives, and therefore, have to undergo frequent repairs and
maintenance at shipyards to extend their operational lives.
The Indian Navy requires a fleet of 24 submarines, but is
making do with only 13 at present. Moreover, with the Kilo
submarines due for retirement after two-and-a-half decades
of services, the submarine fleet is expected to go down to
half its required number, as indicated in the chart below.
Source: CAG Report 2013 and Q-Tech Synergy
Submarine Force Level and Operational Efficiency
Operational Efficiency Submarine Force Level
70%
70%
70%
13 No.13 No.
24 No.
Total
Requirement
2012 2015
5. 5Eye on Defence |
The Government has understood that the desired level of
combat capability requires a steady inflow of replacements.
Consequently, the Cabinet Committee on Security (CCS)
gave the Navy an approval for a comprehensive 30-year
submarine-building plan in July 1999, which envisaged
induction of 12 new submarines by 2012, followed by
another 12 by 2030. The acquisition program was divided
into three groups:
• Six Scorpene submarines were to be acquired under
Project 75.
• An additional six submarines were to be built under
Project 75 (I).
• The remaining 12 were to be constructed indigenously
under the Advanced Technology Vessel (ATV) or SSBN
Program
However, mismanagement and lack of implementation
resulted in poor execution of the programs mentioned
above and there has been no new induction since the last
decade (except for the leased Akula-II submarine). However,
the MoD is now set to implement new submarine-acquisition
programs and fast-track current on-going ones. The
following table provides an overview of the Indian Navy’s
various on-going and future submarine programs.
Program/Inception
Category
(approximate cost )
Manufacturers/
Competitors
Timeline/Likely
induction
Remarks
Project 75
Program Initiated:
2005
Buy-Make
(INR230 billion)
MDL in collaboration
with Armaris — a JV
between DCN and
Thales -
First delivery of
submarine by
September 2016,
followed by induction
of one submarine
every nine months
thereafter
All six submarines
at various stages of
construction
Project 75 I
Program Initiated:
2007
Buy-Make (India)
(INR530 billion)
Indian contenders:
GRSE, HSL, L&T, MDL,
ABG and Pipavav
Shipyard
Likely foreign
collaborators: DCNS,
Rubin Design Bureau
Amur Shipyard, HDW
(TKMS), Navantia; MHI
& KHI; Kockums
First delivery of
submarine by 2025–
26 (A new submarine
could be ready for
induction between
eight months to a
year with delivery by
2030–31.)
Indian shipyards to
be shortlisted; EOI
expected shortly
Initiation of lease of
INS Chakra
Program in 2004
On lease (INR 42
billion)
Russia Already inducted As of April 2012,
India has inducted the
Akula-II submarine,
named INS Chakra, on
a 10-year lease.
Lease of second
nuclear submarine
program initiated in
2014
On lease
(INR54 billion)
Russia 2018 Negotiations with
Russia have begun
for lease of nuclear
submarine K-322
Kashalot of the Project
97.
6. 6 | Eye on Defence
Program/Inception
Category
(approximate cost )
Manufacturers/
Competitors
Timeline/Likely
induction
Remarks
Three Arihant-class
nuclear submarines
Initiated in 1998
Make (India)
(INR360 billion)
Indian Navy, Bhabha
Atomic Research
Centre (BARC) and
DRDO, Tata Power,
L&T, Walchand Nagar
Industries
Russian designers
helped to build the
vessel.
The three vessels
are expected to be
in commissioned by
2023.
Under development;
reactor of the first sub
INS Arihant activated
and now undergoing
sea trial — expected to
take 10–12 months to
be inducted
Six nuclear-powered
attack submarines
initiated: undisclosed
Make (India)
(INR1000 billion)
Indian Navy, DRDO --- DRDO project
Two Midget Submarine
programs initiated in
2009
Make (India)
(INR20 billion)
HSL Both the submarines
to be delivered by
2019–20
DAC clearance
granted
Total amount spent on acquisition of submarines ~ INR2,230 billion
Source: Compiled by Q tech synergy and EY analysis, information gathered from open sources accessed between 1-10 March 2015
Out of the 12 conventional submarines that are to be
inducted, 6 Scorpenes will start rolling out of Mazagon
Dock Ltd. from 2016. Another six will be built in India with
a foreign partner shipyard under Project 75(I). In addition,
the DRDO is building three Arihant-class nuclear submarines
and will also be developing six nuclear-powered attack
submarines (SSNs) to address India’s nuclear capability. INS
Chakra, the SSN leased for 10 years from Russia, will be
joined by a second leased SSN.
The table below provides a projection of the estimated force
level of major naval platforms including submarines and
related capital work projects. However, keeping in mind
the present inventory and their shelf lives as well as orders
already placed, it is expected that the Navy will fall short of
achieving the desired numbers.
Platform
Projected/
Requirement
Held On order De-induction Deficiency
Carriers 3 1 2 1 1
Destroyers/
Frigates
37-42 26 17 08-10 6–8 frigates
/destroyers
Submarines 24 13 21 14 4
Corvettes 32-36 24 4+ 16-20 04-06
LND/MCMV/FSS 20+24 5+7 30-35* 5+7 06-08
LPD/LCU 6+16 1+6 10* 1+6 04-06
Source: Compiled by Q tech synergy and EY analysis, information gathered from open sources accessed between 1-10 March 2015
7. 7Eye on Defence |
Resources
Capital expenditure on the Indian naval fleet is expected to
grow by around 10% every year, as indicated by past trends.
The table and figure below details the capital expenditure
earmarked for naval procurement for the Twelfth Plan and
as well as projections for the Thirteenth and Fourteenth
Plans. A cumulative capital outlay of around INR8470 billion
over the next 15 years on various maritime systems are
depicted in the table and graph below.
Naval capital budget projections (INR billion)
Twelfth Plan Thirteenth Plan Fourteenth Plan
2012–13 2014–15 2015–16 2016–17 2017–18 2019–20 2021–22 2022–23 2024–25 2026–27
168.89 174.71 240.8 263.7 289 352 423 470 565 680
Source: Union Budget and projection by Q-Tech Synergy
The naval capital submarket comprises the naval fleet and
dockyards, aircraft and aero engines, heavy and medium
vehicles and other equipment. Capital acquisition of ships
and platforms for the Navy account for 53% of its capital
acquisition budget, with submarines accounting for 26% of
the expenditure. India is likely to spend around INR2230
billion on various submarine-acquisition programs in the
next 15 years.
