Eye on Defence

March 2015

Dear readers,

Contents
Introduction

Contents title

Indigenous submarine capabilities and

Contents
subjects programs:
warshipmanufacturing
issues and concerns
2
Defence budget 201516

11

Request for information

16

Request for proposals

17

List of Industrial Licenses (ILs) filed in

November 2014 February 2015 19
New projects/investments
/contracts

21

Joint ventures and alliances

23

Country-level deals and initiatives 26

Industry buzz

28

The navy is the most indigenized force with capable design bureaus and
a vibrant industrial base serving the various needs of Indian shipyards
engaged in manufacture of warships and other auxiliary vessels. However,
one area in which the capability of the naval force has lagged behind,
and in the recent times suffered several setbacks, is the force projection
of submarines. This edition of Eye on Defence tries to gauge the current
inventory of the Indian armed forces in terms of the force readiness of
submarines and also lists the various acquisition programs currently in the
pipeline. Probable competitors of these programs are highlighted along with a capability map of
Indian companies engaged in this segment.
Indias Union Budget for the fiscal year 201516 was presented in the Parliament on 28 February
2015. With a view to meet industry expectations, the Finance Minister unveiled a pragmatic
Budget with a key focus on giving an impetus to the manufacturing sector and bringing about an
investor-friendly economic climate in the country. The Government has increased its allocation on
defence expenditure to US$41.12 billion as compared to last years figure of US$ 38.17 billion
an increase of 7.74%. The Finance Minister mentioned in his speech that it is the intent of the
Government to promote transparency and the Make in India initiative in defence manufacturing.
This edition of the Eye on Defence studies the effect of the Budget on the armed forces planned
acquisitions and identify lacunae in the budgetary planning process, which if removed, may lead to
enhanced efficiency and accountability.
Among the regular sections, we have included details of applicants for industrial licenses, RFIs/
RFPs released, new projects and investments, joint ventures (JVs) and alliances, country-level
deals and the latest buzz in the industry.
I hope you find this issue useful. It has been our constant endeavor to make this publication
increasingly relevant for you, and we would appreciate your comments and suggestions in this
regard.

K. Ganesh Raj
Partner and Leader
Aerospace and Defence practice

Indigenous submarine capabilities and warshipmanufacturing programs: issues and concerns

Naval capability plan
The Navys Maritime Capability Perspective Plan (MCPP) 2005
2022 envisages that force levels will not to dip below the existing
127 warships (including 13 conventional submarines, 65 of which
comprise major combatants such as aircraft carriers, destroyers,
frigates and corvettes). The navy owns around half the submarines,
destroyers and frigates it needs at present. Considering their
service lives of around 30 years and replacement of warships
that are to be decommissioned after completing their life-cycles,
around five ships need to be acquired each year just to replace old
warships.
The need to have a credible submarine force is recognized by the
defence establishment as the existing inventory has been depleting
at a very fast rate. Projections indicate only five to six of their
number will be operational by 2020. The focal point of the Indian
Navys modernization plan revolves around acquisition of ships/
vessels and submarines as well as strengthening its aerospace arm.
In the recent past, the Navys submarine capabilities have been a
matter of serious concern for various reasons including delayed
procurement planning, delays in their production resulting in ageing
inventory, over-exploitation, and lack of maintenance as well as
spares and indigenous capabilities. The Comptroller and Auditor
General (CAG), in its report for the year 200607 (published in
2008), noted that Indias submarine fleet is ageing, and by 2012,
63 % of the vessels would have completed their operational lifespan.
It pointed out that if the construction plan for new submarines is
not expedited, around two-third of the existing fleet would have
completed their prescribed life by 2012 by the time the first
new submarine is inducted according to the present schedule.
Furthermore, the CAG indicated that due to the ageing fleet and
prolonged refit schedules, the average operational availability of
submarines is as low as 48%.
Currently, availability of submarines with the Indian Navy is
much below the envisaged force level and a large number in the
existing fleet will become due for de-commissioning very soon,
leading to a sharp decline in the fleet. It seems that ageing is not
the only factor adversely affecting the submarine fleet. The CAG
has also discovered that they are being overexploited. Timely
refit and maintenance is essential for ensuring their operational
availability and readiness. In the absence of these measures being
implemented, we have seen slippages in the domain. This assumes
grave importance on the backdrop of a series of accidents involving
various naval platforms, e.g., submarines INS Sindhurakshak and
Sindhuratna.
According to the CAG report of 2008, the Indian Navys projected
requirement for a submarine fleet was approved in 1997, but the
contract with Armaris, a JV between DCN and Thales, was only

| Eye on Defence

completed in October 2005. This was despite the fact that the
Navys force level was depleting fast. Moreover, it took almost
a decade to finalize the contract for construction of 25% of the
envisaged force level. Consequently, the first submarine that was
expected to be operational by 2012 is not yet ready.
Taking into consideration the vintage of the Indian navys current
fleet of submarines, it is evident that it is facing an acute problem
due to their high average age. The prescribed or designed life
of a submarine is 25 to 30 years. However, around 11 Indian
conventionally powered submarines are more than 20 years old,
and 8 of them more than 25 years old. Out of the four Shishumar
class submarines, three are close to completion of their operational
lives and will need to be replaced from 201617 onwards, and the
remaining one a few years later. During this period, the first six
Sindhughosh/Kilo class submarines will also be nearing the end of
their operational lives and will need to be replaced. The figure below
depicts the shelf life of submarines with the Indian Navy.

Age profile of submarines

Class

Present age

INS Shishumar (S44)

>25

INS Shankush (S45)

>25

INS Shalki (S46)

>20

INS Shankul (S47)

>30

INS Sindhughosh (S55)

>25

INS Sindhudhvaj (S56)

>25

INS Sindhuraj (S57)

>25

INS Sindhuvir (S58)

>25

INS Sindhukesari (S60)

>25

INS Sindhukirti (S61)

>20

INS Sindhuvijay (S62)

>20

INS Sindhushastra (S65)

>10

INS Chakra (S71)

<5

Source: Compiled by Q tech synergy and EY analysis, information

gathered from open sources accessed between 1-10 March 2015

Vintage Spread Submarines

Existing
Platform

8%
0-10
Years

Desired
Platform

8%

84%

10-20
Years

20+
Years

40%

30%

30%

100%
Source: Compiled by Q tech synergy and EY analysis, information
gathered from open sources accessed between 1-10 March 2015

Eye on Defence |

With dwindling underwater combat capability and readiness

rate owing to the sluggish rate of acquisition of submarines
in the past, the Indian Defence Ministry is now gearing
up to oversee and fast-track its submarine-acquisition
plans to have in place a credible submarine force as well
as augment and match the Indian Navys fleet with those
of its neighboring countries. India has been fast losing its
underwater combat superiority over its neighboring country
Pakistan (with 8 submarines) and has fallen far behind China
(with more than 50 submarines). Recently, the Government
has initiated major corrective actions to address the issue
of the Indian Navys depleting submarine. These include the
following:

Acceptance of the need for a service life extension

program for six existing submarines (four of the
Sindhugosh class and two of the Shishumar class):
Implementation of this service life extension program
would ensure their availability for at least another
decade till new submarines are inducted.

Acceptance of the need for construction of six

submarines under Project 75(I) by Indian shipyards
through a technology transfer arrangement with a
foreign submarine manufacturer (after a prolonged
delay of seven years)

A Ministry of Defence (MoD) committee under the

stewardship of Sec (DP), with representatives from
the Navy and the MoD, conducted a survey of public
& private shipyards for the issue of EOI for Project
75I. Some of the shipyards under consideration are
Garden Reach Ship-Builders, Hindustan Shipyard, L&T,
Mazgaon Docks, ABG Shipyard and Pipavav Shipyard.
The shortlisted shipyards will then be invited to submit
bids, in partnership with a foreign shipyard that meets
the Navys specifications for the submarines.

