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US EYES BIG-TICKET ARMS DEALS DURING HAGEL’S VISIT

defNEW DELHI: The Obama administration will push for the stalled mega deals for M-777 ultra-light howitzers and Javelin anti-tank guided missiles (ATGMs) when US defence secretary Chuck Hagel comes visiting from Thursday.

 

There will be talks on ways to further bolster the already expansive strategic partnership, ranging from sharing of intelligence and cooperation on counter-terrorism to joint combat exercises, but the cornerstone will remain the US offer to provide India with “ground-breaking” weapon technology on par with its closest allies.

 

Having bagged defence deals worth over $10 billion over the last decade, the US is obviously hungry for more. Of the different co-development and co-production offers, ranging from helicopters to UAVs (unmanned aerial vehicles), Washington is hard-selling the one for next-generation of Javelin ATGMs the most, said sources.

 

But no defence deal will actually be inked during the visit of Hagel, who is slated to meet PM Narendra Modi, defence minister Arun Jaitley, external affairs minister Sushma Swaraj, NSA Ajit Doval and chairman of the chiefs of staff committee, Air Chief Marshal Arup Raha on Friday.

 

Interestingly, Hagel is being accompanied by a top-level delegation which includes assistant secretary of state for political-military affairs Puneet Talwar and under secretary of defence acquisition, technology and logistics Frank Kendall. Pentagon’s Defence Trade and Technology Initiative (DTTI) with India, which is yet to gather steam, is led by Kendall.

 

While the $2.5 billion deals for 22 Apache attack and 15 Chinook heavy-lift helicopters are virtually finalised now, India is not too interested in buying the second-hand MRAP (mine-resistant ambush protected) vehicles the US had deployed in Afghanistan and will not be taking them home after its pull-back from the war-ravaged country later this year.

 

What the US is really keen on is the Javelin ATGM, which is facing stiff competition from the Israeli ‘Spike’ tank-killing missile. Under the over Rs 15,000 crore project to equip Indian Army’s all 382 infantry battalions with such man-portable missiles, there will be an initial direct acquisition, followed by technology transfer to defence PSU Bharat Dynamics for large-scale indigenous manufacture.

 

Similarly, Washington is keen to resurrect the long-pending $885 million deal for 145 ultra-light M-777 howitzers, which has hit a dead-end due to high costs and “non-compliant” offsets package, as was first reported by TOI. The air-mobile howitzers were meant to equip the new XVII Mountain Strike Corps (90,000 troops) being raised by the Army to gain “quick reaction force capabilities” against China.

 

The US says it’s working around foundational military pacts like CISMOA (communication interoperability and security memorandum agreement), which India is reluctant to ink, through the DTTI.

(Source: Times of India August 7, 2014)

 

 

BRAHMOS MISSILE EXPORT: DEFENCE INDUSTRY NEEDS GREATER INVESTMENT

 

“Supersonic cruise missile manufacturer BrahMos Aerospace said that South-East Asian and Latin American countries have shown interest in acquiring the 290-km range weapon system and it is possible to export the missile to certain friendly nations” Economic Times report said.

 

BrahMos Aerospace CEO Sudhir Kumar Mishra said, “Several South-East-Asian and Latin American countries want the BrahMos, expressed interest in it, particularly for the naval and coastal defence versions. A definite list of such countries already exists. We are progressing with our marketing strategy for exporting BrahMos to certain nations, subject to clearance from both Indian and Russian Governments,” the report mentioned.

 

India’s defence exports between 2010 and 2012 have been as low as $183 million and even former Defence Minister AK Antony had termed it as “woefully meagre”. While large volumes of public money have been invested in institutions like DRDO and other DPSUs, the rate of indigenous designing and production of weapons have been rather unimpressive.

 

Interestingly, till 2010, China was the largest importer of defence equipment but according to a Sweden based Think Tank, India since 2010 is the largest buyer of arms in the world, while China is considered as one of the bigger exporters of arms.

 

AK Niak writes in Times of India, “Socio-economic growth and a credible defence capability achieved through self-reliance are fundamental for a nation to secure a globally respectable position. In a world where a few developed countries enforce control regimes on defence equipment and technologies, it is imperative for a country like India — a growing economy with formidable capability, to maximise indigenisation and self-reliance in defence equipment. Further, with defence exports becoming an increasingly effective diplomatic tool in assuring regional peace and security, it is crucial for India to become a global defence exporter.”

