Modi’s Game Changing Plan For Defence Sector
Want to buy a stake in an aircraft-carrier builder? How about a fighter-jet maker?
India is about to start an $11 billion sale of government assets, including holdings in the shipyard and factories that supply India’s military, offering investors a share of some of the region’s more profitable manufacturers that are benefiting from soaring defence spending.
India is the world’s largest arms importer and Prime Minister Narendra Modi wants to change that while at the same raising money to reduce the fiscal deficit. Among the biggest stakes to be sold are in Hindustan Aeronautics Ltd., or HAL, which is trying to build a domestic fighter, and Cochin Shipyard Ltd., currently building India’s first home-made aircraft carrier. The shipbuilder has seen profit almost double in the last five years, while earnings at most big global shipyards have slumped.
ndia is also asking private equity funds to invest in profitable state-controlled companies such as helicopter maker Pawan Hans Ltd. and BEML Ltd., which makes military and mining vehicles and rail cars.
Modi’s administration has budgeted for a 35 percent increase in earnings from asset sales in the current year, taking advantage of a stock market that just had its best three months since 2014. Modi has pledged to shrink Asia’s widest budget deficit to 3.2 percent of GDP in the year ..
India has met or beaten its so-called annual disinvestment target only five times since 1998.
India has traditionally relied on Russian weapons, with Sukhoi and MiG fighters forming the backbone of its air strike capability. It has recently moved towards buying defence equipment from the U.S. HAL has been developing the Tejas home-made fighter jet for more than three decades, but it has yet to produce a version that plays a major role in the air force.
India opened its defence manufacturing to private companies 15 years ago, but a lack of infrastructure for niche military manufacturing and a government preference for imported products mean the sector effectively remains a monopoly of state-run firms. Modi raised the cap on foreign ownership of defence contractors to 49 percent, from 26 percent, after he took power in 2014 with special dispensation for full ownership if the deal would bring India advanced military technology.