Submarines are a vital part of a naval fleet and are ideal for
safeguarding maritime borders and sea denial operations,
particularly during war. Since the Indian Navy is trying to
keep its operational fleet seaworthy and fighting fit by
upgrading its submarines, their depleting numbers are
beginning to get worrisome. Some years ago, the Navy
had 18 operational submarines. With phasing out of the
Foxtrot class, Indias submarine fleet currently consists of
13 boats 9 Russian SSK Kilo (Sindhugosh) Class acquired
in the late eighties, 4 German SSK U209 (Shishumar) Class
and a leased nuclear-powered Improved Akula Class SSN
from Russia (INS Chakra). However, due to the ageing fleet
and prolonged refit schedules, the average operational
availability of submarines, i.e., the actual usable strength of
Indias naval submarine arm, is much less with its existing
readiness being as low as 40 % at present, and dipping
even further in comparison with 48% in 2012 (according
to the CAG report). Out of the total of 13 submarines, only
half are available for deployment and are operating at any
given time, not leaving sufficient numbers to guard Indias
vast coastline or be used against enemy forces in war. This
is due to the fact that more than half of the Indian Navys
submarines have completed 75% of their operational
lives, and therefore, have to undergo frequent repairs and
maintenance at shipyards to extend their operational lives.
The Indian Navy requires a fleet of 24 submarines, but is
making do with only 13 at present. Moreover, with the Kilo
submarines due for retirement after two-and-a-half decades
of services, the submarine fleet is expected to go down to
half its required number, as indicated in the chart below.
Submarine Force Level and Operational Efciency
70%

DAC clearance for procurement of two midget

submarines

The initiatives taken by the Government seems to be in

the right direction in not only maintaining and augmenting
the Indian Navys submarine fleet, but also in developing
a strong submarine-/ship- building manufacturing base
in the country. The recent acquisition of Pipavav Defence
and Offshore Engineering Company Limited, one of the
major Indian private shipyards by Reliance infrastructure,
together with its sole management control, substantiates
the fact that private sector companies are looking forward
to this opportunity to tap growing opportunities that till date
were the preserves of defence shipyards. This though is
just a beginning as more such mergers and acquisitions are
expected in future.
4

Submarine procurement: an analysis

| Eye on Defence

70%

70%

24 No.
13 No.

Total
Requirement
Operational Efciency

2012

13 No.

2015
Submarine Force Level

Source: CAG Report 2013 and Q-Tech Synergy

The Government has understood that the desired level of

combat capability requires a steady inflow of replacements.
Consequently, the Cabinet Committee on Security (CCS)
gave the Navy an approval for a comprehensive 30-year
submarine-building plan in July 1999, which envisaged
induction of 12 new submarines by 2012, followed by
another 12 by 2030. The acquisition program was divided
into three groups:

Six Scorpene submarines were to be acquired under

Project 75.

An additional six submarines were to be built under

Project 75 (I).

The remaining 12 were to be constructed indigenously

under the Advanced Technology Vessel (ATV) or SSBN
Program

However, mismanagement and lack of implementation

resulted in poor execution of the programs mentioned
above and there has been no new induction since the last
decade (except for the leased Akula-II submarine). However,
the MoD is now set to implement new submarine-acquisition
programs and fast-track current on-going ones. The
following table provides an overview of the Indian Navys
various on-going and future submarine programs.

Program/Inception

Category
(approximate cost )

Manufacturers/
Competitors

Timeline/Likely
induction

Project 75

Buy-Make

Program Initiated:
2005

(INR230 billion)

MDL in collaboration
with Armaris a JV
between DCN and
Thales -

First delivery of
submarine by
September 2016,
followed by induction
of one submarine
every nine months
thereafter

All six submarines

at various stages of
construction

Project 75 I

Buy-Make (India)

Program Initiated:
2007

(INR530 billion)

Indian contenders:
GRSE, HSL, L&T, MDL,
ABG and Pipavav
Shipyard

First delivery of
submarine by 2025
26 (A new submarine
could be ready for
induction between
eight months to a
year with delivery by
203031.)

Indian shipyards to
be shortlisted; EOI
expected shortly

Likely foreign
collaborators: DCNS,
Rubin Design Bureau
Amur Shipyard, HDW
(TKMS), Navantia; MHI
& KHI; Kockums
Initiation of lease of
INS Chakra

On lease (INR 42
billion)

Russia

Already inducted

As of April 2012,
India has inducted the
Akula-II submarine,
named INS Chakra, on
a 10-year lease.

On lease

Russia

2018

Negotiations with
Russia have begun
for lease of nuclear
submarine K-322
Kashalot of the Project
97.

Program in 2004
Lease of second
nuclear submarine
program initiated in
2014

Remarks

(INR54 billion)

Eye on Defence |

Program/Inception
Three Arihant-class
nuclear submarines
Initiated in 1998

Category
(approximate cost )

Manufacturers/
Competitors

Timeline/Likely
induction

Make (India)

Indian Navy, Bhabha

Atomic Research
Centre (BARC) and
DRDO, Tata Power,
L&T, Walchand Nagar
Industries

The three vessels

are expected to be
in commissioned by
2023.

Under development;
reactor of the first sub
INS Arihant activated
and now undergoing
sea trial expected to
take 1012 months to
be inducted

Indian Navy, DRDO

---

DRDO project

HSL

Both the submarines

to be delivered by
201920

DAC clearance
granted

(INR360 billion)

Russian designers
helped to build the
vessel.
Make (India)

Six nuclear-powered
attack submarines

Remarks

(INR1000 billion)

initiated: undisclosed
Two Midget Submarine Make (India)
programs initiated in
2009

(INR20 billion)

Total amount spent on acquisition of submarines ~ INR2,230 billion

Source: Compiled by Q tech synergy and EY analysis, information gathered from open sources accessed between 1-10 March 2015

Out of the 12 conventional submarines that are to be

inducted, 6 Scorpenes will start rolling out of Mazagon
Dock Ltd. from 2016. Another six will be built in India with
a foreign partner shipyard under Project 75(I). In addition,
the DRDO is building three Arihant-class nuclear submarines
and will also be developing six nuclear-powered attack
submarines (SSNs) to address Indias nuclear capability. INS
Chakra, the SSN leased for 10 years from Russia, will be
joined by a second leased SSN.

The table below provides a projection of the estimated force

level of major naval platforms including submarines and
related capital work projects. However, keeping in mind
the present inventory and their shelf lives as well as orders
already placed, it is expected that the Navy will fall short of
achieving the desired numbers.

Platform

Projected/
Requirement

Held

On order

De-induction

Deficiency

Carriers

Destroyers/
Frigates

37-42

26

17

08-10

68 frigates

Submarines

24

13

21

14

Corvettes

32-36

24

4+

16-20

04-06

LND/MCMV/FSS

20+24

5+7

30-35*

5+7

06-08

LPD/LCU

6+16

1+6

10*

1+6

04-06

/destroyers

Source: Compiled by Q tech synergy and EY analysis, information gathered from open sources accessed between 1-10 March 2015

| Eye on Defence

Resources
Capital expenditure on the Indian naval fleet is expected to
grow by around 10% every year, as indicated by past trends.
The table and figure below details the capital expenditure
earmarked for naval procurement for the Twelfth Plan and
as well as projections for the Thirteenth and Fourteenth
Plans. A cumulative capital outlay of around INR8470 billion
over the next 15 years on various maritime systems are
depicted in the table and graph below.
Government deployment
Naval capital budget projections (INR billion)
Twelfth Plan

Thirteenth Plan

Fourteenth Plan

201213

201415

201516

201617

201718

201920

202122

202223

202425

202627

168.89

174.71

240.8

263.7

289

352

423

470

565

680

The naval capital submarket comprises the naval fleet and

dockyards, aircraft and aero engines, heavy and medium
vehicles and other equipment. Capital acquisition of ships
and platforms for the Navy account for 53% of its capital
acquisition budget, with submarines accounting for 26% of
the expenditure. India is likely to spend around INR2230
billion on various submarine-acquisition programs in the
next 15 years.

Source: Union Budget and projection by Q-Tech Synergy

Resource allocation
Capital projects planned:
maritime systems (20122027)

Resource-related
projections
(INR billion)

70000

Carriers

450

60000

Destroyers/Frigates

950

50000

Submarines

2,230

40000

Corvettes

230

LND/MCMV/FSS

550

LPD/LCU

160

Aerospace platforms

1,150

Miscellaneous items

1,000

Infrastructure development

1,750

Total

8,470

Naval capital budget projections

Increasing at 10-11% y-o-y

30000
20000
10000
12
20 -1
13 3
20 -1
14 4
20 -1
15 5
20 -1
16 6
20 -1
17 7
20 -1
18 8
20 -1
19 9
20 -2
20 0
20 -2
21 1
20 -2
22 2
20 -2
23 3
20 -2
24 4
20 -2
25 5
20 -2
26 6
-2
7

0
20

Amount in INR Crore

80000

Source: Q-Tech Synergy

Eye on Defence |

With a projected capital outlay of around INR8470 billion

and the Navy Capital Projection for 202728 being
INR752.48 billion, the total Navy Capita Budget Projections
(20122028) amounts to INR6413.47 billion. However,
given the requirements and various naval programs in
the pipeline, including submarines and capital allocation
(present and projected), there is a gap and will remain
unless until there is increased funding by the Government,
which is the need of the hour if India wants to have in place
adequate force levels. (Please refer to the table below.)
Although there is a mismatch in projected requirements and
expected allocation of resources, this can be addressed,
provided procurement and production planning are geared
up.