 

Prime Minister Narendra Modi’s vision of transforming India from a major arms importer to a big exporter would probably depend critically upon the FDI in defence manufacturing. Better technology and indigenising them to cost-effective parameters would be key to bolster this industry sector. This is exactly how BrahMos emerged as a joint venture between Russia and India. “It is rated higher than the Babar missile of Pakistan, which was handed over to Pakistan by China,” says retired Major General Satbir Singh.

 

In his paper Gearing up for the Defence Exports: Challenges, Opportunities and Pitfalls, B Khaitan writes, “With high level of foreign investment now in our defence industry base, there are greater opportunities for Indian defence industry to work with partnership or in collaboration with overseas companies, thus enabling us to have broader market access. An effective management and fulfilment of collaborations arising out of off-set obligations can also provide an important foothold in new markets and lay the basis for lucrative follow-on and spin-off deals.”

 

Policy changes initiated by the Narendra Modi-led Government can pave way for better investment and higher returns. However, several hurdles have to be crossed before we see an expanded defence industry that could improve our exports figures.

(Source: Niti Central August 7, 2014)

 

INDIAN AIR FORCE TO RECEIVE AIR-LAUNCHED VERSION OF BRAHMOS MISSILE IN 2016

 

NEW DELHI, August 06./ITAR-TASS/. BrahMos Aerospace will be ready to deliver to the Indian Air Force the air-launched version of the BrahMos supersonic cruise missile in 2016, the company new President Sudhir Kumar Mishra said on Wednesday.

 

The air-launched missile will be installed on the Sukhoi Su-30MKI fighters, the head of the Russian-Indian JV told ITAR-TASS in an interview.

 

“The missile development is going on schedule. Its launch from the Su-30MKI fighter will be carried out by the year end, and the deliveries will start in 2016,” he said.

 

India’s Air Force has now a contract for the supply of 272 Su-30MKI fighters. After 50 disassembled fighters were delivered to India from Russia, the Indian aircraft corporation Hindustan Aeronautics Limited, HAL, assembled here 134 more aircraft under the licence. All the ordered fighters should be delivered by 2018 – 2019. India produces up to 60 – 70% of component parts for the Su-30MKI fighter.

 

The BrahMos missile with the length of nine metres and diameter 70 cm carries a 200-300 kg warhead. The missile range is 290 kilometres with a speed two times exceeding sound speed. The missiles have already been adopted for service in the Indian Army and Navy. The first test of the sub-launched version of the BrahMos missile was carried out in March 2014. The mass of the air-launched version of the missile is by 500 kg less and length – by 1.5 metres less.

 

BrahMos Aerospace was established in 1998. It was named after India’s Brahmaputra River and Russia’s Moskva River.

India hopes to sign an agreement on a smaller version of the BrahMos supersonic cruise missile with Russia before the end of the year, BrahMos Aerospace CEO Sudhir Kumar Mishra said on Wednesday.

 

It will take about three years to develop the new missile to be named BrahMos-M (BrahMos-Mini). Its various versions will be used by the Army, the Air Force and the Navy, Mishra said.

(Source: ITAR-TASS August 7, 2014)

 

 

CABINET APPROVES RAISING FDI CAP IN DEFENCE TO 49 PER CENT, OPENS UP RAILWAYS

 

NEW DELHI: The Union Cabinet on Wednesday allowed foreign investment in the Railways for the first time and raised limit for such investment in the defence sector, steps intended to raise funds for expansion of the Railways and encourage domestic manufacture of arms.

 

100 per cent foreign investment in railway infrastructure projects will be allowed while in the case of defence the limit has been raised to 49 per cent from the current 26 per cent, subject to the Indian owners exercising management control.

 

The FDI hike in defence is intended to cut imports by indigenising defence production as India is one of the world’s largest arms importers.

 

“It is a composite cap, incorporating all forms of foreign investment, FDI, FII, FPI, NRI, etc,” said a government official confirming that the proposals has been cleared. Experts did not seem impressed with the cautious stance of the Modi government on defence.

 

“Good development, but not great. Round one has gone to protectionist forces. 49 per cent is the same as 26 per cent technically and hence may not open the investment floodgates,” said Amber Dubey, Partner and India Head of Aerospace and Defense at global consultancy KPMG.

 

“We hope better judgment prevails and we have the FDI limit enhanced to 74 per cent later this year,” he added. Official notifications giving effect to changes will be issued soon, after the minutes of the cabinet meeting are finalised.