Capital projects planned:
maritime systems (2012–2027)
Resource-related
projections
(INR billion)
Carriers 450
Destroyers/Frigates 950
Submarines 2,230
Corvettes 230
LND/MCMV/FSS 550
LPD/LCU 160
Aerospace platforms 1,150
Miscellaneous items 1,000
Infrastructure development 1,750
Total 8,470
Source: Q-Tech Synergy
Naval capital budget projections
0
10000
20000
30000
40000
50000
60000
70000
80000
AmountinINRCrore
Increasing at 10-11% y-o-y
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2023-24
2024-25
2025-26
2026-27
Government deployment
Resource allocation
8. 8 | Eye on Defence
With a projected capital outlay of around INR8470 billion
and the Navy Capital Projection for 2027–28 being
INR752.48 billion, the total Navy Capita Budget Projections
(2012–2028) amounts to INR6413.47 billion. However,
given the requirements and various naval programs in
the pipeline, including submarines and capital allocation
(present and projected), there is a gap and will remain
unless until there is increased funding by the Government,
which is the need of the hour if India wants to have in place
adequate force levels. (Please refer to the table below.)
Although there is a mismatch in projected requirements and
expected allocation of resources, this can be addressed,
provided procurement and production planning are geared
up.
Demand and capacity gap
While India started early in its quest for self-reliance in
building warships, it did not increase its capacity based
on the demand, resulting in its current capability being
inadequate to meet its naval requirements. According to
the Indian Navy’s long-term plan, more than 95 vessels
(including submarines) are due for acquisition by 2027.
Their indigenous construction requires an estimated annual
capacity of 107 Standard Ship Units (SSUs) in terms of
the annual turnover, recent achievements and near future
projections (based on figures extracted from the Planning
Commission’s report). (Please refer to the diagram given
below.) However, even with a reasonable increase in
efficiency, India’s ship-building capacity, as well as the
present capacity of defence shipyards, is grossly inadequate
to meet even half of projected requirements.
Source: http://planningcommission.gov.in/aboutus/committee/
wrkgrp12/Wg_defence_equipment.pdf
Opportunity matrix — production of warships
The intended induction program is structured to continue
at a pace such that we expect ships and submarines will
be inducted at an average rate of five platforms per year.
However, keeping in view the past records of Indian defence
shipyards, and even with capacity expansion, it seems
unlikely that they will be able to deliver. The table below
estimates the total order value of naval procurements in
the next 15 years. Therefore, there is a huge gap between
demand and capacity, which will continue to grow unless
proactive measures are taken by the Government. This
offers significant opportunities for private shipyards and
their vendor base to capture
Total acquisition costs: 15 years
Platform Total order value (INR
billion)
Grand total of ongoing and
new programs
> 8470
Average yearly output
required over 15 years
~ 564.66
Projected production
capacity/year of defence
shipyards
300/year
Scope for private sector
shipyards
~250/Year
Source: Compiled by Q tech synergy and EY analysis, information
gathered from open sources accessed between 1-10 March 2015
As on date, the major chunk of orders still lies with
Government shipyards that are overburdened and loaded
for the next decade and are challenged to execute orders
within the mandated time-frame. Only a nominal share of
orders is with emerging private shipyards. (Please refer to
the figure below.) To overcome this gap, private shipyards
need to be involved in all future submarine- acquisition
programs.
Turnover of warships in Twelfth Plan, 2012-17
8348
12161
13530
18211
23161
0
5000
10000
15000
20000
25000
2012-13 2013-14 2014-15 2015-16 2016-17
Series1
Turnover(valueincrores)
9. 9Eye on Defence |
Major vessels Shipyards
Public shipyards
Kolkata Class Destroyers (P15B)
(35000)
MDL
Landing Craft Utility (2200) GRSE
Frigates (P17A ) ( 26000) MDL
Frigates (P17A) ( 19,500) GRSE
Minesweepers ( 2250) GSL
Offshore patrol vessels (1650) GSL
NTRO vessels ( 500) HSL
Private shipyards
NOPV ( 2,500) PSL
Cadet training ships (900) ABG
Interceptor boats ( 975) L&T
Fast patrol vessels (1400) CSL
Fast speed boats (175) BSL
Technology demonstration vessels
(300)
BSL
Source: Open sources, and complied by Q-Tech Synergy
To fast-pace delivery schedules, MoD needs to involve
private shipyards in the endeavor by allowing formation
of JVs between public and private shipyards and adopting
modular construction methods so that their warship
inventory grows in a short time. Leading players in this
segment include Pipavav, L&T, Bharati and ABG shipyards,
which have been able to secure naval orders in recent
years. With growth opportunities now arising in submarine
manufacturing, it is expected that these shipyards will
participate actively in coming years.
Conclusion
Considering India’s threat perception, maritime
responsibilities and borders, a robust mix of nuclear and
conventional submarines is critical for safeguarding the
country. There has been no new induction since the last
decade, except for the leased Akula-II submarine. The
procurement process needs to speed up with the Indian
Navy’s submarine arm’s long-pending proposal to build
a new line of six conventional underwater vessels and
midget submarines. There is now a deep sense of urgency,
nationwide, to build the Navy’s submarine fleet at the
fastest possible pace indigenous programs undertaken by
DPSUs and also involve the private sector in this initiative.
The MoD should now ensure that timely and requisite steps
are taken to facilitate the induction of new vessels — the
need of the hour to keep their operational efficiency at the
desirable level.
References:
• Planning Commission, Report of the Working Group on
Defence Equipment, 2013
• Standing Committee on Defence Fourth Report,
Demand for Grants, Ministry of Defence, 2014–15
• “Defence,” CAG website, http://www.saiindia.gov.in/
english/index.html, accessed between 1–10 March
2015
11. Defence Budget 2015–16
11Eye on Defence |
The presentation of the Budget in Parliament and the
Parliament passing this in due course is an annual exercise.
Successive Finance Ministers (FMs) have presented
Budgets since Independence. Some of these have
been transformational, some routine and some almost
inconsequential. The 2015–16 Budget was eagerly awaited
by the defence community, and in many ways, this time it
was significant.
Did the FM meet the expectations of the defence community
in full? In this article, we take a look at what were the
motivators and hygiene factors in the Budget and what the
industry feels about it.
There were many levels of expectations from the veterans,
the services, the industry and defence civilians. We will
however restrict ourselves to the effect of the budget
on capability-building in our Armed Forces and the
expectations of the defence industry.
The Prime Minister’s “Make in India” initiative has caught
the imagination of the nation and has been echoing across
the country in various forums and seminars. The defence
industry has been particularly excited about it. Various
national and international exhibitions and seminars have
made this their main theme to promote the idea of “Make
in India.” However, be it “Make in India,” “Come, Make in
India” or “Make for India,” all ultimately lead to “Made in
India.” Was this expected to drive numbers in the Budget?
Did this happen?