Demand and capacity gap

Turnover (value in crores)

Turnover of warships in Twelfth Plan, 2012-17

25000

23161
18211

15000

12161

13530

10000 8348
5000
0

2012-13

2013-14

2014-15

2015-16

2016-17

Series1
Source: http://planningcommission.gov.in/aboutus/committee/
wrkgrp12/Wg_defence_equipment.pdf

| Eye on Defence

The intended induction program is structured to continue

at a pace such that we expect ships and submarines will
be inducted at an average rate of five platforms per year.
However, keeping in view the past records of Indian defence
shipyards, and even with capacity expansion, it seems
unlikely that they will be able to deliver. The table below
estimates the total order value of naval procurements in
the next 15 years. Therefore, there is a huge gap between
demand and capacity, which will continue to grow unless
proactive measures are taken by the Government. This
offers significant opportunities for private shipyards and
their vendor base to capture
Total acquisition costs: 15 years

While India started early in its quest for self-reliance in

building warships, it did not increase its capacity based
on the demand, resulting in its current capability being
inadequate to meet its naval requirements. According to
the Indian Navys long-term plan, more than 95 vessels
(including submarines) are due for acquisition by 2027.
Their indigenous construction requires an estimated annual
capacity of 107 Standard Ship Units (SSUs) in terms of
the annual turnover, recent achievements and near future
projections (based on figures extracted from the Planning
Commissions report). (Please refer to the diagram given
below.) However, even with a reasonable increase in
efficiency, Indias ship-building capacity, as well as the
present capacity of defence shipyards, is grossly inadequate
to meet even half of projected requirements.

20000

Opportunity matrix production of warships

Platform
Grand total of ongoing and
new programs

Total order value (INR

billion)
> 8470

Average yearly output

required over 15 years

~ 564.66

Projected production
capacity/year of defence
shipyards

300/year

Scope for private sector

shipyards

~250/Year

Source: Compiled by Q tech synergy and EY analysis, information

gathered from open sources accessed between 1-10 March 2015

As on date, the major chunk of orders still lies with

Government shipyards that are overburdened and loaded
for the next decade and are challenged to execute orders
within the mandated time-frame. Only a nominal share of
orders is with emerging private shipyards. (Please refer to
the figure below.) To overcome this gap, private shipyards
need to be involved in all future submarine- acquisition
programs.

To fast-pace delivery schedules, MoD needs to involve

private shipyards in the endeavor by allowing formation
of JVs between public and private shipyards and adopting
modular construction methods so that their warship
inventory grows in a short time. Leading players in this
segment include Pipavav, L&T, Bharati and ABG shipyards,
which have been able to secure naval orders in recent
years. With growth opportunities now arising in submarine
manufacturing, it is expected that these shipyards will
participate actively in coming years.

Conclusion

Major vessels

Shipyards
Public shipyards

Considering Indias threat perception, maritime

responsibilities and borders, a robust mix of nuclear and
conventional submarines is critical for safeguarding the
country. There has been no new induction since the last
decade, except for the leased Akula-II submarine. The
procurement process needs to speed up with the Indian
Navys submarine arms long-pending proposal to build
a new line of six conventional underwater vessels and
midget submarines. There is now a deep sense of urgency,
nationwide, to build the Navys submarine fleet at the
fastest possible pace indigenous programs undertaken by
DPSUs and also involve the private sector in this initiative.
The MoD should now ensure that timely and requisite steps
are taken to facilitate the induction of new vessels the
need of the hour to keep their operational efficiency at the
desirable level.

Kolkata Class Destroyers (P15B)

(35000)

MDL

Landing Craft Utility (2200)

GRSE

References:

Frigates (P17A ) ( 26000)

MDL

Frigates (P17A) ( 19,500)

GRSE

Planning Commission, Report of the Working Group on

Defence Equipment, 2013

Minesweepers ( 2250)

GSL

Offshore patrol vessels (1650)

GSL

Standing Committee on Defence Fourth Report,

Demand for Grants, Ministry of Defence, 201415

NTRO vessels ( 500)

HSL

Defence, CAG website, http://www.saiindia.gov.in/

english/index.html, accessed between 110 March
2015

Private shipyards
NOPV ( 2,500)

PSL

Cadet training ships (900)

ABG

Interceptor boats ( 975)

L&T

Fast patrol vessels (1400)

CSL

Fast speed boats (175)

BSL

Technology demonstration vessels

(300)

BSL

Source: Open sources, and complied by Q-Tech Synergy

Eye on Defence |

10 | Eye on Defence

Defence Budget 201516

The presentation of the Budget in Parliament and the
Parliament passing this in due course is an annual exercise.
Successive Finance Ministers (FMs) have presented
Budgets since Independence. Some of these have
been transformational, some routine and some almost
inconsequential. The 201516 Budget was eagerly awaited
by the defence community, and in many ways, this time it
was significant.

version is DPP 2013 and can be accessed on the MoDs

website. The DPP incorporates preferences to indigenous
manufacturing and products with indigenous content by
according top priority to the Buy Indian categorization,
among others. Although there are other categories, the
MAKE category provides for indigenous designing and
manufacture, and thereby gives a fillip to the domestic
industry.

Did the FM meet the expectations of the defence community

in full? In this article, we take a look at what were the
motivators and hygiene factors in the Budget and what the
industry feels about it.

What has all of this got to do with the budget? Before we

proceed further, there is one more aspect we need to
deliberate on, which has an impact on the Budget. The Long
Term Integrated Perspective Plan, popularly known as the
LTIPP, is a 15-year plan evolved by the services, which
flows from Defence Planning Guidelines. They thereafter
evolve a five-year (Services Capital Acquisition Plan (SCAP)
and from this to the Annual Acquisition Plan (AAP). There
is significant planning at the headquarters of the services
as well as the Integrated Defence Staff. At all the stages,
the MoD (Finance) is closely involved in the process, many a
time causing avoidable delays in the planning process. The
MoD (Finance) is the basic link between the MoD and the
Ministry of Finance to assure financial support based on the
requirement of the Armed Forces.

There were many levels of expectations from the veterans,

the services, the industry and defence civilians. We will
however restrict ourselves to the effect of the budget
on capability-building in our Armed Forces and the
expectations of the defence industry.
The Prime Ministers Make in India initiative has caught
the imagination of the nation and has been echoing across
the country in various forums and seminars. The defence
industry has been particularly excited about it. Various
national and international exhibitions and seminars have
made this their main theme to promote the idea of Make
in India. However, be it Make in India, Come, Make in
India or Make for India, all ultimately lead to Made in
India. Was this expected to drive numbers in the Budget?
Did this happen?
Changes in regulatory compliance required in terms of
partial de-licensing of the defence sector and rationalizing
of FDI by providing some upward mobility, besides bringing
Indias FDI policy in sync with its industrial policies have
been other motivators in the Budget. There has been some
forward movement in the Governments effort to promote
exports with it placing an interim paper on the website of
the DDP. All of these policy tweaks, coupled with the move
to prioritize categorizations of acquisition projects under
indigenous manufacture, have raised hopes of decisive
action being taken on the budgetary provisions front.
Do these actions on paper convert to numbers, with a
suitable reflection in the Budget? Do they have any relation
to each other, and if so, how they can be linked to the
Budget?
Further to the General Financial Rules, the MoD is the only
ministry in the Government that has its own procedures
for procurement, known as the Defence Procurement
Procedures (DPP). Since its formulation in 2002, the DPP
has undergone a number of amendments. The current

From the above, it can be seen that there is a very intricate

process in place for planning the requirements of the Armed
Forces.
While the LTIPP is essentially a vision document, the SCAP
is more of a detailed list of everything the forces could think
of over the next 5 years, the AAP is closest to reality. It is
on the basis of the AAP that the entire planning process for
acquisition of systems and equipment for the Armed Forces
takes place through a threetier planning system comprising
the SCAP Categorization Committee (SCAP CHC), the
Higher Committee and then the Defence Acquisition
Council (DAC). The DAC is the highest authority and grants
Acceptance of Necessity (AON) for various acquisitions,
which then kicks-off the tendering process.
It is expected that the SCAP conforms with the Five Year
Plans in terms of the needs of the Armed Forces, the LTIPP
may cover three Five Year Plan periods and the AAP is
generally implemented for the current fiscal and the one
that follows. All of these are dynamic and are updated
continuously.
Is there any correlation between the SCAP and the Five
Year Plan projections for funding the requirement of the
Armed Forces? Now, here is the key. The Budget presented
by the FM in Parliament is a reality. While the Armed Forces

Eye on Defence | 11

are allowed to create their wish lists, when the numbers

are visible in the Budget, especially the ones at demand
number 28, they do not seem to correlate with the
planned requirements of the armed forces and a new era in
planning opens up.
The Railway Budget, which holds the attention of the entire
nation for a full day, is just around INR400 billion, while
the MoD budget is pegged at INR3,101 billion (mentioned
in para 86 of the speech of the FM) and peoples attention
forjust over 2 minutes.
The capital outlay for the Defence Services in 2015-16
(The demand Number 28, broadly comprises the following
figures in Table 1.)
Major head(4076)
Land

Army

Navy
377

Total
(INR million)