 

Foreign investment in defence will be though the approval route, implying it will have to be cleared by the Foreign Investment Promotion Board (FIPB). Though the 49 per cent cap will be general rule for the defence sector, 100 per cent overseas ownership will be allowed in case the investments comes bundled with state of the art technology. Such investment proposals will have to be cleared by the Cabinet Committee on Security (CCS).

 

In companies with a 49 per cent foreign holding, more than one Indian company will be allowed to hold the 51 per cent share, unlike the present norm that mandates that a single Indian entity should own and control the entire 51 per cent, a move that will encourage more domestic players to enter the sector.

 

In case of Railways, 100 per cent FDI will now be allowed in railway infrastructure segments such as electrification, signalling, high speed and suburban corridors. 100 per cent FDI will also be allowed through the Special Purpose Vehicle route to provide last mile connectivity to ports and mines. Further, some railway operations have also been partially opened up to foreign investment.

 

FDI is now allowed in PPP projects, suburban corridors, high speed train systems, and dedicated freight lines. Estimates suggest that the opening of railways to foreign investors will add 1-1.5 percentage points to the overall GDP growth. China and Japan are keen to invest in the railways sector.

 

As a result of these changes, railways transport will be removed from the list of prohibited sectors in the consolidated FDI policy.

(Source: Economic Times August 7, 2014)

 

BAE SYSTEMS LOOKS TO REVIVE CONTRACT FOR SUPPLY OF 145 GUNS TO INDIA

 

NEW DELHI: BAE Systems, which makes M-777 ultra-light howitzer (ULH) guns, is looking to revive a contract for the supply of 145 guns to India by pledging to comply with offset requirements in a letter to the ministry of defence.

 

The company is also open to reviving its partnership with Mahindra & Mahindra and is discussing possible joint ventures with two public sector companies, following the announcement that India will allow up to 49% overseas investment in the sector.

 

“We have conveyed to the defence ministry that our company is fully compliant with the offset rules and have written a letter confirming that we would comply with the direct offset rules,” Ian King, chief executive officer of BAE Systems, told ET. Offsets pertain to local investment commitments by overseas companies as part of purchase contracts.

 

The letter was required after defence minister Arun Jaitley informed Parliament that the contract was stuck. “The deal has not progressed due to cost issues and because the vendor has not been able to come up with a proposal fully compliant to the offset requirement,” Jaitley said. The Indian government ordered 145 M-777s in 2013 at a cost of aboutRs 3,500 crore but that could increase to as much as Rs 5,000 crore due to various reasons, including reopening of the assembly line. However, King clarified that the cost as cited by the US government last year was the upper end of the price band. “It is a ceiling price, which is subject to negotiations, and the price of the guns will be lesser than this,” he said.

 

The order was a government-togovernment contract between the US and India. BAE was the only shortlisted bidder left after Singapore Kinetics was blacklisted for 10 years by the government over bribery allegations that the company has denied. The US government had issued a Letter of Acceptance, which lapsed on October 15, 2013, and BAE is hopeful that this will be discussed during US defence secretary Chuck Hagel’s three-day visit to India starting Thursday.

 

The acquisition of the ultralight howitzer artillery guns is crucial for the Indian Army since these are to be positioned in mountainous areas bordering China in the northern sector and in the Northeast.

 

These guns are expected to dramatically boost the firepower of the army since they can be moved easily and are ideal for mountain warfare. King welcomed the move by the government to raise the foreign direct investment (FDI) limit in defence and said that it gives the company enough opportunity to get into more than one programmespecific joint venture. “I am happy with 49% and we will be looking at joint ventures with all industrial companies.

 

We are in advanced stage of discussions with two public sector companies for joint ventures on communications and guns,” said King, adding it was also open to reviving partnership with M&M.

(Source: Economic Times August 7, 2014)

 

 

BRAVING CHINA, INS SHIVALIK MAKES PORT CALL IN VIETNAM

 

NEW DELHI: In a clear indication of its resolve to protect the nation’s interest “wherever it lies”, a Navy warship on Tuesday docked at Vietnamese port of Hai Phong in South China Sea over which Beijing had asserted its territorial claims, besides cautioning Indian warships from venturing into the waters.

 

INS Shivalik, a guided missile stealth frigate, reached Hai Phong, as part of its deployment in South China Sea and North Western Pacific region. India has invested heavily in a couple of oil blocks in the region which is sovereign Vietnamese territory, but China has staked its claimed over the waters.