Changes in regulatory compliance required in terms of
partial de-licensing of the defence sector and rationalizing
of FDI by providing some upward mobility, besides bringing
India’s FDI policy in sync with its industrial policies have
been other motivators in the Budget. There has been some
forward movement in the Government’s effort to promote
exports with it placing an interim paper on the website of
the DDP. All of these policy tweaks, coupled with the move
to prioritize categorizations of acquisition projects under
indigenous manufacture, have raised hopes of decisive
action being taken on the budgetary provisions front.
Do these actions on paper convert to numbers, with a
suitable reflection in the Budget? Do they have any relation
to each other, and if so, how they can be linked to the
Budget?
Further to the General Financial Rules, the MoD is the only
ministry in the Government that has its own procedures
for procurement, known as the Defence Procurement
Procedures (DPP). Since its formulation in 2002, the DPP
has undergone a number of amendments. The current
version is DPP 2013 and can be accessed on the MoD’s
website. The DPP incorporates preferences to indigenous
manufacturing and products with indigenous content by
according top priority to the “Buy Indian” categorization,
among others. Although there are other categories, the
“MAKE” category provides for indigenous designing and
manufacture, and thereby gives a fillip to the domestic
industry.
What has all of this got to do with the budget? Before we
proceed further, there is one more aspect we need to
deliberate on, which has an impact on the Budget. The Long
Term Integrated Perspective Plan, popularly known as the
LTIPP, is a 15-year plan evolved by the services, which
flows from Defence Planning Guidelines. They thereafter
evolve a five-year (Services Capital Acquisition Plan (SCAP)
and from this to the Annual Acquisition Plan (AAP). There
is significant planning at the headquarters of the services
as well as the Integrated Defence Staff. At all the stages,
the MoD (Finance) is closely involved in the process, many a
time causing avoidable delays in the planning process. The
MoD (Finance) is the basic link between the MoD and the
Ministry of Finance to assure financial support based on the
requirement of the Armed Forces.
From the above, it can be seen that there is a very intricate
process in place for planning the requirements of the Armed
Forces.
While the LTIPP is essentially a vision document, the SCAP
is more of a detailed list of everything the forces could think
of over the next 5 years, the AAP is closest to reality. It is
on the basis of the AAP that the entire planning process for
acquisition of systems and equipment for the Armed Forces
takes place through a three–tier planning system comprising
the SCAP Categorization Committee (SCAP CHC), the
Higher Committee and then the Defence Acquisition
Council (DAC). The DAC is the highest authority and grants
Acceptance of Necessity (AON) for various acquisitions,
which then kicks-off the tendering process.
It is expected that the SCAP conforms with the Five Year
Plans in terms of the needs of the Armed Forces, the LTIPP
may cover three Five Year Plan periods and the AAP is
generally implemented for the current fiscal and the one
that follows. All of these are dynamic and are updated
continuously.
Is there any correlation between the SCAP and the Five
Year Plan projections for funding the requirement of the
Armed Forces? Now, here is the key. The Budget presented
by the FM in Parliament is a reality. While the Armed Forces
12. 12 | Eye on Defence
are allowed to create their wish lists, when the numbers
are visible in the Budget, especially the ones at “demand
number 28,” they do not seem to correlate with the
planned requirements of the armed forces and a new era in
planning opens up.
The Railway Budget, which holds the attention of the entire
nation for a full day, is just around INR400 billion, while
the MoD budget is pegged at INR3,101 billion (mentioned
in para 86 of the speech of the FM) and people’s attention
forjust over 2 minutes.
The capital outlay for the Defence Services in 2015-16
(The demand Number 28, broadly comprises the following
figures in Table 1.)
Major head(4076) Army Navy Air Force
Total
(INR million)
Land 377 115 55 5,470.00
Construction 4363.92 605 1571.13 65,400.50
Aircraft and aero
engines
2365.35 3466.08 18866.01 2,46,974.40
Heavy and medium
vehicles
1783.83 11 233.42 20,282.50
Other equipment 17335.22 2558.64 12382.09 3,22,759.50
Defence rail network 5,000.00
Naval fleet 1,60,498.70
Naval dockyards 12,753.10
Joint staff 9,223.40
Special projects 5500
Ordnance factories 7,600.70
R&D 77,884.00
Inspection 71.2
Procurement of rolling
stock
3640.2
ECHS 300
RR 909.7
NCC 50
Prototype under
MAKE
1,442.10
Others 120
Total 2,62,253.20 2,40,809.00 3,30,176.50
13. 13Eye on Defence |
As far as capital allocations are concerned, the FM has
not increased the numbers, when compared with the Base
Estimates (BEs) of the previous FY 2014–15 Budget.
However, if the comparison is made to the RE stage, there
is an increase of 15.4%. This is because the MoD had
surrendered INR 122,000 million or US$2 billion to the
MoF or was probably was called back from the MoD to meet
the CAD/fiscal deficit. A portion of this was transferred to
the revenue account. Moreover, the share of the IAF has
remained constant when compared to the RE. This rise is
due to the increase in Army and Navy base allocations.
Projections made by the MoD are the basis for the detailed
planning, taking into account the requirement of the
services — the AAP. However, there is always a huge gap
between projections and allocation. Allocation is a reality.
The MoD has probably not put in place a mechanism to
understand the allocations made or a day-to-day plan to
spend the amount. This seems to be lacking or has probably
not been attempted.
Allocation of revenue is fast growing, leaving little scope for
allocations to meet capital requirements every year. The
ratio of capital vs revenue for the Army is 1:3.97 and for
the Navy and IAF 1:0.664 and 1:0.695, respectively.
So, what do we really expect from the Budget? The good
news is that at least the two MAKE programs have reached
an advanced stage of fructifying and are expected to see
the light of day. The FM has supported this by making an
allocation of INR1.44 billion. The thrust for indigenous
development can be seen clearly. In respect of the capital
outlay of the Armed Forces, there is a certain committed
liaibility for installments for equipment bought in previous
years that the MoD has to honor. This is generally around
75% to 85% or more. An optimistic figure of 80% will
indicate that the Army has just around INR 52.45 billion.
Figures for the Navy and IAF are in the range of INR48.16
and 66.03 billion, respectively, for capital outlay in the
current fiscal
Another good news is that when the MoD signs a contract
for fresh equipment, it only has to pay a 15% advance to
the contractor that wins the contract. This means that the
amount the MoD can actually spend is actually more than
INR800 billion. The RM has also gone on record to make
this statement during the recently concluded India Today
Conclave.
What are the expectations? Some long-pending programs,
e.g., helicopters such as the Attack Helicopters (AH) and
Heavy Lift helicopters (HLH) won by Boeing, are likely to be
implemented during the year. A corresponding allocation
has been made for aero engines and aircraft, wherein
a sum of INR 247 Bn has been made. This is actually
an encouraging sign for significant programs awaiting
finalization by the Air Force include the Multi Role Tanker
Transport program won by Airbus, the Apache & Chinook
won by Boeing and the Jaguar re engine program won by
Honeywell.