Air Force
115

55

5,470.00

Construction

4363.92

605

1571.13

65,400.50

Aircraft and aero

engines

2365.35

3466.08

18866.01

2,46,974.40

Heavy and medium

vehicles

1783.83

11

233.42

20,282.50

17335.22

2558.64

12382.09

3,22,759.50

Other equipment
Defence rail network

5,000.00

Naval fleet

1,60,498.70

Naval dockyards

12,753.10

Joint staff

9,223.40

Special projects

5500

Ordnance factories

7,600.70

R&D

77,884.00

Inspection

71.2

Procurement of rolling
stock

3640.2

ECHS

300

RR

909.7

NCC

50

Prototype under
MAKE

1,442.10

Others
Total

12 | Eye on Defence

120
2,62,253.20

2,40,809.00

3,30,176.50

As far as capital allocations are concerned, the FM has

not increased the numbers, when compared with the Base
Estimates (BEs) of the previous FY 201415 Budget.
However, if the comparison is made to the RE stage, there
is an increase of 15.4%. This is because the MoD had
surrendered INR 122,000 million or US$2 billion to the
MoF or was probably was called back from the MoD to meet
the CAD/fiscal deficit. A portion of this was transferred to
the revenue account. Moreover, the share of the IAF has
remained constant when compared to the RE. This rise is
due to the increase in Army and Navy base allocations.
Projections made by the MoD are the basis for the detailed
planning, taking into account the requirement of the
services the AAP. However, there is always a huge gap
between projections and allocation. Allocation is a reality.
The MoD has probably not put in place a mechanism to
understand the allocations made or a day-to-day plan to
spend the amount. This seems to be lacking or has probably
not been attempted.
Allocation of revenue is fast growing, leaving little scope for
allocations to meet capital requirements every year. The
ratio of capital vs revenue for the Army is 1:3.97 and for
the Navy and IAF 1:0.664 and 1:0.695, respectively.
So, what do we really expect from the Budget? The good
news is that at least the two MAKE programs have reached
an advanced stage of fructifying and are expected to see
the light of day. The FM has supported this by making an
allocation of INR1.44 billion. The thrust for indigenous
development can be seen clearly. In respect of the capital
outlay of the Armed Forces, there is a certain committed
liaibility for installments for equipment bought in previous
years that the MoD has to honor. This is generally around
75% to 85% or more. An optimistic figure of 80% will
indicate that the Army has just around INR 52.45 billion.
Figures for the Navy and IAF are in the range of INR48.16
and 66.03 billion, respectively, for capital outlay in the
current fiscal
Another good news is that when the MoD signs a contract
for fresh equipment, it only has to pay a 15% advance to
the contractor that wins the contract. This means that the
amount the MoD can actually spend is actually more than
INR800 billion. The RM has also gone on record to make
this statement during the recently concluded India Today
Conclave.
What are the expectations? Some long-pending programs,
e.g., helicopters such as the Attack Helicopters (AH) and
Heavy Lift helicopters (HLH) won by Boeing, are likely to be

implemented during the year. A corresponding allocation

has been made for aero engines and aircraft, wherein
a sum of INR 247 Bn has been made. This is actually
an encouraging sign for significant programs awaiting
finalization by the Air Force include the Multi Role Tanker
Transport program won by Airbus, the Apache & Chinook
won by Boeing and the Jaguar re engine program won by
Honeywell.
A number of land systems programs could be executed this
year since the allocation for the Army is encouraging. A
definite allocation has been made for procurement of rolling
stock, which has been procured from indigenous sources
for a long time now. An allocation of INR 323 Bn crores for
other equipment suggests that procurement is likely from
domestic sources under the Buy Indian category. This is
exactly what the industry is expecting, but some or a large
portion of this could once again be set aside for committed
liabilities. However, a decent portion of around INR 100
Bn can be expected to be spent on procurement from the
domestic industry. This will be good news for the domestic
industry. Some other significant programs that may come
up for finalization for the Army within this fiscal may include
the Close Quarter Carbines program (44000 units) and
some key missile-acquisition programs.
Allocation to the DRDO has increased and should result in
more mission-mode projects with the domestic industry
as development partners and also as production partners
that could benefit largely from a partnership with DRDO.
Outsourcing from ordnance factories and defence PSUs
could once again propel the small and medium industry
sector forward with more business coming its way. It is
presumed that at least 40% of the outlay of large industries
is generally outsourced; this brings additional business to
the private domestic industry.
The defence industry looks at the allocations made for
the Ministry of Science and Technology (close to INR 100
Bn) and Ministry of MSME (around INR30 billion) and the
Ministry of Home (INR684.44 billion) as a positive sign. Due
to the synergistic nature of the requirement of the Home
and Defence Ministries, in some cases the industries serving
their needs are the same
However, in spite of all the hype in the industry, the real
impact will become visible as and when more programs
under the domestic preference categories take off. More
MAKE programs are necessary to quench the thirst of the
domestic defence industry in the short term. All this has
nothing to do with the extensive planning process or Budget
allocations. However, implementation of various programs

Eye on Defence | 13

takes time, independent of either timelines drawn, the

planning process, the need for services or even Budget
allocations.
Therefore, where does capability-building of the Armed
Forces figure in this process? Do the services have definite
plans in terms of what they intend to focus on during each
of the Five Year Plans, e.g., surveillance capability in one
Plan period, artillery in a phased manner over the next two
Plan periods, etc. This will lead the Armed Forces to make
a clear plan on capability building to include all disciplines
in each of the services. Although there is a SCAP, it has
no definite links to the Five Year Plans and is never able to
remain in sync with the Plan periods. This is essentially due
to the fact that the Defence Sector falls under Non Plan
expenditure.
Since Budget allocation for Defence is under Non Plan,
it is believed that a Budget is never a constraint and that
plans can be made based on perception of threat. This can
vary from a two- front engagement to a multi-front, multitasking force deployed for external aggression and internal
disorder. Defence being under non-plan expenditure is a
British legacy we follow till date.
Is there a case for Defence to be placed under both Plan and
Non-Plan expenditure?
This may bring about the much needed synergy between
the planning processes undertaken by the MoD in sync with
the NITI Aayog while retaining the flexibility to cater for
unforeseen circumstances. To achieve success on this front,
it must be demarcated that what can be part of the NITI
Aayog and what can remain within the existing non-plan
structure?
Capability building in the Armed Forces, since it pertains
to new raisings, force accretions, capital acquisitions, etc.
must necessarily be moved to Plan expenditure. Let the
Armed Forces have a definite plan, which is put into effect
through NITI Aayog by providing an effective oversight
mechanism and also complement the efforts of the Armed
Forces in their planning process. The best management
techniques in terms of macro management will be in play
to create an effective Force and sustaining this through
the life span of the equipment. The Armed Forces will also
know well in advance what they can expect during each of
the Five Year Plan periods. Moreover, the Finance Minister

14 | Eye on Defence

will know upfront what he needs to clearly earmark for

capability building in terms of force accretions, induction of
state-of-the-art systems, and equipment and sustenance.
The trend of surrendering capital budgets to revenue
budgets may be curbed due to efficient and optimal
allocation, sending the right message to the industry while
bringing stability to the system.
If this exercise is taken up, the Armed Forces will never
need to complain about why they could not obtain guns for
their artillery for the past three decades or why the number
of front-fighting aircraft fleet is depleting with no indication
of any replacement, or if force accretion is needed for a
blue-water Navy. The results will be visible. The nation
will cater for the requirements of the Forces in a phased
manner and the best minds will analyze and contribute to
nation-building. Presently, the system is not accountable for
adhering to timelines, since it is a distributed accountability
model, where everyone is supposed to be accountable
while no one is individually. Collegiate consultations with
all stakeholders for effective decision-making have created
non-accountability. The Government should see definite
accomplishments in terms of capability-building; today, it is
almost ad hoc; some of them happen and some do not see
the light of the day.
The MAKE procedure for the Armed Forces must be
necessarily under plan expenditure with a clear time and
cost allocation to meet induction schedules. Industry will
also be happy to make the necessary investments upfront
once it knows it is included in the plan. NITI Aayog can
also plan to include the vision of the states in creating
strategic infrastructure while capability building is taking
place. This will also de-risk concentration of industry in a
single geographical area. A great deal of industry can come
up in the Northeast for example. A portion of allocations
made for the Northeast (of around INR23.62 billion) can
be used to create necessary infrastructure in this region
by synergizing allocations made for the Ministry of Heavy
Industries and Public Enterprises, which today stands
at INR16.43 billion. The Ministry of Home has a huge
allocation of INR684.44 billion and why will the Ministry of
Home not invest in developing a strong industry for internal
security? The Ministry of Civil Aviation has an allocation of
INR33.41 billion.

