India and the UAE are allies in arms and defence | The National
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MUMBAI // The UAE and India are increasingly joining forces in the defence and aerospace industry.
Reliance Group, controlled by the Indian billionaire Anil Ambani, last month unveiled plans to team up with the UAE’s Emirates Defence Industries Company to explore manufacturing defence equipment and arms, military vehicles and naval ships.
A few weeks earlier a memorandum of understanding was announced between Reliance Defence and Abu Dhabi Ship Building to look at a possible strategic partnership to build naval ships for the GCC.
India and the UAE over the summer revealed that they would cooperate on defence issues and manufacturing following the visit of Narendra Modi, India’s prime minister, to the UAE, when the two countries announced plans for a US$75 billion fund to invest in Indian infrastructure and production of military equipment and space technology.
More recently, the UAE Space Agency has been discussing possible cooperation with the Indian Space Research Organisation.
“The UAE has traditionally been an extremely close ally of India,” says Wilfried Aulbur, the managing partner for India and the chairman for the Middle East and Africa at Roland Berger Strategy Consultants. “In terms of geopolitical orientation, the UAE is one of the closest ports of call for India outside its immediate neighbourhood.”
India offers the major advantage of cost competitiveness, making the partnership a “natural fit”, while the large Indian diaspora in the UAE only helps to cement this further, he says. Besides, labour costs are far lower in India and the country also has a large pool of workers.
“The UAE is also one of the very few regions in the world which has been able to leverage offsets to build a robust military-industrial complex,” says Mr Aulbur. “There has been significant capability in the UAE created in aerospace and land systems to complement the historical strength in maritime and shipbuilding. India looks to the UAE as a market but also as a source for partnering with technology providers in some of these businesses. This is supported by the ability of the UAE to attract global talent and provide difficult-to-congregate skills in one location.”
Reliance said that for the UAE defence industry “the costs for setting up facilities, recruiting and developing scientists and engineers are high”.
It added: “The partnership will aim at bringing synergy to bring down operational costs and leverage each other’s capabilities.”
Mr Modi has been pushing for India to become a global manufacturing centre under his Make in India campaign, and the defence and aerospace sector is an important part of this. Indian firms believe that there is huge scope for India to increase its role in defence and aerospace manufacturing. Companies including Larsen and Toubro, and Godrej are among those expanding their capabilities in the sector to tap a potentially lucrative market.
“The new government has clearly stated its goal to promote investment in the defence sector, both in research and development and production in order to boost manufacturing and generate employment in order to create a domestic defence industrial base, thereby resulting in higher self-reliance and indigenisation,” says a report by PricewaterhouseCoopers (PwC).
Only about 30 per cent of India’s aerospace and defence equipment is manufactured domestically, says PwC.
India was the world’s largest importer of military equipment over the five years to the end of last year, accounting for 15 per cent of global arms imports, according to the Stockholm International Peace Research Institute. In second, third, and fourth places were Saudi Arabia, China, and the UAE, with India importing more arms than these three countries combined. The government “envisages India as an exporter of defence equipment over the next decade”, according to ASA and Associates, a chartered accountancy firm in India. “The government has done away with the requirement of licences for defence for all but 16 items.”
India last year raised the cap on foreign direct investment in its defence sector to 49 per cent from 26 per cent.
“Defence manufacturing in India, in general, is at a nascent stage and even more so for the private sector,” says Kaustubh Shukla, the chief operating officer of the industrial products division at Godrej & Boyce, part of one of India’s biggest conglomerates, the Godrej Group. “The need for establishing domestic defence manufacturing capabilities and capacities has been felt and articulated, and work to put in place a vision, policy and regulatory framework is under way.”
Mr Shukla says that India’s strengthening of its defence and security ties with the UAE “is great news”, pointing out that this signals that “India has definitely emerged as a technically strong and innovative manufacturing destination”.
The company is projecting “sustained growth as certain” in terms of its defence manufacturing, says Mr Shukla.
“Indian manufacturers are becoming increasingly sophisticated and competitive, and encouraged by the government initiative for ‘Make In India’ to replicate in defence what we are already doing in several other sectors.”
Just as India has emerged as a global force in the pharmaceuticals and information technology industries, he believes that it can also emerge as a leader in defence manufacturing.
India’s defence and aerospace manufacturing growth is being driven by geopolitical threats, the rise of internal security threats, and a need for new equipment, says Mr Aulbur.
Mr Shukla says these three issues result in the government having extremely large capital outlays for the sector. “The government is also leveraging these large outlays through policies like offsets to ensure development of an Indian industrial base in this sector,” he says.
India is expected to spend close to US$200 billion for defence capability expansion and another $150bn on homeland security capability expansion over the next eight to 10 years, according to Roland Berger.
This growth is creating significant industrial activity, says Mr Aulbur. “For example, for Roland Berger in India, aerospace and defence is a key focus area and we already have the largest on-ground consulting teams serving a multitude of clients: international players in India, Indian companies as well as government. We find levels of interest in this sector expanding with more businesses starting to evaluate how they could participate in the aerospace and defence value chain,” he says.
India’s private sector players still need to put in significant efforts to develop the sector – and partnerships with the UAE can help with this process.
“These companies need to invest now in order to build capabilities that stretch their technical, operational, research as well as partnering capabilities so that they are considered world-class producers as the industry matures,” says PwC.
“For this to happen, these companies will have to particularly focus on their organisation’s ability to partner with foreign companies on one hand, and the government on the other, as well as innovate and absorb technologies.”
It concludes that India’s defence and aerospace industry is at a crossroads. “History will look upon these few years when the foundation of a strong defence industry was laid, or an opportunity to build this industry was frittered away.”
Recent major developments in India’s defence sector:
Helicopter deal with Boeing
India two weeks ago signed a US$3billion deal to buy 15 Chinook and 22 Apache helicopters from the US aviation company Boeing. India’s existing helicopter fleet is made up of old Russian-built choppers. The sale had been pending for a couple of years and Boeing extended the deadline several times, keeping prices of the helicopters at the same level. Delivery is expected to start in three years.
Germany chases submarine win
During the German chancellor Angel Merkel’s visit to India a week ago, she said Germany would work with India on defence cooperation. German companies are expected to be bidding for a deal to supply India with submarines over the coming months.
L&T wins artillery order
Larsen and Toubro, an Indian conglomerate, was last month announced as the finalist for a $750 million contract to supply 100 artillery guns to India’s army. It did so ahead of global manufacturers, according to The Economic Times, an Indian business newspaper. The paper reported that the weapon would be the first new artillery gun to be manufactured in India since the 1980s.
Home-grown jet in Rafale dogfight
Mr Modi in April announced plans to acquire 36 French Rafale fighter jets, manufactured by Dassault Aviation. But reports state that India has scrapped plans to buy more of the fighter jets beyond this, instead favouring a made-in-India Tejas light combat aircraft, which is widely considered inferior.
Combat helicopter completes trial
Hindustan Aeronautics Limited (Hal), based in Bangalore, last month revealed that it successfully carried out trials of an Indian-designed and developed light combat helicopter. Hal said the advantage of developing helicopters indigenously was that they could be designed to perform effectively in high-altitude areas. “This mix of extreme altitudes and relatively high temperatures saps helicopter performance and, as such, a few types of helicopters are able to operate effectively all year around.”
