A version of this article appears in the June 9 edition of Aviation Week & Space Technology.
The new right-wing Bharatiya Janata Party (BJP) government in India, headed by Prime Minister Narendra Modi, is giving defense industry executives reasons to smile.
Modi, who had promised during his campaign to establish an efficient acquisition system, quickly tasked Finance Minister Arun Jaitley with leading the defense ministry on an interim basis, a decision that industry believes will expedite weapons programs. And in a move that could allow India to bolster its defense manufacturing sector and ease coproduction with global companies, the BJP government is proposing to lift the cap on foreign direct investment (FDI).
In the near term, all eyes are focused on two key stalled weapons programs, the acquisition of 126medium-multi-role combat aircraft (MMRCA) and 197 light-utility helicopters (LUH). “There is a perception that the acquisition process has slowed down in the last few years,” says Jaitley, a seasoned politician and corporate lawyer. “Expediting them would be a top priority.”
An official from, which manufactures Rafale, tells Aviation Week, “We are expecting the deal to be signed anytime now.”
Even so, the new government remains vigilant after a series of failed defense deals and corruption allegations that have left the military short of crucial equipment.
In addition to the still-unsigned deal for MMRCA Rafale, the(IAF) is also still waiting for a decision on a $3 billion proposal to acquire 56 transport aircraft to replace the air force’s antiquated HS748s. After the cancellation of the helicopter deal, the government also put on hold the proposed acquisition of the LUH to replace the vintage Cheetah/Chetak fleets that undertake patrol, reconnaissance and casualty evacuation missions in forward locations and high-altitude areas.
The air force, which is technically supposed to have 42 fighter squadrons, has only 34, each consisting of 20 aircraft. And six of those squadrons are based on the aging MiG-21 fighters, which are on the verge of being phased out.
“Delay, indecision and lack of clarity in defense procurement have gone to seriously erode the combat fitness of the services. For instance, even as IAF continues to be handicapped by the problem of squadron depletion, the deal to acquire the MMRCA could never be finalized—even two years after the aircraft emerged a winner in the closely contested tender,” says Radhakrishna Rao, visiting fellow at the think tank Vivekananda International Foundation. “Incidentally, while IAF has sufficient heavier Su-30 MKI combat aircraft and the lighter Mirage-2000 and MiG-21 Bs in its fleet, it is lacking in medium-range multirole fighters.”
Similarly, the proposal for the acquisition of 197 light observation helicopters for the Indian defense forces and the Indian navy’s plan to acquire 16 multirole helicopters have been in limbo for more than a decade now, Rao adds.
is in negotiations for six Transport aircraft for the air force and has been standing by to compete for the Cheetah/Chetak replacement. “This is the third time the [request for proposals] has been issued for the same procurement, the first being in November 2003,” says Yves Guillaume, president of Airbus India.
Andis awaiting approvals for projects including the purchase of 22 Apache attack helicopters worth about $1.6 billion and 15 Chinook heavy-lift helicopters worth about $1 billion. “Timely decisions will rekindle economic growth and strengthen India’s defense services,” says Pratyush Kumar, president of Boeing India.
All of these high-priority acquisitions will require extensive budgetary support. But that is lacking. Even with a 10% increase in defense spending in 2014, the allotted amount for weapons purchases grew by just 3.2%.
Despite the potential for budget difficulties to continue to hamper investments in new programs, defense officials hope that the interim defense minister can use his dual role to the military’s advantage. “The finance minister himself holding the defense portfolio will help in allocating adequate funds for modernization programs and quicker approvals of pending projects,” says a defense ministry official.
Allaying concerns over how he will handle two huge ministries, Jaitley, the “caretaker” defense minister assures: “I will be coming to the Ministry of Defense every day to clear the backlog and take decisions.”
Jaitley will have experienced backup. Deputy Defense Minister Rao Inderjit Singh had been the junior minister for defense production from 2004-09.
In addition to speeding procurements, the fledgling government is proposing a blockbuster shift in policy: removing the 26% cap on Foreign Direct Investment in the defense sector. The change is designed to reduce India’s reliance on other defense suppliers—Russia, the U.S., Israel and France—for imports. And it opens the door to more coproduction arrangements with foreign companies that can build India’s ability to eventually manufacture its own products.
Defense production was opened up fully for the Indian private sector in 2001, but FDI remained capped at 26%. The trade ministry, as part of its national strategy for local defense production, is likely to give a major boost to high-tech and high value-added defense exports through incentives in the upcoming Foreign Trade Policy for 2014-19 in August.
“Arms imports worth billions of dollars could have been avoided had this happened earlier. The FDI reform will open the floodgates of investment in India’s defense industry,” says Amber Dubey, partner and India head of aerospace and defense at global consultancy KPMG. “Our vision is to have a best-in-class fighter jet being designed, developed, assembled in and exported from India by 2020.”
A final decision on the FDI proposal is expected later this summer.