Thursday, 20 March 2008

The Tata Group: leading the charge in defence

(Part 1 of a four-part series on the private sector in defence)

(Photo: Ratan Tata visits the Tata stall during the Defnnce India 08 exhibition in New Delhi in February 2008)

by Ajai Shukla
(Business Standard: 20th Feb 08)

The most prominent theme in defence production today is the surging presence of India’s private sector. At the Defence India 08 exhibition (Defexpo), in New Delhi last month, private Indian corporate houses like the Tatas, L&T and Mahindra Defence Systems seriously challenged the traditional dominance of Russian conglomerates, and the eight Indian defence public sector undertakings (DPSUs).

Amongst the most aggressive of India’s hopeful new Lockheed Martins is the Rs 1,30,000 crore (US$32 billion) Tata Group, which has launched a carefully crafted bid to become a major player in India’s defence industry. Since the time defence manufacture was opened to the private sector in 2001, the 98 companies of the Tata Group --- including Tata Motors, Tata Power and Tata Advanced Materials --- have notched up significant successes. Now senior Tata Group executives have told Business Standard the details of a coordinated group strategy to grab a serious share of India’s defence market, worth an estimated Rs 2,00,000 crores ($50 billion) over the next five years.

The first important steps have already been taken, says Sukaran Singh from Ratan Tata’s office: two new corporate structures have been set up to spearhead the Tatas’ drive into defence. Tata Advanced Systems (TAS) will be the umbrella organisation for the Tata Group’s thrust into defence and security.

The other entity, Tata Industrial Services Ltd (TISL), which will be looked after by Sukaran Singh himself, will focus on global partnerships, including the growing opportunities from offsets. Uma Pillai, formerly Secretary of Defence Production in the Ministry of Defence (MoD), will head the offsets business.

“Manufacturing and developing capability already exists in the 98 Tata companies… All the resources of these companies, like Tata Consultancy Services, Nelco, Tata Power, Tata Motors, Titan Precision Engineering Division and Tata Advanced Materials will be harnessed by TAS and TISL”, explains Sukaran Singh. “They will bring a new corporate approach to deal with the risks, the global partnerships, and the capital that will be needed for defence… and still remain 100% Tatas.”

TAS has already crossed the first hurdle; it has obtained seven critical industrial licences, broad enough to cover most defence products (see table at the bottom). While TAS has the licenses, the actual development and manufacture will be done across 11 other Tata Group companies, which already possess the tooling and facilities necessary. The Tata Group has no plans yet to set up manufacturing or R&D facilities specifically for defence.

Sanjay Kapur, a former army colonel, now General Manager, TAS, explains the Tata strategy, “Legal understandings already exist between TAS and eleven group companies. When a project comes up, TAS simply leases space from one of those companies, uses their facilities, and pays them. It’s a purely commercial arrangement.”

Business is already coming in. During the Defexpo in February, TAS signed a deal with US helicopter maker, Sikorsky Aircraft Corporation, to manufacture cabins for their S-92 helicopter. The Tata Group also grabbed India’s biggest-ever outsourcing joint venture, inking a half billion dollar deal with Boeing to manufacture military components for the F-18 Super Hornet fighter, the CH-47 Chinook helicopter and the P-8 Maritime Patrol Aircraft. This is the first time American defence products will be manufactured in India; Boeing hopes that India will buy all three of those aircraft.

“We’ve identified the aircraft parts”, says a senior Tata executive. “By June 08 we will have announced the JV with Boeing.”

Will the Tatas allow different entities from within the Tata Group to compete with each other for a contract? Not yet, explains Sukarn Singh. “Risk allocation issues don’t allow us the luxury of allowing competition just yet. We don’t want resources to be wasted.”

The first big test is the Tatas’ quest for the Rs 4000 crore ($1 billion) project to develop a state-of-the-art Tactical Communications System (TCS) for the Indian Army. In a sign of growing confidence, the Tata Group has asked the MoD not to buy the TCS from the global market. The Strategic Electronics Division (SED) of Tata Power is heading an all-private consortium (which includes Delhi-based private company, Precision Electronics, US major, Raytheon, and European conglomerate EADS-Defence Systems as technology partners) that argues that the TCS can be made in India.


Tata Group licenses for defence production

1.        Battlefield transparency and network enablers
2.       Assembly of ground and naval weapons
3.       Manufacture and ruggedisation of military products
4.       Electronic Warfare (EW) Systems
5.       Ground, naval and air combat and surveillance systems
6.       Field artillery, anti-tank weapons and associated systems
7.       Airborne assemblies, avionics systems, including UAVs

19 comments:

Anonymous said...

thats gr8!! we need more Private players in d industry. happy 2 hear tata, m&m n others foraying into this sector. in land systems i think its pretty secure. now we need forays in the aviation sectors, to make helicopters, aero engines and jets. Now there's only HAL. NAL and Taneja are making minor strides. Do u have more of such news on private sector players in the defence industry? pls post them!! thx..

Anonymous said...

N do u have any news on the HJT36 Sutara?? Dont hear anything on it.. is it shelved? seems like we r buying Hawks and not these.. pls share.. thx

Anonymous said...