A number of land systems programs could be executed this
year since the allocation for the Army is encouraging. A
definite allocation has been made for procurement of rolling
stock, which has been procured from indigenous sources
for a long time now. An allocation of INR 323 Bn crores for
other equipment suggests that procurement is likely from
domestic sources under the “Buy Indian” category. This is
exactly what the industry is expecting, but some or a large
portion of this could once again be set aside for committed
liabilities. However, a decent portion of around INR 100
Bn can be expected to be spent on procurement from the
domestic industry. This will be good news for the domestic
industry. Some other significant programs that may come
up for finalization for the Army within this fiscal may include
the Close Quarter Carbines program (44000 units) and
some key missile-acquisition programs.
Allocation to the DRDO has increased and should result in
more mission-mode projects with the domestic industry
as development partners and also as production partners
that could benefit largely from a partnership with DRDO.
Outsourcing from ordnance factories and defence PSUs
could once again propel the small and medium industry
sector forward with more business coming its way. It is
presumed that at least 40% of the outlay of large industries
is generally outsourced; this brings additional business to
the private domestic industry.
The defence industry looks at the allocations made for
the Ministry of Science and Technology (close to INR 100
Bn) and Ministry of MSME (around INR30 billion) and the
Ministry of Home (INR684.44 billion) as a positive sign. Due
to the synergistic nature of the requirement of the Home
and Defence Ministries, in some cases the industries serving
their needs are the same
However, in spite of all the hype in the industry, the real
impact will become visible as and when more programs
under the domestic preference categories take off. More
MAKE programs are necessary to quench the thirst of the
domestic defence industry in the short term. All this has
nothing to do with the extensive planning process or Budget
allocations. However, implementation of various programs
14. 14 | Eye on Defence
takes time, independent of either timelines drawn, the
planning process, the need for services or even Budget
allocations.
Therefore, where does capability-building of the Armed
Forces figure in this process? Do the services have definite
plans in terms of what they intend to focus on during each
of the Five Year Plans, e.g., surveillance capability in one
Plan period, artillery in a phased manner over the next two
Plan periods, etc. This will lead the Armed Forces to make
a clear plan on capability building to include all disciplines
in each of the services. Although there is a SCAP, it has
no definite links to the Five Year Plans and is never able to
remain in sync with the Plan periods. This is essentially due
to the fact that the Defence Sector falls under “Non Plan”
expenditure.
Since Budget allocation for Defence is under “Non Plan,”
it is believed that a Budget is never a constraint and that
plans can be made based on perception of threat. This can
vary from a two- front engagement to a multi-front, multi-
tasking force deployed for external aggression and internal
disorder. Defence being under non-plan expenditure is a
British legacy we follow till date.
Is there a case for Defence to be placed under both Plan and
Non-Plan expenditure?
This may bring about the much needed synergy between
the planning processes undertaken by the MoD in sync with
the NITI Aayog while retaining the flexibility to cater for
unforeseen circumstances. To achieve success on this front,
it must be demarcated that what can be part of the NITI
Aayog and what can remain within the existing non-plan
structure?
Capability building in the Armed Forces, since it pertains
to new raisings, force accretions, capital acquisitions, etc.
must necessarily be moved to Plan expenditure. Let the
Armed Forces have a definite plan, which is put into effect
through NITI Aayog by providing an effective oversight
mechanism and also complement the efforts of the Armed
Forces in their planning process. The best management
techniques in terms of macro management will be in play
to create an effective Force and sustaining this through
the life span of the equipment. The Armed Forces will also
know well in advance what they can expect during each of
the Five Year Plan periods. Moreover, the Finance Minister
will know upfront what he needs to clearly earmark for
capability building in terms of force accretions, induction of
state-of-the-art systems, and equipment and sustenance.
The trend of surrendering capital budgets to revenue
budgets may be curbed due to efficient and optimal
allocation, sending the right message to the industry while
bringing stability to the system.
If this exercise is taken up, the Armed Forces will never
need to complain about why they could not obtain guns for
their artillery for the past three decades or why the number
of front-fighting aircraft fleet is depleting with no indication
of any replacement, or if force accretion is needed for a
blue-water Navy. The results will be visible. The nation
will cater for the requirements of the Forces in a phased
manner and the best minds will analyze and contribute to
nation-building. Presently, the system is not accountable for
adhering to timelines, since it is a distributed accountability
model, where everyone is supposed to be accountable
while no one is individually. Collegiate consultations with
all stakeholders for effective decision-making have created
non-accountability. The Government should see definite
accomplishments in terms of capability-building; today, it is
almost ad hoc; some of them happen and some do not see
the light of the day.
The MAKE procedure for the Armed Forces must be
necessarily under plan expenditure with a clear time and
cost allocation to meet induction schedules. Industry will
also be happy to make the necessary investments upfront
once it knows it is included in the plan. NITI Aayog can
also plan to include the vision of the states in creating
strategic infrastructure while capability building is taking
place. This will also de-risk concentration of industry in a
single geographical area. A great deal of industry can come
up in the Northeast for example. A portion of allocations
made for the Northeast (of around INR23.62 billion) can
be used to create necessary infrastructure in this region
by synergizing allocations made for the Ministry of Heavy
Industries and Public Enterprises, which today stands
at INR16.43 billion. The Ministry of Home has a huge
allocation of INR684.44 billion and why will the Ministry of
Home not invest in developing a strong industry for internal
security? The Ministry of Civil Aviation has an allocation of
INR33.41 billion.
15. 15Eye on Defence |
Strategic electronics has not engaged the attention of
policy-makers as a vital ingredient for nation- building. This
is at the heart of all strategic systems and our continued
dependence on foreign sources could compromise national
security. This can happen when there is a synergy between
DieTY and MoD, but because of systemic lack of domain
knowledge, these discussions have never originated.
Therefore, if strategic electronics is placed for development
as part of the Five Year Plans, NITI Aayog will take care of
the rest in terms of coordination and synergy.
Defence, Internal Security and Civil Aviation are synergistic
sectors and therefore need to synergize their efforts to
bring about a vibrant and dynamic domestic industry. Offset
provisions must also be synergized to optimize the industry-
participation programs of foreign OEMs with domestic
industry, to build a strong defence industrial base. The
Budget can then be said to have been optimally utilized.
