India’s defence budget for current year is a mammoth Rs 96,000 crore, of which Rs 27,000 crore is for capital expenditure including acquisition of weapons systems. Till now, 70% of the budget was spent abroad as Indian Public Sector Undertakings (PSUs) couldn’t deliver on research or production fronts. Of the remaining 30%, one-third (or 9% of total) went to the private sector while the PSU order book was monopolized by DRDO.
In order to achieve self-reliance in defence, the Government, on lines of ‘Navratana’ PSUs, may grant some of India’s big private corporates status of ‘Raksha Udyog Ratna’ (RUR) or ‘Defence Industry Jewels’. Those expected to get this status (initially for 5 yeas) are Tata Motors, Godrej & Boyce, Mahindra & Mahindra, L&T, Ashok Leyland and Bharat Forge.
Given the stringent selection criteria, very few companies can qualify for the status. The company must have been listed for minimum 10 years, foreign holding (excluding FII stake) should not exceed 26%, turnover of at least Rs 1,000 crore in each of the past three years and credible record in engineering, manufacturing and quality assurance.
An RUR status would allow manufacture of complex weapon systems, high-end defence equipment and transfer of technology from foreign players. The firms could participate aggressively in defence orders and forge joint ventures with foreign companies (26% FDI is permitted in defence). Contracts could range from Rs 1,000 crore for light-armoured vehicles to over Rs 5,000 crore for aerospace and naval equipment.
India hopes to spend up to $10 billion in buying arms and other military equipment largely from foreign firms in the next three years. And with private sector participation allowed upto 100%, it will definitely add to the bottom line of the chosen few big corporates.