Strategic electronics has not engaged the attention of

policy-makers as a vital ingredient for nation- building. This
is at the heart of all strategic systems and our continued
dependence on foreign sources could compromise national
security. This can happen when there is a synergy between
DieTY and MoD, but because of systemic lack of domain
knowledge, these discussions have never originated.
Therefore, if strategic electronics is placed for development
as part of the Five Year Plans, NITI Aayog will take care of
the rest in terms of coordination and synergy.
Defence, Internal Security and Civil Aviation are synergistic
sectors and therefore need to synergize their efforts to
bring about a vibrant and dynamic domestic industry. Offset
provisions must also be synergized to optimize the industryparticipation programs of foreign OEMs with domestic
industry, to build a strong defence industrial base. The
Budget can then be said to have been optimally utilized.
The rest of the defence expenditure can be under Non-plan
as is the current practice. This will give it the much needed
flexibility to meet unforeseen contingencies. Even a portion
of capital expenditure can be a part of the Non-plan such
as requirements that are bought on a fast-track mode as
provided for in the DPP. Fast-track programs need ad-hoc
funding to meet urgent operational requirements, foreseen
as imminent for a situation in which a crisis emerges
without prior warning. This is typically non-plan expenditure
and must be retained with others that already exist.
National security goes beyond the frontiers of defence
and needs a holistic view. The FM has done well to make
allocations for various ministries, but what is now needed
is effective utilization of the Budget to cater to nationbuilding. The Defence Budget can best be utilized when
other synergistic sectors of civil aviation and Internal
Security (MoH), as well as the Ministry of MSME, Skill
Development, the Northeast, etc., are able to synergize the
effort. NITI Aayog can do a great job in achieving synergy,
but it has to build capability first. For that, Defence must be
both in Plan and Non-plan as earlier mentioned.

Eye on Defence | 15

Request for information

(JanuaryMarch 2015)
Date of Issue

RFI detail/equipment

Response date

Issued by

Remarks

12-Mar-15

Mine Counter Measure

Suite

16-Apr-15

Directorate of Staff
Requirements

For IN

03-Mar-15

Field Test Simulator

07-Apr-15

Principal Director
Naval Signals

For IN

25-Feb-15

Project for
Management of
Information Systems
for Army Service
Corps. (MISA),

31-Mar-15

DG of Supplies and
Transport, QMGs
Branch

For IA

24-Feb-15

Ultra-Light Recovery
Vehicle (Short Chassis
Recovery Vehicle)

31-Mar-15

Directorate General
Of EME

For IA

19-Feb-15

Static and Mobile

Photogrammetry and
GIS Systems (SMPGIS)

10-Mar-15

MI Dte

For IA

18-Feb-15

EOI for Simulator

Hardware for Indian
Air Force

11-Mar-15

IAF, Kempapura

For IAF

14-Feb-15

Reflex Sight for 5.56

mm Tavor Assault
Rifle; Qty 200

07-Mar-15

GOC-in-C

For IA

14-Feb-15

Night Sight for 5.56

mm Galil Assault Rifle

07-Mar-15

GOC-in-C

For IA

09-Feb-15

Flexible Surveillance
Device (FSD)

04-Mar-15

DG Infantry-5

For IA

05-Feb-15

Naval Shipborne
Unmanned Aerial
System

19-Mar-15

The Principal
Directorate of Naval
Air Staff (DNAS)

For IN

08-Jan-15

Army Wide Area

Network (AWAN)
Phase-II Main System
Less Encryption
System

10-Feb-15

Directorate General of
Signals (Sigs-7)

For IA

05-Jan-15

Full Mission (D Level)

Simulators for AN-32
RE Aircraft

16-Feb-15

PD ASR

For IAF

16 | Eye on Defence

Request for proposal

(JanuaryMarch 2015)
Date of issue

RFP detail/equipment

Response date

Issued by

Remarks

13-Mar-15

Separator Cartridge; Qty: 10

each

25-Mar-15

AOC, Air Force Station, Ojhar,

Nasik

For IAF

13-Mar-15

Coalescer Cartridge; qty: 13

each

25-Mar-15

AOC, Air Force Station, Ojhar,

Nasik

For IAF

12-Mar-15

Supply Installation and

Commissioning of Five in No
Triaxial Magnetic Sensors for
DG Bay at Naval Dockyard,
Visakhapatnam

17-Apr-15

Directorate of Dockyards,
Integrated Headquarters
(Navy),3rd`D-II Wing

For IN

05-Mar-15

Velocity Analysing Doppler

Radar

05-May-15

Proof & Experimental

Establishment

Issued by DRDO

04-Mar-15

Indigenous development of
0.45m Ku Band Airborne

25-Mar-15

Centre For Air Borne System

Issued by DRDO

03-Mar-15

Lazer safety goggles; Qty: 20

Nos.

26-Mar-15

Combat Vehicles Research &

Development Estt.

Issued by DRDO

02-Mar-15

Development of package for

125mm FSAPDS

26-Mar-15

Armament Research &

Development Establishment

Issued by DRDO

26-Feb-15

Day/Night Close Circuit IR

Camera

04-Mar-15

Commandant, AMC Centre &

College

For IA

26-Feb-15

Night Vision Binoculars; Qty:

20 Nos.

31-Mar-15

Controller of Procurement
Material Organisation (Mumbai)

For IN

25-Feb-15

Provision and establishment of

Full Mesh Satellite terminals

31-Mar-15

Directorate of System
Applications

For IA

24-Feb-15

Design of concept proving

model for long range wireless
simulator

14-Mar-15

Simulator Development Division

For IA

17-Feb-15

Light Bullet Proof Vehicle, Qty42 Nos

25-Mar-15

BSF 10 CGO Complex

For BSF

16-Feb-15

Life Jacket

12-Mar-15

The GM HVF, Avadi Chennai

Issued by OFB

11-Feb-15

FUSE VP1.1 5A 250v

17-Feb-15

Air Force Station Ojhar

For IAF

11-Feb-15

FUSE VP1.1 3A 250v

17-Feb-15

Air Force Station Ojhar

For IAF

11-Feb-15

Airborne wideband data

recorder

17-Mar-15

Electronics & Radar Development

Establishment

Issued by DRDO

06-Feb-15

Mobile Jammers for 9 INF DIV

27-Feb-15

9 Infantry Division

For IA

30-Jan-15

Installation of Sonar Humsa NG 23-Feb-15

Onboard Large Naval Ship

Naval Dockyard

For IN

30-Jan-15

FUZE RGM-2 qty 7690

for Shell 122MM Howitzer
Ammunition

16-Apr-15

DDG PPO

For IA

30-Jan-15

FUZE T-90 Qty 1501 For Shell

122MM Howitzer Ammunition

16-Apr-15

DDG PPO

For IA

29-Jan-15

IP network based
communication system

27-Feb-15

Defence Research &

Development Laboratory

Issued by DRDO

Eye on Defence | 17

Request for proposal

(OctoberDecember 2014) (contd.)
Date of issue

RFP detail/equipment

Response date

Issued by

Remarks

29-Jan-15

Bullet Proof Harness with

Shoulder Pad; Qty: 2400 Nos

09-Mar-15

BSF (Spl Ops)

For BSF

28-Jan-15

Fiber optic sensor and data

acquisition system; Qty: 01

27-Feb-15

Defence Research &

Development Laboratory

Issued by DRDO

27-Jan-15

NI-based test bed with target

environment simulator for IMR
SAR sensor

26-Feb-15

Defence Research &

Development Laboratory

Issued by DRDO

24-Jan-15

NBC Suit Mark V

03-Feb-15

Defence Bio-Engineering &

Electro Medical Laboratory

Issued by DRDO

23-Jan-15

Surveillance Grid System,

19-Feb-15

Infantry School, Mhow

For IA

22-Jan-15

Doppler radar system

19-Mar-15

Terminal Ballistics Research

Laboratory

Issued by DRDO

21-Jan-15

Day and Night IR Camera

02-Feb-15

EME School

For IA

19-Jan-15

Remote Weapon Station

(RCWS)

02-Mar-15

Vehicle Research & Development

Establishment

Issued by DRDO

17-Jan-15

Security Related Equipment

30-Jan-15

Col GS, GS Branch

For IA

16-Jan-15

Digital CCTV Cameras

27-Jan-15

Air Force Station Bidar

For IAF

08-Jan-15

ERA MK - II hull panels

21-Jan-15

High Energy Materials Research

Laboratory

Issued by DRDO

07-Jan-15

Night Vision Device

16-Jan-15

Air Force Station Patiala

For IAF

05-Jan-15

Automatic Electronic Warning

System

20-Jan-15

Air Force Station Bidar

For IAF

02-Jan-15

40MM MGL High Explosive

Dual Purpose (HEDP)
Ammunition; Qty: 309022

17-Mar-15

02-Jan-15

40MM MGL High Explosive Anti 17-Mar-15

Personnel Heap Ammunition;
Qty: 782620

Director (O)

For IA

02-Jan-15

Round 40mm MGL Smoke

Bursting Red Phosphorous
(RP) Ammunition; Qty:
345536

17-Mar-15

Director (O)

For IA

18 | Eye on Defence

For IA

List of Industrial Licenses (ILs) filed

in November 2014 February 2015
Application no.
and date
19

Name of applicant

Item of manufacture

M/S IDL Explosives Ltd

Bulk non-explosive emulsion matrix

M/S Fedders Lloyd Corporation Ltd.

All type of rifles, howitzers, overhauling and

upgrading of tanks

M/S Herman Miller Furniture (India) Ltd.

Furniture made of wood

M/S Tak Technologies Pvt. Ltd.

Image intensifier-based night vision devices,

infra-red-based cooled and uncooled thermal
vision devices, temperature measurement
thermography devices

M/S Bharat Forge Ltd.