The rest of the defence expenditure can be under Non-plan
as is the current practice. This will give it the much needed
flexibility to meet unforeseen contingencies. Even a portion
of capital expenditure can be a part of the Non-plan such
as requirements that are bought on a fast-track mode as
provided for in the DPP. Fast-track programs need ad-hoc
funding to meet urgent operational requirements, foreseen
as imminent for a situation in which a crisis emerges
without prior warning. This is typically non-plan expenditure
and must be retained with others that already exist.
National security goes beyond the frontiers of defence
and needs a holistic view. The FM has done well to make
allocations for various ministries, but what is now needed
is effective utilization of the Budget to cater to nation-
building. The Defence Budget can best be utilized when
other synergistic sectors of civil aviation and Internal
Security (MoH), as well as the Ministry of MSME, Skill
Development, the Northeast, etc., are able to synergize the
effort. NITI Aayog can do a great job in achieving synergy,
but it has to build capability first. For that, Defence must be
both in Plan and Non-plan as earlier mentioned.
16. 16 | Eye on Defence
Request for information
(January–March 2015)
Date of Issue RFI detail/equipment Response date Issued by Remarks
12-Mar-15 Mine Counter Measure
Suite
16-Apr-15 Directorate of Staff
Requirements
For IN
03-Mar-15 Field Test Simulator 07-Apr-15 Principal Director
Naval Signals
For IN
25-Feb-15 Project for
Management of
Information Systems
for Army Service
Corps. (MISA),
31-Mar-15 DG of Supplies and
Transport, QMGs
Branch
For IA
24-Feb-15 Ultra-Light Recovery
Vehicle (Short Chassis
Recovery Vehicle)
31-Mar-15 Directorate General
Of EME
For IA
19-Feb-15 Static and Mobile
Photogrammetry and
GIS Systems (SMPGIS)
10-Mar-15 MI Dte For IA
18-Feb-15 EOI for Simulator
Hardware for Indian
Air Force
11-Mar-15 IAF, Kempapura For IAF
14-Feb-15 Reflex Sight for 5.56
mm Tavor Assault
Rifle; Qty 200
07-Mar-15 GOC-in-C For IA
14-Feb-15 Night Sight for 5.56
mm Galil Assault Rifle
07-Mar-15 GOC-in-C For IA
09-Feb-15 Flexible Surveillance
Device (FSD)
04-Mar-15 DG Infantry-5 For IA
05-Feb-15 Naval Shipborne
Unmanned Aerial
System
19-Mar-15 The Principal
Directorate of Naval
Air Staff (DNAS)
For IN
08-Jan-15 Army Wide Area
Network (AWAN)
Phase-II Main System
Less Encryption
System
10-Feb-15 Directorate General of
Signals (Sigs-7)
For IA
05-Jan-15 Full Mission (D Level)
Simulators for AN-32
RE Aircraft
16-Feb-15 PD ASR For IAF
17. 17Eye on Defence |
Request for proposal
(January–March 2015)
Date of issue RFP detail/equipment Response date Issued by Remarks
13-Mar-15 Separator Cartridge; Qty: 10
each
25-Mar-15 AOC, Air Force Station, Ojhar,
Nasik
For IAF
13-Mar-15 Coalescer Cartridge; qty: 13
each
25-Mar-15 AOC, Air Force Station, Ojhar,
Nasik
For IAF
12-Mar-15 Supply Installation and
Commissioning of Five in No
Triaxial Magnetic Sensors for
DG Bay at Naval Dockyard,
Visakhapatnam
17-Apr-15 Directorate of Dockyards,
Integrated Headquarters
(Navy),3rd`D-II’ Wing
For IN
05-Mar-15 Velocity Analysing Doppler
Radar
05-May-15 Proof & Experimental
Establishment
Issued by DRDO
04-Mar-15 Indigenous development of
0.45m Ku Band Airborne
25-Mar-15 Centre For Air Borne System Issued by DRDO
03-Mar-15 Lazer safety goggles; Qty: 20
Nos.
26-Mar-15 Combat Vehicles Research &
Development Estt.
Issued by DRDO
02-Mar-15 Development of package for
125mm FSAPDS
26-Mar-15 Armament Research &
Development Establishment
Issued by DRDO
26-Feb-15 Day/Night Close Circuit IR
Camera
04-Mar-15 Commandant, AMC Centre &
College
For IA
26-Feb-15 Night Vision Binoculars; Qty:
20 Nos.
31-Mar-15 Controller of Procurement
Material Organisation (Mumbai)
For IN
25-Feb-15 Provision and establishment of
Full Mesh Satellite terminals
31-Mar-15 Directorate of System
Applications
For IA
24-Feb-15 Design of concept proving
model for long range wireless
simulator
14-Mar-15 Simulator Development Division For IA
17-Feb-15 Light Bullet Proof Vehicle, Qty-
42 Nos
25-Mar-15 BSF 10 CGO Complex For BSF
16-Feb-15 Life Jacket 12-Mar-15 The GM HVF, Avadi Chennai Issued by OFB
11-Feb-15 FUSE VP1.1 5A 250v 17-Feb-15 Air Force Station Ojhar For IAF
11-Feb-15 FUSE VP1.1 3A 250v 17-Feb-15 Air Force Station Ojhar For IAF
11-Feb-15 Airborne wideband data
recorder
17-Mar-15 Electronics & Radar Development
Establishment
Issued by DRDO
06-Feb-15 Mobile Jammers for 9 INF DIV 27-Feb-15 9 Infantry Division For IA
30-Jan-15 Installation of Sonar Humsa NG
Onboard Large Naval Ship
23-Feb-15 Naval Dockyard For IN
30-Jan-15 FUZE RGM-2 qty 7690
for Shell 122MM Howitzer
Ammunition
16-Apr-15 DDG PPO For IA
30-Jan-15 FUZE T-90 Qty 1501 For Shell
122MM Howitzer Ammunition
16-Apr-15 DDG PPO For IA
29-Jan-15 IP network based
communication system
27-Feb-15 Defence Research &
Development Laboratory
Issued by DRDO
18. 18 | Eye on Defence
Request for proposal
(October–December 2014) (cont’d.)
