India's defence shake-up sends Mahindra hunting for partners

New Delhi: India's Mahindra Group is talking to potential foreign partners about building guns, ships, tanks and fighter jets to cash in on the prime minister's plan to requip one of the world's biggest armed forces with hardware made at home.

S.P. Shukla, head of the $17 billion conglomerate's defence unit, told Reuters that the company is exploring joint ventures as well as possible collaboration on technology.

"We have both the options. Depending on the product, depending on the technology, depending on the size and scale, we will take a call," he said in an interview. "These things are announced only after the deal is sealed, but we are in talks."

Prime Minister Narendra Modi has grand plans to vastly strengthen India's military capability in order to beef up the country's role as a regional power and meet challenges posed by a mighty China and neighbour Pakistan.

Within weeks of becoming prime minister, Modi boosted defence spending by 12 percent to around $37 billion for the current fiscal year, and abolished the need for licenses for a number of defence products.

He also increased the cap on foreign investments.

Already, Tata Sons and Europe's Airbus Group have made a joint bid for a contract worth at least $2 billion to replace the Indian Air Force's ageing fleet of Avro cargo planes.

If the bid is successful, Airbus would supply the first 16 planes in "fly away" condition from its own assembly line, while the subsequent 40 would be manufactured and assembled by Tata Advanced Systems in India, marking the first military planes built by a local private company on Indian soil.

"A lot of (foreign) companies have become interested in collaboration," said Shukla, also in charge of group strategy at Mahindra, whose flagship company is auto maker Mahindra & Mahindra. "The environment has become very positive."

This is quite a turnaround for a sector that until last year was marred by delays and order cancellations, he said.

Opportunity worth billions

Nearly 13 years after New Delhi opened it to private participation, local firms have managed to capture only a fraction of the Indian defence market. Consecutive governments have handed orders to state factories or to foreign giants like Boeing, Lockheed Martin and BAE Systems.

Revenues for privately held domestic firms from sales of defence equipment -- including overseas orders -- were below $2 billion last year, less than 6 percent of the country's defence spending, according to Edelweiss Securities.

Still, the prospect of multi-billion-dollar deals has enthused some of the country's biggest companies into pouring billions of dollars to expand and upgrade their manufacturing facilities.

India, the world's largest arms importer, will spend $250 billion in the next decade on kit, analysts estimate, to upgrade its Soviet-era military and narrow the gap with China, which spends $120 billion a year on defence.

Engineering giant Larsen & Toubro is putting $400 million into a yard to build ships for the navy and is targeting a fourfold increase in annual defence revenue to $1 billion within the next five years.

"Today, Mahindra is the only group which has capabilities in all the three wings of defence," said Shukla. "We are ready to get into any of the three where we believe we can participate in with proper technological collaboration."