‘Private sector may not make a dent in defence sector’

Subhadip Sircar

Mumbai, May 16: THE domestic private sector may not make a dent in the defence sector, unless exports are permitted to boost volumes. The opening up of the defence sector to domestic private players will not be financially viable for domestic companies unless they go in for volumes, which in turn, would require a major thrust on exports, feel senior army officials.

But according to the government directive, private players would be permitted to sell their products only to the government immediately. This may be relaxed in course of time. According to the directive, though the export potential would also be explored, this would be subject to government clearances.

Senior army officials are of the opinion that while private players like Tata Engineering and Mahindra & Mahindra Ltd (M&M) can have a presence in certain areas, it would not be viable for them to make a foray into manufacture of tanks and other strategic equipment. This is primarily due to the cyclical nature of defence demand thereby making it unviable in volume terms.

Senior army officials are however of the opinion that the domestic private sector could make its presence felt in areas like radio sets and manufacture of the outer covering for shells used for the T-10 tanks. Currently, the eight public sector undertakings (PSUs) are the major players in the defence equipment sector with revenues accounting for Rs 8,000 crore (considering the end product). The 39 government-owned ordnance companies account for Rs 5,000 crore. The private sector companies currently has a revenue earning of around Rs 4,000 crore. However, private players also contribute as intermediaries for inputs to the PSUs.

The private companies like Tata Engineering and M&M have decided to jump on the bandwagon following the recent directive to open up defence production. While both Tata Engineering and M&M have an existing presence in the defence sector in the form of trucks and utility vehicles, both are now planning major forays in this field. M&M has already set up a separate division Mahindra Defence Systems (MDS) to explore the possibilities.

Army officials, however, added that though the PSUs do outsource equipments, it was not a possibility that they would enter into joint ventures with the private players.

M&M already supplies soft-top jeeps to the army. The company has already supplied over 2,500 soft-tops in the last fiscal. M&M’s Bolero has also passed the army trial evaluation test and the company is also expecting orders on this account, according to a company official. M&M has also made a presentation to the army’s quality certification top brass for self-certification of vehicles. This, company officials say, will eliminate the delays in the supply of equipment.

M&M’s revenue from defence equipment revenue currently stands at around Rs 100 crore. Under the proposed licensing norms, companies seeking entry into defence production would need a minimum capital of Rs 100 crore. Foreign investments would be permitted but capped at 26 per cent. A level playing would be provided to private players through customs duty rationalisation on imports.