Date of issue RFP detail/equipment Response date Issued by Remarks
29-Jan-15 Bullet Proof Harness with
Shoulder Pad; Qty: 2400 Nos
09-Mar-15 BSF (Spl Ops) For BSF
28-Jan-15 Fiber optic sensor and data
acquisition system; Qty: 01
27-Feb-15 Defence Research &
Development Laboratory
Issued by DRDO
27-Jan-15 NI-based test bed with target
environment simulator for IMR
SAR sensor
26-Feb-15 Defence Research &
Development Laboratory
Issued by DRDO
24-Jan-15 NBC Suit Mark V 03-Feb-15 Defence Bio-Engineering &
Electro Medical Laboratory
Issued by DRDO
23-Jan-15 Surveillance Grid System, 19-Feb-15 Infantry School, Mhow For IA
22-Jan-15 Doppler radar system 19-Mar-15 Terminal Ballistics Research
Laboratory
Issued by DRDO
21-Jan-15 Day and Night IR Camera 02-Feb-15 EME School For IA
19-Jan-15 Remote Weapon Station
(RCWS)
02-Mar-15 Vehicle Research & Development
Establishment
Issued by DRDO
17-Jan-15 Security Related Equipment 30-Jan-15 Col GS, GS Branch For IA
16-Jan-15 Digital CCTV Cameras 27-Jan-15 Air Force Station Bidar For IAF
08-Jan-15 ERA MK - II hull panels 21-Jan-15 High Energy Materials Research
Laboratory
Issued by DRDO
07-Jan-15 Night Vision Device 16-Jan-15 Air Force Station Patiala For IAF
05-Jan-15 Automatic Electronic Warning
System
20-Jan-15 Air Force Station Bidar For IAF
02-Jan-15 40MM MGL High Explosive
Dual Purpose (HEDP)
Ammunition; Qty: 309022
17-Mar-15 For IA
02-Jan-15 40MM MGL High Explosive Anti
Personnel Heap Ammunition;
Qty: 782620
17-Mar-15 Director (O) For IA
02-Jan-15 Round 40mm MGL Smoke
Bursting Red Phosphorous
(RP) Ammunition; Qty:
345536
17-Mar-15 Director (O) For IA
19. 19Eye on Defence |
List of Industrial Licenses (ILs) filed
in November 2014 – February 2015
Application no.
and date
Name of applicant Item of manufacture
19
25-02-2015
M/S IDL Explosives Ltd Bulk non-explosive emulsion matrix
17
16-02-2015
M/S Fedders Lloyd Corporation Ltd. All type of rifles, howitzers, overhauling and
upgrading of tanks
16
16-02-2015
M/S Herman Miller Furniture (India) Ltd. Furniture made of wood
15
16-02-2015
M/S Tak Technologies Pvt. Ltd. Image intensifier-based night vision devices,
infra-red-based cooled and uncooled thermal
vision devices, temperature measurement
thermography devices
14
16-02-2015
M/S Bharat Forge Ltd. Tanks and armored fighting vehicles fitted with
mounting for arms and launching munitions
13
16-02-2015
M/S Indo Gulf Explosives Ltd. Emulsion explosives, PETN, detonating fuse, cast
boosters, detonators, single base propellants,
HMX, RDX gun, PWSDER, gear gas shell
12
04-02-2015
M/S Himachal Futuristic Communications Ltd. Optical instruments and equipment
11
04-02-2015
M/S Himachal Futuristic Communications Ltd. Weapons and ammunitions
10
04-02-2015
M/S Himachal Futuristic Communications Ltd. Airplanes
9
04-02-2015
M/S Lotus Aviation Tech Pvt. Ltd. Laser warning system
8
04-02-2015
The HiTech Robotic Systemz Ltd. UAV
7
04-02-2015
Shri AK Jain Small arms, artillery guns, small arm ammunition,
UAV
6
04-02-2015
M/S Rajesh Explosives Pvt. Ltd. Gun powder, micro cord, non-electric detonators,
PETN, detonating fuse, emulsion, explosives,
single base propellants, MHX, RDX, tear gas shell
5
21-01-2015
M/S Metaltech Motor Bodies Pvt. Ltd. Manufacture of weapons and ammunition,
armoured fighting vehicles, bodies
4
20-01-2015
M/S Continental Defence Solution Pvt. Ltd. Weapon and ammunitions, artillery (mounted gun
system)
3
20-01-2015
M/S Snigdha Precision Engineering Pvt. Ltd. Components, parts and accessories for small arms
20. 20 | Eye on Defence
Application no.
and date
Name of applicant Item of manufacture
2
19-01-2015
M/S Ganesh Explosives Pvt. Ltd. Non-electrical detonators, PETN, detonating fuse,
propellants, HMX, RDX
1
15-01-2015
M/S Brijlaxmi Paper Products Pvt. Ltd. Exercise books and envelopes
328
26-12-2014
M/S Beezaasan Explotech Pvt. Ltd. Detonating fuse, PETN, cast booster, detonators,
NHN slurry, bulk emulsion explosives, ANF
327
26-12-2014
M/S Beezaasan Explotech Pvt. Ltd. Shaped charges, MHXCL-20, Ammonium
perchlorate, HNS, NHN
325
10-12-2014
M/S Himachal Futuristic Communication Ltd. Manufacture of data communications equipment
such as bridges, routers and gateways,
manufacturing of cable television equipment,
transmitting, receiving, etc.
324
26-11-2014
Sumanth Paturu Night vision devices, sensors, navigation/imaging/
surveillance equipment, image intensifiers,
thermal imagers and parts
322
18-11-2014
Sadanand Reddy Poddutur Manufacturing of SMS/SMSE explosive
320
11-11-2014
Ghatge Patil Industries Arms and ammunitions and allied items of
defence equipment, parts and accessories thereof
319
11-11-2014
Gautam Hamirbhai Ravaliya Detonating fuse, slurry/emulsion explosives,
bulk explosive, detonators of all kind, PETN, cast
boosters, ANFO
318
11-11-2014
Nihar Vinayak Vartak Defence aircraft, spacecraft and parts
21. 21Eye on Defence |
New projects/investments/
contracts
Name of entity Project details Value*
Indian Navy, Mazagon
Docks, Garden Reach
Shipbuilders and
Engineers (GRSE), and
Ship Building Center
Visakhapatnam
• Indian Navy obtained go-ahead from the Government of India for proposals
to indigenously construct seven stealth frigate and six nuclear-powered
submarines.
• Mumbai-based Mazagon Docks will construct four of the stealth frigates while
GRSE, Kolkata, will build the remaining three in line with the Government’s
"Make in India" policy.
• The Ship Building Centre Visakhapatnam will build six nuclear-powered
submarines.
INR1,000
billion
Indian Navy and Goa
Shipyard Limited
(GSL)
• The DAC has given the go-ahead to GSL for a long-term naval project to
indigenously construct 12 Mine Counter Measure Vessels (MCMVs).
• The MCMVs will have the capabilities to detect, track and destroy underwater
mines.
• The project will also involve foreign collaborations.
INR320
billion
Indian Air Force (IAF) • The IAF will acquire 22 Boeing AH-64E Apache attack helicopters and 15 CH-
47F Chinook heavy lift helicopters.
• It will get the latest upgraded version of the AH-64E helicopter, which has so
far only been delivered to the US Army.
• Procurement of the attack helicopter and the heavy lift helicopter are
presently at the Government approval stage.
