Indian Procurement Reform is Real, Modi Tells Aero India

Neelam Mathews
Feb 18, 2015

Indian Prime Minister Narendra Modi's speech at the February 18 opening of the Aero India show in Bangalore signaled that his government intends to fulfill its promises to reform the country’s defense procurement policies. Exhibitors responded positively to the prospect that India’s leaders might finally put an end to years of what many in the industry view as gross inefficiency and missed opportunity.

Modi, elected last year on a platform of economic reform, acknowledged that a key plank of his reform agenda is opening up opportunities for India’s private sector aerospace and defense companies so that not all partnerships with Western manufacturers have to be channeled through state-controlled entities that have often struggled to manage programs effectively.

“Our defense industry will succeed more if we can transform the manufacturing sector in India,” Modi told show visitors in a speech that reiterated the key objectives of his “Make in India” campaign. He pointed to Dynamatic Technologies as a prime example of an Indian private company that is exploiting partnerships with foreign OEMs.

“We are expanding the role of the private sector, even for major [defense] platforms,” said Modi. “Our goal is to provide a level playing field for all. We speak in terms of national capacity, not public sector or private sector.”

On the opening day of the show, Dynamatic and Boeing formally inaugurated a new Indian factory that is making parts for the U.S. group’s Chinook military helicopter, with the first pylon ramp assembly being delivered on the same day. Earlier this week, Airbus appointed Dynamatic a tier-one supplier for its A330 airliner.

Addressing defense contractors, Modi promised a streamlining of military procurement procedures and improvements in the way research and development funding is allocated. All procurement decisions will be simpler, faster and more accountable, he said, but he stressed that there will be a strong preference for supporting programs involving manufacturing in India.

Acknowledging a recent government ruling that allows the level of foreign direct investment in Indian defense and aerospace companies to be as high as 49 percent, Modi said that this limit might be raised in cases where a particular project delivers “state-of-the-art technology” to the country. “I want our offsets policy not [to be] a means to export low-end products, but [rather] to acquire state-of-the art technology and skills in core areas of priority,” he added.

At the same time, India now permits foreign institutional investors to own up to 24 percent in Indian firms and in these situations there is no longer a need to have an Indian investor holding at least a 51-percent stake. Industrial licensing requirements have been eliminated for a number of items.