Tanks and armored fighting vehicles fitted with

mounting for arms and launching munitions

M/S Indo Gulf Explosives Ltd.

Emulsion explosives, PETN, detonating fuse, cast

boosters, detonators, single base propellants,
HMX, RDX gun, PWSDER, gear gas shell

M/S Himachal Futuristic Communications Ltd.

Optical instruments and equipment

M/S Himachal Futuristic Communications Ltd.

Weapons and ammunitions

M/S Himachal Futuristic Communications Ltd.

Airplanes

M/S Lotus Aviation Tech Pvt. Ltd.

Laser warning system

The HiTech Robotic Systemz Ltd.

UAV

Shri AK Jain

Small arms, artillery guns, small arm ammunition,

UAV

M/S Rajesh Explosives Pvt. Ltd.

Gun powder, micro cord, non-electric detonators,

PETN, detonating fuse, emulsion, explosives,
single base propellants, MHX, RDX, tear gas shell

M/S Metaltech Motor Bodies Pvt. Ltd.

Manufacture of weapons and ammunition,

armoured fighting vehicles, bodies

M/S Continental Defence Solution Pvt. Ltd.

Weapon and ammunitions, artillery (mounted gun

system)

M/S Snigdha Precision Engineering Pvt. Ltd.

Components, parts and accessories for small arms

25-02-2015
17
16-02-2015
16
16-02-2015
15
16-02-2015
14
16-02-2015
13
16-02-2015
12
04-02-2015
11
04-02-2015
10
04-02-2015
9
04-02-2015
8
04-02-2015
7
04-02-2015
6
04-02-2015
5
21-01-2015
4
20-01-2015
3
20-01-2015

Eye on Defence | 19

Application no.
and date
2

Name of applicant
M/S Ganesh Explosives Pvt. Ltd.

Non-electrical detonators, PETN, detonating fuse,

propellants, HMX, RDX

M/S Brijlaxmi Paper Products Pvt. Ltd.

Exercise books and envelopes

M/S Beezaasan Explotech Pvt. Ltd.

Detonating fuse, PETN, cast booster, detonators,

NHN slurry, bulk emulsion explosives, ANF

M/S Beezaasan Explotech Pvt. Ltd.

Shaped charges, MHXCL-20, Ammonium

perchlorate, HNS, NHN

M/S Himachal Futuristic Communication Ltd.

Manufacture of data communications equipment

such as bridges, routers and gateways,
manufacturing of cable television equipment,
transmitting, receiving, etc.

Sumanth Paturu

Night vision devices, sensors, navigation/imaging/

surveillance equipment, image intensifiers,
thermal imagers and parts

Sadanand Reddy Poddutur

Manufacturing of SMS/SMSE explosive

Ghatge Patil Industries

Arms and ammunitions and allied items of

defence equipment, parts and accessories thereof

Gautam Hamirbhai Ravaliya

Detonating fuse, slurry/emulsion explosives,

bulk explosive, detonators of all kind, PETN, cast
boosters, ANFO

Nihar Vinayak Vartak

Defence aircraft, spacecraft and parts

19-01-2015
1

Item of manufacture

15-01-2015
328
26-12-2014
327
26-12-2014
325
10-12-2014
324
26-11-2014
322
18-11-2014
320
11-11-2014
319
11-11-2014
318
11-11-2014

20 | Eye on Defence

New projects/investments/
contracts
Name of entity

Project details

Value*

Indian Navy, Mazagon

Docks, Garden Reach
Shipbuilders and
Engineers (GRSE), and
Ship Building Center
Visakhapatnam

Indian Navy obtained go-ahead from the Government of India for proposals
to indigenously construct seven stealth frigate and six nuclear-powered
submarines.

INR1,000
billion

Mumbai-based Mazagon Docks will construct four of the stealth frigates while
GRSE, Kolkata, will build the remaining three in line with the Governments
"Make in India" policy.

The Ship Building Centre Visakhapatnam will build six nuclear-powered

submarines.

The DAC has given the go-ahead to GSL for a long-term naval project to
indigenously construct 12 Mine Counter Measure Vessels (MCMVs).

The MCMVs will have the capabilities to detect, track and destroy underwater
mines.

The project will also involve foreign collaborations.

The IAF will acquire 22 Boeing AH-64E Apache attack helicopters and 15 CH47F Chinook heavy lift helicopters.

It will get the latest upgraded version of the AH-64E helicopter, which has so
far only been delivered to the US Army.

Procurement of the attack helicopter and the heavy lift helicopter are
presently at the Government approval stage.

The Defence Acquisition Council (DAC) has cleared a follow-on order for 38
Pilatus basic trainer aircraft for the IAF.

The order will fulfil the IAFs requirement for 181 basic trainer aircraft, out of
which 75 Pilatus aircraft were procured from Switzerland in 2012 and 68 will
be supplied by Hindustan Aeronautics Limited (HAL).

HAL has won a contract to produce and supply 14 Do-228 aircraft to the IAF.

The contract also includes supply of six reserve engines, one flight stimulator
and related equipment.

HAL manufactures multi-purpose, fuel-efficient, lightweight Do-228 aircraft at

its transport aircraft division in Kanpur, and had previously supplied 125 Do228 planes for its defence and other customers.

HAL plans to set up a manufacturing plant to build a fully indigenous Light

Utility Helicopter (LUH) on 610 acres of land allocated by the Government of
Karnataka.

This is aimed at fulfilling the demand to meet the civilian needs of helicopters
in India.

The project is expected to commence by the middle of 2015 and the facility to
start production from April 2017.

The DAC has cleared the IAFs proposal for purchase of one C-130J Super
Hercules transport aircraft from Lockheed Martin to replace the C-130J that
crashed last year.

Indian Navy and Goa

Shipyard Limited
(GSL)

Indian Air Force (IAF)

IAF

HAL

HAL

IAF and Lockheed

Martin

INR320
billion

INR150
billion

~INR15
billion

INR10.9
billion

INR4 billion

INR0.5
billion

Eye on Defence | 21

New projects/investments/
contracts (contd.)
Name of entity

Project details

Value*

Indian Navy

The Indian Navy is planning to acquire 50 naval shipborne unmanned aerial

systems (NSUAS) for intelligence, surveillance and reconnaissance missions as
part of its effort to boost Indias maritime security.

NA

The Navy wants these NSUAS to be capable of flying either pre-programmed

or operator-initiated missions guided by the Global Positioning System and its
on-board flight control system.

The NSUAS should be able to operate ships of at least 50 meters size and
operate during night conditions.

Telangana, which has Indias first aerospace and precision engineering SEZ at
Adibatla (spread across 350 acres of land), has announced its plans to set up
two more similar aerospace parks to accommodate prospective companies to
the state.

The State Government has identified 1,000 acres of land to set up the new
aerospace parks in order to expand the aerospace industry in Telangana.

German aerospace material and logistic provider ThyssenKrupp Aerospace

is setting up its first facility in India at the Aerospace Special Economic Zone
(SEZ) near Devanahalli in Bengaluru.

The facility will offer supply-chain management solutions to local suppliers of

aerospace and defence parts and will help ThyssenKrupp strengthen its global
footprint and expand its presence in the Asia- Pacific region.

The facility will be spread across 3,300 sq. m. and will stock a range of
aerospace materials including aluminium, titanium and steel.

Telangana
Government

ThyssenKrupp
Aerospace

NA

NA

*The values of the deals have been converted to Indian rupees using the Oanda currency conversion tool 1US$ = INR60.
Sources:
1. Navy planning to acquire 50 shipborne drones for reconnaissance missions, Deccan Chronicle, 2 March 2015, via Factiva
2. India to buy 22 attack, 15 heavy-lift copters, Business Line, 29 January 2015, via Factiva, Informatics (India) Ltd.
3. HAL bags Rs 1,090 crore defence contract, India Business Journal, 2 March 2015, via Factiva.
4. Dinakar Peri, Air Force to get 38 more Pilatus basic trainers, The Hindu, 2 March 2015, via Factiva, Kasturi & Sons Ltd.
5. Rajat Pandit, Defence Ministry clears 38 Swiss trainers for IAF, long-term naval project for 12 mine-hunting warships, The Economic Times, 2
March 2015, via Factiva, The Times of India Group.
6. Addl 1,000 Acres Earmarked for Aerospace SEZ Expansion, New Indian Express, 26 February 2015, via Factiva
7. HAL to build Rs400 crore complex for light utility helicopter, Indian Business Insight, 20 February 2015, via Factiva, Informatics (India) Ltd.
8. Pradeesh Chandran, Aerospace facility in Bengaluru, The Hindu, 18 February 2015, via Factiva, Kasturi & Sons Ltd.

22 | Eye on Defence

Eye on Defence | 22

Joint ventures and alliances

Name of the
entities

Nature of transaction

Value

Reliance and
Pipavav

Reliance Infrastructure plans to purchase an 18% stake from the promoters of

debt-laden Pipavav Defence and Offshore Engineering (PDOE) for INR8.2 billion.