INR150
billion
IAF • The Defence Acquisition Council (DAC) has cleared a follow-on order for 38
Pilatus basic trainer aircraft for the IAF.
• The order will fulfil the IAF’s requirement for 181 basic trainer aircraft, out of
which 75 Pilatus aircraft were procured from Switzerland in 2012 and 68 will
be supplied by Hindustan Aeronautics Limited (HAL).
~INR15
billion
HAL • HAL has won a contract to produce and supply 14 Do-228 aircraft to the IAF.
• The contract also includes supply of six reserve engines, one flight stimulator
and related equipment.
• HAL manufactures multi-purpose, fuel-efficient, lightweight Do-228 aircraft at
its transport aircraft division in Kanpur, and had previously supplied 125 Do-
228 planes for its defence and other customers.
INR10.9
billion
HAL • HAL plans to set up a manufacturing plant to build a fully indigenous Light
Utility Helicopter (LUH) on 610 acres of land allocated by the Government of
Karnataka.
• This is aimed at fulfilling the demand to meet the civilian needs of helicopters
in India.
• The project is expected to commence by the middle of 2015 and the facility to
start production from April 2017.
INR4 billion
IAF and Lockheed
Martin
• The DAC has cleared the IAF’s proposal for purchase of one C-130J Super
Hercules transport aircraft from Lockheed Martin to replace the C-130J that
crashed last year.
INR0.5
billion
23. 23Eye on Defence |
Joint ventures and alliances
Name of the
entities
Nature of transaction Value
Reliance and
Pipavav
• Reliance Infrastructure plans to purchase an 18% stake from the promoters of
debt-laden Pipavav Defence and Offshore Engineering (PDOE) for INR8.2 billion.
• Reliance Defence Systems, a subsidiary of Reliance Infrastructure, will also
make an open offer to acquire another 26% (at INR 66 per share), amounting to
INR12.6 billion.
• After the transaction is completed, the existing promoters of Pipavav Defence
will retain a minority stake in the company, and will have two non-executive seats
on its board.
• This acquisition opens up a unique opportunity for the Reliance Group to
participate in the “Make in India” program for the high-growth defence sector.
• Mahindra & Mahindra and the Hero Group were the other parties interested in
acquiring Pipavav.
INR20.8
billion
Aequs Aerospace
and Premium
Aerotec
• Bengaluru-based Aequs Aerospace and Premium Aerotec, a subsidiary of the
Airbus Group, have formed a strategic partnership to supply more than 200
structural components for the fuselage of Airbus planes.
• According to the contract, Aequs Aerospace will supply around INR3 billion
worth of precision machined parts for the Airbus A320, A330, A380 programs
over the next seven years.
INR4.4
billion
Mahindra &
Mahindra and British
Aerospace
• As part of its push into the defence sector, the Mahindra & Mahindra Group is in
talks with British Aerospace for an alliance.
• Mahindra & Mahindra had earlier had an alliance with British Aerospace for
production of anti-mine vehicles and had bought out its partner’s 26% stake in
their JV, Defence Land Systems India (DLSI), in 2013.
NA
Assystem and
AXISCADES
• France-based Assystem has finalized a Memorandum of Understanding (MoU)
with India’s AXISCADES to develop a strategic alliance and deliver a new
technology-based platform to the Airbus Group.
• The technology-based-platform will provide enhanced business value, security,
flexibility and quality to help it continue delivering demanding projects.
• The alliance underpins Assystem’s strategy of providing a complete offshore
engineering solution to its customers in the aerospace sector. It also provides
the company offset opportunities in India.
• The alliance will help AXISCADES support its global OEM outsourcing strategy
will also strengthen its engineering service offerings to its global clients.
NA
AeroVironment
and Dynamatic
Technologies
• US-based AeroVironment and India's Dynamatic Technologies will co-develop an
indigenous derivative of AeroVironment’s family of small unmanned air systems
( Cheel) in a production facility in Bengaluru.
• Dynamatic will incorporate technology from AeroVironment’s family of small
UAVs, including the Puma, Raven, Wasp and Shrike, to build the Cheel.
NA
24. 24 | Eye on Defence
Joint ventures and alliances
(cont’d.)
Name of the
entities
Nature of transaction Value
SASMOS HET
Technologies and
Fokker Elmo
• Bengaluru-based SASMOS HET Technologies Ltd., a manufacturer of cable
assemblies, wiring harnesses, panel boxes and electro-mechanical assemblies,
has entered a JV with Netherlands-based Fokker Elmo to make products for
aerospace and defense applications.
• The JV, Fokker Elmo SASMOS Interconnection Systems Ltd., and 51% of its stake
is held by SASMOS, and 49% by Fokker Elmo.
• The JV has a manufacturing unit at Whitefield near Bengaluru. It will initially
supply electrical wiring systems for aircraft and in the longer term intends to
manufacture a complete range of electrical wiring interconnection products for
the global aviation industry.
NA
Israel Aerospace
Industries (IAI)
and Alpha Design
Technologies
• IAI has signed a teaming agreement with India's Alpha Design Technologies to
market and produce IAI's mini-unmanned air systems (UAS), including Bird-Eye
400 and 650, for its Indian customers.
• Potential customers of the JV’s mini-UAS in the country could include the armed
forces, security agencies, the police force, and the coastguard and border
security forces.
NA
Kalyani Group and
Rafael
• The Kalyani Group has signed a 51:49 JV with Rafael Advanced Defense
Systems, Israel’s second-largest defence company, to develop advanced missile
and remote weapon system capabilities in India.
• The JV’s capabilities will include a wide range of technologies and systems,
including missile technology, remote weapon systems and advanced armor
solutions.
NA
Kalyani Group and
Saab
• The Kalyani Group has firmed up its plans to form a JV with Swedish defence
and security company Saab, with whom it currently has a strategic alliance.
• The new partnership will be finalized within the next two-three months and will
make land and air defence systems. It will be the fourth such alliance entered by
Kalyani Strategic Systems Ltd. (KSSL).
NA
HAL and Snecma
• Snecma and HAL have signed an MoU to set up a JV to produce aero-engine
parts in India.
• The JV will initially focus on manufacturing high-tech parts for the Dassault
Rafale's Snecma M88 engine.
• Subsequently, it will contribute to other major aerospace projects undertaken by
HAL and Snecma in India and overseas.
NA
HAL and Sagem
• HAL has inked a technology transfer agreement with Sagem to manufacture and
maintain the latter’s SIGMA 95 laser gyro navigation systems.
• According to the agreement, HAL will produce SIGMA 95 units for the IAF and
also provide level 3 front-line maintenance services.
