"There's no doubt that India needs relaxation of foreign direct investment norms in the defence sector," said Mukund Rajan, Chief Ethics Officer, Tata Sons at a roundtable on Tata Companies in the Defence Sector in New Delhi.
Echoing Rajan's thought, Rahul Chaudhry, CEO, Tata Power Strategic Electronics Division (SED) said that "as a group, we support 49 per cent FDI cap in the defence sector." A large section of the defence industry has been seeking a hike in the FDI cap. Last year, the government decided to allow FDI above 26 per cent on a case-to-case basis after approval of the Cabinet Committee on Security.
Even as the Tata Group supports the relaxation of FDI in defence, it continues to focus on the indigenous production and development of defence equipment. Tata Group leads the pack of private sector companies operating in the defence industry. Some 14 Tata companies are engaged in the defence sector. These include
Tata Motors , Tata Power SED, Tata Advanced Systems, Tata Advanced Materials, Nelco,
TCS , Tata Elxsi, among others.
In 2012/13, defence business contributed about Rs 1,700 crore to the group's overall revenues and its current order book size stands at Rs 8,000 crore. Rajan is gung-ho about the future. He says that the revenue of the Tata group from the defence business is expected to grow by around 40 per cent in the current financial year (2013/14).
Within the group, three companies - Tata Advanced Systems Ltd (TASL), Tata Power SED and Tata Motors - contribute the bulk of the defence revenues. Tata Motors, which has supplied over 1 lakh vehicles to military and paramilitary forces, is now strategically moving from the logistics vehicle segment to the combat vehicle segment. The company has recently won a military contract worth Rs 220 crore from the United Nations that would include supplying ambulances, jeeps, water and fuel tankers, recovery trucks, refrigeration trucks and buses.
TASL is already supplying key systems such as the command and control for the medium range surface-to-air missile being co-developed by India and Israel. It is also manufacturing and assembling critical parts of helicopters and aircraft in India for global OEMs such as Sikorsky and Lockheed Martin. TASL currently has 10 production facilities and 1,500 employees.
The role of the private sector is still minuscule in India's defence sector. Only a few large players such as the Tata Group,
Larsen & Toubro, Mahindra & Mahindra and Ashok Leyland manufacture locally. Over 70 per cent of the defence equipment needs are met through imports. A large number of the smaller Indian companies are unable to compete with foreign companies when it comes to pricing and technological capabilities. But things are likely to change going forward with the government coming out with the defence procurement policy last year which laid emphasis on indigenous development and self reliance in defence production.
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