 

In 2011, another warship INS Airavat, which was sailing through South China Sea was warned by an unidentified source, over the radio, against venturing into what he called “Chinese territory”. Since then, India has called for international cooperation in enforcing and maintaining the UN laws on free navigation in the high seas in South China Sea, as a counter to the Chinese claims. However, a Navy spokesperson said the Indian warship’s visit to the Vietnamese port was “a fine demonstration of the operational reach and pursuit of India’s ‘Look East’ policy.”

 

Shivalik is part of the Navy’s Eastern Fleet, which is currently on deployment in the area under the command of Eastern Fleet Commander Rear Admiral Atul Kumar Jain. Three Eastern Fleet units, all frontline warships, had left Indian shores in mid-June on the Eastern seaboard long duration deployment and have since been operating in South China Sea and the Western Pacific Ocean.

 

The warships had earlier participated in the Indo-Russian bilateral ‘INDRA 2014’ and trilateral ‘MALABAR 2014’ exercise with the US Navy and the Japanese Maritime Self Defence Force (JMSDF) in the North Western Pacific Ocean and Sea of Japan last month.

 

“As a part of this deployment, INS Shivalik, a guided missile stealth frigate, under the command of Captain Puruvir Das, arrived at Hai Phong on a three-day goodwill visit beginning Tuesday,” a Navy spokesperson said. “The visit is aimed at strengthening bilateral ties and enhancing interoperability between the Navies of the two nations. During the stay in harbour, various activities are planned including official calls, reception on board ship, guided tours for Naval personnel and professional interaction between personnel of both the Navies,” he said. On departure, the ship will be a part of a drill, along with Vietnamese Naval ships, for improving interoperability in communication, search and rescue procedures and other areas.

 

The Navy’s Eastern Fleet had last visited Hai Phong in May 2012. The warship along with two others — INS Ranvijay, a guided missile destroyer and INS Shakti, a fleet support ship — would return to India in the mid-August from a two-month-long deployment.

(Source: New Indian Express August 7, 2014)

 

BATTLE HEATS UP FOR A SHARE OF THE DEFENCE PIE

 

When it comes to high-mobility, multi-purpose personnel carriers like the Humvee, which is the transport backbone of the US Army, India lags far behind. But in three years from now, the world’s third-largest armed force could have its own Humvee-like light combat vehicle – produced indigenously. With the opening up of defence production to private sector, with 49 per cent foreign participation, domestic automotive companies such as Tata Motors, Mahindra & Mahindra and Ashok Leyland are all in the running for this order.

 

“This vehicle can adapt itself for many uses. It can be used as a troop carrier or an ambulance, or for reconnaissance purposes. It can even carry small radars,” says Vernon Noronha, vice-president (defence & government business), Tata Motors. The vehicle will weigh 5 tonnes and will have eight or nine variants, he adds. Request for proposals for this class of vehicle will be out as early as September, believes Noronha, followed by year-long trial and testing.

 

The Humvee-like troop carrier is only one of the machines Indian companies are hoping to supply to the country’s armed forces. It is estimated that over the next seven years or so, India will buy equipment worth $75 billion to $100 billion. And domestic companies hope to bag a large chunk of those orders.

 

At least eight Indian companies are eyeing the Rs 52,000-crore contract to supply the heavily-armoured Future Infantry Combat Vehicle, or FICV, to the Indian Army. With annual service and maintenance agreements, this figure would swell further. At Rs 20 crore apiece, the vehicle, which can be used both on land and in water, will have an anti-tank guided missile system and a machine gun. The government is also working on contracts for rocket launchers, combat vehicles, troops carriers, light-strike vehicles, missile carriers, radars, mounted gun systems, submarines and transport planes, to name a few. Though Finance Minister Arun Jaitley has raised the defence budget 12 per cent to $38.35 billion (Rs 2.3 lakh crore), because of the limited reach of state-owned producers of defence goods, India remains the largest importer of arms in the world. More than 65 per cent of the country’s defence needs are met from outside India. Now, as the government tries to progressively replace the Soviet-era military hardware, the stress is on greater involvement of private entities. For example, earlier this month, the government cleared the project for the production of military transport aircraft which is open only to the private sector. The government wants to replace the 56 Avro transport aircraft bought in the 1960s. Over a dozen private companies, including Tata Motors, Mahindra & Mahindra, Ashok Leyland, Bharat Forge, Pipavav Defence, Titagarh Wagons, Larsen & Toubro and MRF, are eyeing the contract that is worth over Rs 60,000 crore. Sources say over the last one month, activity at the defence ministry has gathered significant pace. “The frequency of meetings has increased. The government is inviting us (private sector) to explain its needs. We see a very positive environment ahead,” says Noronha.

