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Indian defence companies have cause to cheer with Prime Minister Narendra Modi asserting on Saturday that the country would be encouraging local companies in sectoral production, and that India should be exporting defence equipment.
Experts say even if the government gives part of its estimated purchase orders worth $247 billion in the next three years to Indian companies, it will change the dynamics of these firms.
Companies in the sector (Bharat Electronics, BEML, Pivavav Defence) have already seen a boom in their share prices (see chart) since Modi won the general election. The shares of Larsen & Toubro, also investing in the sector, are also up 23 per cent.
Indian companies are vying for orders for trucks, jeeps, submarines, frigates, aircraft carriers, offshore patrol vessels, corvettes, missile systems and other military hardware as well as software.
"National security is on top of the Modi government's priority list and manufacturing military hardware in India, with a liberalised FDI (foreign direct investment) regime, in this vital sector will make India self-reliant and it will become a global production hub," says Nikhil Gandhi, chairman of Pipavav Defence, which builds ships for the navy and coast guard.
A number of majors such as Mahindra, Reliance and the Tatas are eyeing the sector. The country's largest corporate group, Reliance Industries, tied up with Dassault Aviation after the government ordered 126 fighter jets from the French company. Dassault makes the Rafale and and Falcon business jets, and the Reliance Industries joint venture will enter into both these sectors.
Ajay Shriram, president of the Confederation of Indian Industry says, "The time has come for India to project itself as an ideal destination and attract foreign manufacturers to set up defence manufacturing facilities in India for global defence markets. India's own defence procurement will act as an incentive for foreign equipment manufacturers to set up facilities in the country. This should catalyse both the development and influx of high-end technologies and efficiencies, which can be used to pioneer innovations across multiple sectors and help create new jobs."
He says small and medium enterprises (SMEs) will be the biggest beneficiaries of increased defence production in the country. Huge supply chains, complying with world-class standards, will come up around the manufacturing facilities. This would also help Indian SMEs to enter the global supply chain of manufacturers.
