BANGALORE -- A large-scale defense equipment renewal project, worth $130 billion, announced earlier this month by the Indian government led by Prime Minister Narendra Modi is attracting great interest from major arms manufacturers.
Defense Minister Rajnath Singh outlined a spending program over an eight-year time frame to modernize India's armed forces at the biennial air show Aero India held in the southern Indian city of Bangalore.
The announcement came amid a monthslong confrontation between India and China along their Himalayan border since last May. A clash in mid-June in the region's Galwan Valley left 20 Indian soldiers dead -- the first deadly battle between the nuclear-armed Asian giants in 45 years. China, too, is believed to have suffered unspecified casualties.
It also followed the Indian government's decision to increase its capital expenditure, the component that funds purchases of weapons, in its defense budget for fiscal 2021, starting in April, by more than 19% to 1.35 trillion rupees ($18.6 billion) from 1.13 trillion rupees the previous year.
The increase of 213.3 billion rupees is the largest in the last 15 years, according to a Defense Ministry statement. The budget also made this fund nonlapsable for the first time, allowing it to roll over next year if negotiations for weapon purchases drag on -- a major reform.
Among new contracts up for grabs is for the Indian Air Force to acquire 114 medium fighters. Boeing, Lockheed Martin, SAAB and MiG are among the contenders for the estimated $25 billion contract.
The eight-year spending spree is needed to rearm an aging military machine after India spent less than 3% of its gross domestic product on defense for over a decade. Conflicts on two fronts with Pakistan and China seem to have made the country decide to make a serious upgrade of its defense equipment.
"There is tremendous strength and opportunity in India's defense industry -- both private and public," William L. Blair, vice president and chief executive, Lockheed Martin India, told Nikkei Asia. India is already a critical market for the company, Blair stressed.
Lockheed Martin, as an example, has a joint venture with one of the leading local conglomerates, Tata Group, to manufacture major components for the C-130J Super Hercules transport aircraft. "Joint ventures and Indian partners have generated $600 million worth of exports and produced over $200 million in India industry revenues," Blair added.
It is clear that Blair's comments are meant to promote his company's contribution to the Modi government's "Make in India" campaign. Modi took this ambition one step further last year when he announced that India will aim for $5 billion in arms exports annually within five years, a big leap from the $1.3 billion it sold in the year ended March 2019.
Boeing, for its part, has a joint venture with Tata Group's Tata Advanced Systems to manufacture the crown and tailcone assembly for the CH-47 Chinook helicopter and vertical stabilizers for the AH-64 Apache helicopter -- both recently purchased by India.
The Tata-Boeing facility in the southern city of Hyderabad has been delivering AH-64 Apache fuselages since May 2018 for global customers.
"India's aerospace industry is persevering through the [COVID-19] pandemic, which has brought significant challenges. The nation's fundamental growth drivers in defense remain resilient and robust, making India an attractive business destination globally. We are excited about the potential for partnership and growth in India," Salil Gupte, president of Boeing India, told Nikkei.
Reflecting the renewed interest in India as one of the world's top weapons markets, a total of 201 memorandums of understanding were inked for product launches and technology transfers during this year's Aero India, up from 50 two years ago.
Among one of the prominent MOUs, Israeli company Rafael Advanced Defense Systems will partner with Indian peer Bharat Dynamics to jointly provide an anti-torpedo defense system called SHADE for the Indian Navy.
Such partnerships are a result of India's efforts to create a capacity for the development of a domestic defense industry ecosystem. India's Department for Promotion of Industry and Internal Trade, for example, in September allowed foreign direct investment of up to 74% under the automatic route, which does not require prior government approval, in the defense manufacturing sector, up from 49%.