 

The government’s decision to increase foreign direct investment in defence manufacturing to 49 per cent from 26 per cent has also given a boost to private companies. “International defence companies are eager to do business in India and are already in talks with many local companies,” says a senior executive of an automobile company. There is the hope that complex technology, details of which are closely guarded by foreign companies, would now be shared with the Indian partners.

 

Collaborations are already under way. Chennai-based Ashok Leyland, which has been supplying the Stallion military truck to the army, has forged a tripartite agreement to manufacture mounted gun systems with French gun-maker Nexter and engineering giant Larsen & Toubro. Mumbai-based Tata Motors is holding talks with some producers of foreign defence goods, while Pipavav is in the advanced stages of bagging an Indian Navy contract to modernise or replace up to 100 ships over the next decade. The Australian unit of Swedish giant SAAB is assisting Pipavav in this venture under a technical partnership agreement.

 

In addition to Tata Motors, 13 other companies of the Tata group have interests in the defence sector and are looking forward to orders worth Rs 8,000 crore. Tata Advanced Systems, for instance, makes airframe components for the C-130J heavy-lift transport military aircraft, while Tata Power SED has worked on integrated guided missile systems and multi-barrel rocket launchers.

 

In some cases, private companies are not willing to wait for the product requirement to come to them. Instead, products are being developed in advance.Tata Motors, for example, has developed a 12X12 truck (the second of its kind in the world), which can haul inter-ballistic missiles to any part of the country. And the Kalyani group, the promoter of Bharat Forge, is in the process of developing mine-protected vehicles, a ground penetrating radar and ultralight gun system.

 

Can corporate India catch up?

The road ahead, however, is long and challenging. While a handful of private Indian companies have been in the defence business for the last few decades, they are, however, no match for their western counterparts, some of whom have been around for over 200 years.

 

Major General K B Kapoor (retd), director, Centre for Joint Warfare Studies, says, “Technology has both hard and soft components. While India is very strong as far as the soft components are concerned, it still lacks in the hard components of technology, which necessarily means military hardware.”

 

Known for frugal engineering, Indian companies will face the challenge of consistently maintaining the highest standards of quality. Delays or alterations to projects leading to cost escalation that could hinder government approvals will also have to be taken into account, say market watchers.

 

S P Shukla, president (group strategy & defence sector), Mahindra & Mahindra, says, “Stage I is about defining the specifications followed by request for prototype. Next comes the making of the prototype according to the specifications. Generally, these projects run into thousands of crores of rupees. This segment is not for companies with a small balance sheet.”

 

Mahindra & Mahindra has five operational companies under defence. It is the only business house in India that is engaged in projects meant for all the three wings of the armed forces – the army, navy and air force. Since the FDI limit was raised, the group has opened talks with several potential partners. Though Shukla declines to divulge details of the projects the group is working on, he admits that the company is in the race for the FICV project. Others, such as the Kalyani group of Pune, are asking for speedier licences and better clarity on the issue of ownership. The Baba Kalyani-led group is looking at a number of segments, including artillery systems, armoured vehicles, futuristic ammunition, air defence systems, defence electronics and protected vehicles.

 

“It is important to address the problems associated with approvals and grant of industrial licences in a time-bound manner,” says Amit Kalyani, executive director, Bharat Forge. “Currently, licences are in the pipeline for many years and we still do not have clarity on the issue of ownership and investment through Foreign Institutional Investor or the portfolio route.”

 

The delays are palpable. Sometime in 2003, the government had announced that Mahindra & Mahindra had been issued a licence to make small firearms. The government was to initially procure 50,000 of these guns and order another 200,000 if their quality was found to be good. Mahindra & Mahindra immediately got down to work and tied up with an Austrian company called Steyr. It worked hard to customise the gun for Indian conditions. But there was no headway in this decision. The licence has since expired.

 

However, the problems notwithstanding, a beginning has been made. And the private sector hopes to make the most of it.

(Source: Business Standard August 7, 2014)

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