INR20.8
billion

Reliance Defence Systems, a subsidiary of Reliance Infrastructure, will also

make an open offer to acquire another 26% (at INR 66 per share), amounting to
INR12.6 billion.

After the transaction is completed, the existing promoters of Pipavav Defence

will retain a minority stake in the company, and will have two non-executive seats
on its board.

This acquisition opens up a unique opportunity for the Reliance Group to

participate in the Make in India program for the high-growth defence sector.

Mahindra & Mahindra and the Hero Group were the other parties interested in
acquiring Pipavav.

Bengaluru-based Aequs Aerospace and Premium Aerotec, a subsidiary of the

Airbus Group, have formed a strategic partnership to supply more than 200
structural components for the fuselage of Airbus planes.

According to the contract, Aequs Aerospace will supply around INR3 billion
worth of precision machined parts for the Airbus A320, A330, A380 programs
over the next seven years.

Mahindra &
Mahindra and British
Aerospace

As part of its push into the defence sector, the Mahindra & Mahindra Group is in
talks with British Aerospace for an alliance.

Mahindra & Mahindra had earlier had an alliance with British Aerospace for
production of anti-mine vehicles and had bought out its partners 26% stake in
their JV, Defence Land Systems India (DLSI), in 2013.

Assystem and
AXISCADES

France-based Assystem has finalized a Memorandum of Understanding (MoU)

with Indias AXISCADES to develop a strategic alliance and deliver a new
technology-based platform to the Airbus Group.

The technology-based-platform will provide enhanced business value, security,

flexibility and quality to help it continue delivering demanding projects.

The alliance underpins Assystems strategy of providing a complete offshore

engineering solution to its customers in the aerospace sector. It also provides
the company offset opportunities in India.

The alliance will help AXISCADES support its global OEM outsourcing strategy
will also strengthen its engineering service offerings to its global clients.

US-based AeroVironment and India's Dynamatic Technologies will co-develop an

indigenous derivative of AeroVironments family of small unmanned air systems
( Cheel) in a production facility in Bengaluru.

Dynamatic will incorporate technology from AeroVironments family of small

UAVs, including the Puma, Raven, Wasp and Shrike, to build the Cheel.

Aequs Aerospace
and Premium
Aerotec

AeroVironment
and Dynamatic
Technologies

INR4.4
billion

NA

NA

NA

Eye on Defence | 23

Joint ventures and alliances

(contd.)
Name of the
entities

SASMOS HET
Technologies and
Fokker Elmo

Israel Aerospace
Industries (IAI)
and Alpha Design
Technologies

Kalyani Group and

Rafael

Kalyani Group and

Saab

HAL and Snecma

HAL and Sagem

24 | Eye on Defence

Nature of transaction

Value

Bengaluru-based SASMOS HET Technologies Ltd., a manufacturer of cable

assemblies, wiring harnesses, panel boxes and electro-mechanical assemblies,
has entered a JV with Netherlands-based Fokker Elmo to make products for
aerospace and defense applications.

NA

The JV, Fokker Elmo SASMOS Interconnection Systems Ltd., and 51% of its stake
is held by SASMOS, and 49% by Fokker Elmo.

The JV has a manufacturing unit at Whitefield near Bengaluru. It will initially

supply electrical wiring systems for aircraft and in the longer term intends to
manufacture a complete range of electrical wiring interconnection products for
the global aviation industry.

IAI has signed a teaming agreement with India's Alpha Design Technologies to
market and produce IAI's mini-unmanned air systems (UAS), including Bird-Eye
400 and 650, for its Indian customers.

Potential customers of the JVs mini-UAS in the country could include the armed
forces, security agencies, the police force, and the coastguard and border
security forces.

The Kalyani Group has signed a 51:49 JV with Rafael Advanced Defense
Systems, Israels second-largest defence company, to develop advanced missile
and remote weapon system capabilities in India.

The JVs capabilities will include a wide range of technologies and systems,
including missile technology, remote weapon systems and advanced armor
solutions.

The Kalyani Group has firmed up its plans to form a JV with Swedish defence
and security company Saab, with whom it currently has a strategic alliance.

The new partnership will be finalized within the next two-three months and will
make land and air defence systems. It will be the fourth such alliance entered by
Kalyani Strategic Systems Ltd. (KSSL).

Snecma and HAL have signed an MoU to set up a JV to produce aero-engine

parts in India.

The JV will initially focus on manufacturing high-tech parts for the Dassault
Rafale's Snecma M88 engine.

Subsequently, it will contribute to other major aerospace projects undertaken by

HAL and Snecma in India and overseas.

HAL has inked a technology transfer agreement with Sagem to manufacture and NA
maintain the latters SIGMA 95 laser gyro navigation systems.

According to the agreement, HAL will produce SIGMA 95 units for the IAF and
also provide level 3 front-line maintenance services.

NA

NA

NA

NA

Name of the
entities

Wayne Burt Group

and GE Aviation

Nature of transaction

Value

The Wayne Burt Group (WBG), through its subsidiary Kerns Aero Products, has
signed seven MoUs with GE Aviation to manufacture high precision, complex,
special purpose aircraft engine components for aircraft and rocket engines at its
facility near Chennai.

NA

The MoUs relate to a number of defense programs in India:

Indian Coast Guard Aircraft Program

AH -64 aircraft under the Attack Helicopter Program,

Airbus Indian Air Force A330 MRTT Tanker program

India's VVIP Helicopters program

Boeing Apache Helicopters Program

Light Combat Aircraft Tejas Engine Program

Sikorsky S70-B Helicopters Program

Sources:
1. "Rel Infra makes 1,263-cr open offer for Pipavav Defence," Hindustan Times, 11 March 2015, via Factiva
2. Nandini Sen Gupta, M&M eyes defence deal with British Aerospace, The Times of India, 27 February 2015, via Factiva
3. Assystem inks MoU with AXISCADES for strategic alliance at Aero India 2015, Sudan Tribune, 25 February 2015, via Factiva
4. India to develop indigenous variant of AeroVironment UAVs, Flight International, 24 February 2015, via Factiva, Reed Business Information
Limited
5. Mahesh Kulkarni, Bengaluru firm makes Make in India pitch, Business Standard, 22 February 2015, via Factiva.
6. Arie Egozi, IAI, Alpha team for Indian UAS opportunity, Flight International, 17 February 2015, via Factiva, Reed Business Information Limited.
7. Karnataka firm signs Rs 440-cr deal with Airbus subsidiary, The Times of India, 18 February 2015, via Factiva.
8. Piyush Pandey, Kalyani Group inks JV with Israels Rafael, The Times of India, 21 February 2015, via Factiva.
9. French major Snecma, HAL tie up to make aero-engine parts, Business Line, 20 February 2015, via Factiva, Informatics (India) Ltd.
10. Technology Transfer Agreement inked by Sagem and HAL for SIGMA 95 Laser Gyro Navigation Systems, Cyprus Mail, 21 February 2015, via
Factiva.
11. "Kalyani Group likely to forge JV with Saab," Business Line, 12 March 2015, via Q-Tech Synergy Newsletter
12. Wayne Burt Group signs MoU with GE Aviation, Business Standard, 7 March 2015, via Factiva, Informatics (India) Ltd.

Eye on Defence | 25

Country-level deals and initiatives

Country

Nature of transaction

Additional details

France

French Defence Minister Jean-Yves Le Drian has held talks

with his Indian counterpart Manohar Parrikar for the second
time in under three months.

During the meeting, the two sides discussed issues relating to

a strategic partnership between the two countries, including
the Rafale deal.

The French Minister's India visit is

viewed as a warm-up ahead of the
Indian Prime Minister Narendra
Modi's scheduled visit to France in
April 2015.

Japan

India has approached Japan to gauge its interest in competing

for India's submarine-building program, P75, with Japan's
Soryu-class new generation conventional attack submarines.

The basis for India's interest in

inviting Japan for the submarinebuilding contract is to strengthen
ties between the two countries.

Israel

Israeli Defence Minister Moshe Ya'alon has discussed the best

way to implement India's "Make in India" policy as well as
about bolstering the bilateral defence ties between the two
countries with Indian Prime Minister Narendra Modi.

Israel has offered India help with

top- notch military technologies,
including the Iron Dome
interceptor, in tune with the Indian
Prime Ministers "Make in India"
policy.

The Israeli Minister specified that

bilateral security ties were not
directed against any third country
and are meant for the mutual
benefit of India and Israel.

India's state-owned HAL,

supported by some other private
partners, will manufacture the
helicopter in India.

The Spain has expressed a keen

interest in participating in the
"Make inIndia" initiative in the
defence sector, and both the
countries have agreed to continue
working to enhance bilateral
defence cooperation between
them.

They also discussed a wide range

of issues related to regional and
global security.

Russia

Spain

26 | Eye on Defence

Russia and India are in discussions about the possibility of

jointly manufacturing Russia's light multirole helicopter, the
Ka-226T, in India.

The two parties seek to incorporate the experience of

producing Russian-designed Sukhoi Su-30 MKI fighter jets
under license in India.