NA
26. 26 | Eye on Defence 26Eye on Defence |
Country-level deals and initiatives
Country Nature of transaction Additional details
France • French Defence Minister Jean-Yves Le Drian has held talks
with his Indian counterpart Manohar Parrikar for the second
time in under three months.
• During the meeting, the two sides discussed issues relating to
a strategic partnership between the two countries, including
the Rafale deal.
• The French Minister's India visit is
viewed as a warm-up ahead of the
Indian Prime Minister Narendra
Modi's scheduled visit to France in
April 2015.
Japan • India has approached Japan to gauge its interest in competing
for India's submarine-building program, P75, with Japan's
Soryu-class new generation conventional attack submarines.
• The basis for India's interest in
inviting Japan for the submarine-
building contract is to strengthen
ties between the two countries.
Israel • Israeli Defence Minister Moshe Ya'alon has discussed the best
way to implement India's "Make in India" policy as well as
about bolstering the bilateral defence ties between the two
countries with Indian Prime Minister Narendra Modi.
• Israel has offered India help with
“top- notch” military technologies,
including the Iron Dome
interceptor, in tune with the Indian
Prime Minister’s "Make in India"
policy.
• The Israeli Minister specified that
bilateral security ties were not
directed against any third country
and are meant for the mutual
benefit of India and Israel.
Russia • Russia and India are in discussions about the possibility of
jointly manufacturing Russia's light multirole helicopter, the
Ka-226T, in India.
• The two parties seek to incorporate the experience of
producing Russian-designed Sukhoi Su-30 MKI fighter jets
under license in India.
• India's state-owned HAL,
supported by some other private
partners, will manufacture the
helicopter in India.
Spain • India and Spain have signed an Agreement on Mutual
Protection of Classified Information to provide a framework for
enhanced bilateral cooperation between the two countries in
the areas of defence research, development and technological
cooperation.
• The agreement was signed by Indian Defence Minister
Manohar Parrikar and his visiting Spanish counterpart Pedro
Morenes Eulate after the first full-fledged delegation-level
meeting between them and their teams.
• The Spain has expressed a keen
interest in participating in the
"Make inIndia" initiative in the
defence sector, and both the
countries have agreed to continue
working to enhance bilateral
defence cooperation between
them.
• They also discussed a wide range
of issues related to regional and
global security.
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30 | Eye on Defence
31. Why choose Team EY?
Unique Team Experience Offset Structuring Industrial Connects End to End Solutions
• Team member
was a part of the
team that wrote
the Indian Defence
Offset policy in
2006.
• Team member
founded the DOFA.
• Team member has
written a complete
book on Offsets with
the CII.
• Offset Structuring
worth US$ 3.7
Bn executed
successfully.
• Total experience of
66 man years in the
Armed Forces.
• MoD experience of
14 man years.
• Team has members
from the Auto
practice-India’s
only proven
manufacturing
competence
• We have offices
in Bangalore;
Pune Hyderabad
& Chennai where
these manufacturing
and IT capabilities
reside
• Industrial License
Application
• FIPB approval
• Due-diligence
services
• Transaction
Advisory for M&A
• Tax Mitigation in
offset contracts
• Creation of a
compliant Offset
Schedule
• Quarterly Offset
progress report
Unparalleled Support & Advantage for OEM’s & Indian Companies
31Eye on Defence |
32. 32 | Eye on Defence
Services offering – Tax & Regulatory
Contract
negotiation stage
Post contract
signing support
Other
Compliance
and Advisory
Pre bid stage1 2 3 4
► Review the clauses of RFP in
order to highlight the
clauses/terms from a tax &
regulatory perspective.
► Suggest alternative
approaches where necessary
► Advising on tax issues
Association of Persons
('AOP') exposure under the
consortium model and
suggesting adequate
safeguards.
► Identification of a suitable
business model.
► Formulate appropriate tax
positions
► Back End advise on tax and
regulatory clauses in the
bid negotiation with the
objective of optimizing the
tax & regulatory
implications.
► Responding to queries
pertaining to any tax or
regulatory issues which
may arise during the
discussion stage
► Assistance in set up
of the agreed upon
business model.
► Advise on
subcontracting/
local purchase
arrangements from
tax and commercial
perspective
► Formulate
appropriate tax
positions
► Plan for advance
ruling for upfront
certainty/ clarity
ServicesOffering
Support
atevery
stage Contracting Process
► Corporate tax and
indirect tax
compliance
► Accounting services
► Background check
(Fraud investigation)
on viability of the
chosen Indian Offset
Partners (IOP’s)
► Foreign Investment
Promotion Board
(FIPB) & Industrial
License (IL)
application and
clarifications for IOPs
Importance
► Develop certainty with
respect to impact and
incidence of direct and
indirect taxes in India
► Establishment of a tax
efficient and regulatory
compliant structure in
India
► Compliance with ever
evolving tax and
regulatory regime in India
► Upfront identification of tax
and regulatory implications
under the RFP
Services offering - Defence Offset
Bid Stage Contract
negotiation stage
Post contract
signing support
Pre bid stage
1 2 3 4
Offset process
► Help evolve an
understanding of the offset
process and stakeholders
Indian offset
partners(IOPs)
► Identification of IOPs (M&A
/ JV / Licensed
Manufacture / Sourcing)
► Clarification from
DIPP/FIPB/MoD regarding
their regulatory status
Support services
► Industrial Licensing for
IOPs
► IOPs financing
► Joint venture structuring
Offset Proposal
► Identification of methods
of offset discharge
► Structuring/vetting of
Technical and commercial
offset proposals
► Support in answering the
queries of the MoD
Indian offset
partners(IOPs)
► Structuring contractual
arrangements with IOPs
► Valuation of offset
attributable
► Financial & Background
due diligence of IOPs
► Continuous support
through on call
advisory
► Support in
preparation of
appropriate
responses to MoD
queries
► Identification of
stand by IOPs in
case of removal of
existing ones
► Any other support
as maybe required.
Servicesoffering
Supportatevery
stage
Contracting process
► Support in compiling
documentation
required for offset
discharge
► Support in
preparation of
quarterly / half
yearly reports on
fulfillment of offset
obligations.
Importance
► To ensure a suitable
Technical and commercial
offset plan that should find
favour with the TOEC and the
CNC.
► Support in getting the
technical offset
proposal approved in
time so that it does not
obstruct main contract
signing
► Continued support for
offset execution to avoid
penalties and loss of faith
with the MoD
► Evolve understanding of
offset process amongst the
core team for optimal
planning
► Identification of eligible and
viable IOPs who can sustain
through the duration of the
offset program
► Planning for submission
► Identifying the right
partners and
methodologies
► Getting the
documents right for
submission
► Building the right
offset program
► Getting the
optimum
economic value
for offsets
► Documentation
of offset
execution