India and Spain have signed an Agreement on Mutual

Protection of Classified Information to provide a framework for
enhanced bilateral cooperation between the two countries in
the areas of defence research, development and technological
cooperation.

The agreement was signed by Indian Defence Minister

Manohar Parrikar and his visiting Spanish counterpart Pedro
Morenes Eulate after the first full-fledged delegation-level
meeting between them and their teams.

Eye on Defence | 26

Country-level deals and initiatives

(contd.)
Country

Nature of transaction

Additional details

US

The joint development projects

include next generation Raven
mini UAVs and specialized kits for
C-130 military transport aircraft.

Both the leaders also agreed on a

working group to explore aircraft
carrier technology as well as
designing and development of jet
engine technology.

India and the US have renewed an enhanced Defence

Framework Agreement for the next 10 years and identified
4 key "pathfinder projects" for joint development and
production, following high-level talks between Prime Minister
Narendra Modi and US President Barack Obama when he
visited India.
In addition to joint development projects, the US President
also finalized a contract to supply missile approach warning
systems, developed by Alliant Techsystems Operations, to the
IAF and the Indian Navy.

Sources:
1. France makes fresh push to seal Rafale deal, Hindustan Times, 25 February 2015, via Factiva
2. India keen on Japan bidding in P75I, SP's Naval Forces, 2 February 2015, via Factiva.
3. Israel offers top military tech for `Make in India, The Times of India, 20 February 2015, via Factiva, Bennett, Coleman & Co., Ltd.
4. Snehesh Alex Philip, Want to jointly make futuristic products with India: Russia, Press Trust of India, 20 February 2015, via Factiva
5. India, US renew defence framework pact for next 10 years, Deccan Chronicle, 26 January 2015, via Factiva
6. "India, Spain ink deal to scale up cooperation in defence," The Economic Times, 5 March 2015, via Q-Tech Synergy Newsletter

Eye on Defence | 27

Industry buzz
India successfully test-fires Agni-5
India has successfully test-fired its indigenously developed,
intercontinental surface-to-surface nuclear capable
ballistic missile Agni-5 from Wheeler's Island off the Odisha
coast. The three-stage, solid propellant missile was testfired from a mobile launcher from the launch complex-4
of the Integrated Test Range (ITR). This was the third
developmental trial of the long-range missile after the first
test was conducted in 2012 and the second in 2013 from
the same base. The indigenously developed surface-tosurface missile Agni-5 is capable of striking a range of more
than 5000 km. It is around 17 meters long, 2 meters wide
and has a launch weight of around 50 tonnes. The missile
can carry a nuclear warhead of more than one tonne. After
a few more trials, Agni-5 will be inducted into the services.

INR60 billion, half of which is expected to come from the

sale of its stake in HAL. The Ministry has set a Budget target
to raise around INR695 billion through disinvestment of
public sector undertakings (PSUs) in 201516.
Source: Arup Roychoudhury, FinMin plans IPOs of 3 firms in FY16,
Business Standard, 10 March 2015, via Factiva.

India to implement modified defence

procurement policy

The Defence Ministry is expected to implement a modified

Defence Procurement Policy (DPP), preferring to purchase
equipment made in India. The Government plans to
formulate a document for defence manufacturing and
procurement with a list of items that are not to be imported
from 2016.

(Source: India successfully test-fired nuclear capable missile Agni-5",

Deccan Chronicle , 31 January 2015, via Factiva)

Source: Modified defence procurement policy in three months:

Manohar Parrikar, The Economic Times, 13 January 2015, via Factiva,
The Times of India Group

The Indian Navy has delayed induction of the first of the

six Scorpene-class submarines, which were originally
scheduled for delivery in December 2012. This delay is
due to difficulties faced by Mazagon Docks Limited (MDL)
on procurement of materials from foreign vendors. MDL is
building the vessels under a technology-transfer agreement
with France's DCNS and has augmented its manpower,
infrastructure and industrial means to meet production
targets.

India has announced a modest 7.7% increase in its defense

spending for 201516. The Finance Minister has announced
that defence spending will rise to INR2.47 trillion in
201516 as compared to INR2.29 trillion in the last fiscal
year. India plans to spend INR1.52 trillion as revenue
expenditure and INR0.95 trillion as capital expenditure in
201516. From the capital expenditure, INR331 billion will
be set aside for the IAF, INR262 billion for the Indian Army
and INR241 billion for the Indian Navy.

(Source: India delays induction of first Scorpene submarine, Emerging

Markets Business Information News, 26 February 2015, via Factiva)

Indian Prime Minister calls on defense

companies to build more extensively in India

India delays induction of first Scorpene

submarine

ISRO to launch test flight of reusable launch

vehicle

India announces modest raise in defence

budget

The Indian Space Research Organization (ISRO) will conduct

a test flight of Reusable Launch Vehicle Technology
Demonstrator (RLV-TD) between AprilJune this year.
The reusable vehicle will bring down the cost of satellite
launches substantially in the future, making such operations
fairly competitive in the global commercial launch market.

Prime Minister Narendra Modi has expressed his willingness

to boost Indias arms production capacity so that it no
longer remains the world's biggest arms importer. Speaking
at the Aero India aerospace and defense show in Bengaluru,
Mr. Modi said that India will order more locally made military
equipment and will have a "predictable tax regime and good
business climate" to help international defense companies
set up factories and manufacture products in the country.

Source: ISRO to launch a test flight of reusable launch vehicle during

April-June, The Times of India, 5 March 2015, via Factiva

Source: India's Modi calls on defense companies to build more in India,

Dow Jones Institutional News, 18 February 2015, via Factiva

Finance Ministry revives plan to sell

Governments stake in HAL

The Finance Ministry is trying to revive its plans for Initial

Public Offerings (IPOs) in three Central Public Sector
Enterprises (CPSEs) Hindustan Aeronautics (HAL),
Rashtriya Ispat Nigam (RINL) and THDC India. The total
proceeds from the three offerings are likely to be around

28 | Eye on Defence

Government to invest INR7,800 billion to

modernize Armed Forces

The Government is looking at investing over US$130 billion

(INR7, 800 billion) to modernize the Armed Forces in the
next seven to eight years. Indication of the investment has
come at a time when the Indian Armed forces has a long
list of demand on required purchases starting from fighter

jets to conventional and nuclear submarine, hundreds

of helicopters as well as missiles and other weaponry.
Indian defence companies will benefit from this large-scale
investment, since one-third of the total investment will
come to Indian companies as part of offset obligations.
Moreover, in its Union Budget, the Government has
earmarked INR946 billion for modernization of the Armed
forces in 201516.
Source: Govt plans $ 130 bl investment for military modernization,
United News of India, 4 March 2015, via Factiva.

Saudi Arabia surpasses India in defense

imports

Saudi Arabia overtook India to become the world's largest

weapons importer in 2014. This growth in supplies was
due to the expanding demand for military aircraft from
emerging economies and rising tensions in the Middle East
and the Asia Pacific. Saudi imports rose by 54% during
201314 and are expected to grow further by 52% in 2015.
The top five importers in 2014 included Saudi Arabia, India,
China, the UAE and Taiwan.
Source: Saudi Arabia outpaces India to become top defense importer,
Reuters News, 8 March 2015, via Factiva, Thomson Reuters

Reliance Group aims big in Indias defence

sector

The Reliance Group, headed by Anil Ambani, is planning

to bid for more than INR1,200 billion worth of defense
contracts in the next few years. These will include INR240
billion worth of contracts for more than 600 helicopters
and around INR600 billion for 6 diesel submarines. The
company is in talks with global aerospace and defense
companies to form partnerships to make defense
equipment. Reliance announced its foray into the defence
sector earlier this year by setting up Reliance Defence and
Aerospace as a subsidiary of Reliance Infrastructure, and
is already in the process of acquiring a controlling stake in
Pipavav Defence.
Source: Reliance group aims big in India defense sector, Dow Jones
Institutional News, 23 February 2015, via Factiva

Eye on Defence | 29

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30 | Eye on Defence

Why choose Team EY?

Unique Team Experience
Team member
was a part of the
team that wrote
the Indian Defence
Offset policy in
2006.
Team member
founded the DOFA.
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written a complete
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Offset Structuring
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Bn executed
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Schedule
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Unparalleled Support & Advantage for OEMs & Indian Companies

Eye on Defence | 31

Services offering Tax & Regulatory

Importance

Services Offering

Support
at every
stage

Contracting Process

Pre bid stage

Contract
negotiation stage

Post contract
signing support

Other
Compliance
and Advisory

Review the clauses of RFP in

order to highlight the
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Suggest alternative
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Support at every
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32 | Eye on Defence

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documents right for

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Continuous support
through on call
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stand by IOPs in
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Any other support
as maybe required.

To ensure a suitable
Support in getting the
Technical and commercial
technical offset
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proposal approved in
favour with the TOEC and the
time so that it does not
CNC.
obstruct main contract
signing

Post contract
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of offset
execution

Support in compiling
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Ernst & Young Pvt. Ltd.
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