Isn't it better the decision to "Buy" is taken only and if only the Indian Industries raise their arms that it is not possible for them to "Make" within the time and "balanced" QRs (not the custom tuned QRs - as one does not need all the time. So first oppurtunity is given to Indian Private industries then to DPSUs and then to OFs in this order. That way the thrust and the strength of Indian industries will be fully utilised and more efficiently also. Hope the govt realises by closing the doors and henceforth stops all nominations to its own entities knowing fully well many times there is NIL value addition except putting their lables. The turnover of DPSUs and OFs on the production of so called TOTs CKDs and SKDs should be seen from the value addtion and not from the annual turnover. Then may be one endup with may 10 to 20% as the real buiness generated. It should be easy to get the data from the cash outflows I suppose.

Anonymous said...

Firstly they get nominated. Then they only markup very exhorbidantly. It helps in 2 ways. Firstly it makes the turnover look large and also incraeses their profit with minimum work done by themselves. As anyway after the intial order the QR will be cahnged and one goes for yet another totally new product. and this cycle continues and suit them also- afterall there is no competition and govt has deep pockets. why to waste the easy oppurtunity

Anonymous said...

Indian Private Sector, today, has the capability to design / develop and manufacture state of the art defence equipment. However, private sector companies will not invest in defence sector without active support of the Government / Ministry of Defence. Will the influential import lobby, allow active private sector participation in defence production?

Abhiman said...

Mr. Shukla, the so-termed "global partnerships" that Mr. Sukaran mentions, are likely to be euphemisms for licence production only. The Tata's shall be 'point-men' for the foreign companies in India.

In my view, goal of indiginization and privatization can be met together, if partnerships are formed with DRDO and its affiliates.

Thank you.

Anonymous said...

One could partly agree with Abhiman that joining hands with drdo may help accelerating indiginisation. But not the other part ie Indian private industries can at best be "point men" . This feeling is due to past experience with OFs and DPSUs wherein indian Pvt industries are forcefully kept out and even today it continues on ground. The lobby within Govt depts is more than from the foreign oem themselves. Once you make it compulsory that they can only enter through an Indian Industry and only if the value addition from Indian industry is min 50 - 60% by value. Oh man for this you need a strong govt and a good visionary and keep praying to get both.

Anonymous said...

Mr shukla, can u pls update us on the following 5:

1. Kaveri engine
2. ATV
3. Arjun's induction
4. Astra
5. INSAS rifle

really.. i need to know about it..thx

Ajai said...

Anonymous, each of these can have an entire thesis written on them!

What exactly do you want to know about those five projects?

Anonymous said...

The objective of the Govt is to ensure that max value of benefit in terms of manufacturing, ability to value add and move towards exporting despite the shrinking defence market. The existing system of Govt owned enterprises has failed to achieve any of this. Today HAL despite their 4 decades of manufacturing fighter aircrafts has managed to get "doors for Airbus" and feel very happy about it and feels it has achieved a lot. TATAs (Indian pvt) today tied up with Boeing for manufacture of part of aircraft structure with Titanium . Shouldn't the govt start disinvesting some of the HAL units to Indian private industries - may be such initiatives can bring better return to even the employees of these units.The infrastructure grossly mismanaged can be put to use in a very efficient way and will result in huge returns and better managed. One should even think of giving the Indian LCA totally to Indian Pvt industry - HAL anyway slow peddling this project for obvious reasons. There is no incentive for HAL to produce a "more Indian" project. will the Govt take such bold steps? Big question? RUR itself is languishing due to pressures of Left ( is it left or more than Left). it is important decisions of this sort need to be taken and not mere tinkering with minor issues

Anonymous said...

Hello Mr. Shukla. Nothing much really, I just wanna know;

1. Kaveri engine: Whats its status at current? Is the project still even on?

2. ATV: OK, does this even exist or is it another mere speculation? If so, any idea of where its heading?

3. Arjun's induction: Accelerated user trials are supposed to be over. What's the army's verdict? Is it the same negative one?

4. Astra: No idea about it. Whats the status? When is it due to be ready?

5. INSAS rifle: Are these inducted? Does the army use them? I mean is it used in large quantities (as a main gun, as what it was supposed to be for).

I'd greatly appreciate your answers. You may make them consice to your convenience. Thanks again.

(Rudra)

Anonymous said...

And somebody asked on the HJT36 Sitara. Is that shelved? Why are the BaE Hawks flwing in like water?

Thanks.


(Rudra)

Broadsword said...

Rudra,

Your answers are:

1. Kaveri engine: still being developed. HAL is now going in for an international design consultancy with French engine-maker, Snecma and/or Russian engine maker NPO Saturn to expedite development.

2. ATV exists and is well advanced in development in Vishakapatnam. Read Sandeep Unnithan's detailed article in India Today a couple of months ago for everything you would want to know.

3. Arjun trials are still being conducted in Rajasthan... they began late last year. The tank encountered some glitches. Trials continue.

4. Astra is under development in DRDL, Hyderabad, since 2004. Last year they did controlled flight trials on the Astra. This year they will try guided flight and try to integrate it on the Sukhoi. The target date for induction into service is 2012.

5. The INSAS rifle has been in service with most of the Indian Army for a decade now. The INSAS LMG is almost ready for induction.

Broadsword said...

Rudra,

Your answers are:

1. Kaveri engine: still being developed. HAL is now going in for an international design consultancy with French engine-maker, Snecma and/or Russian engine maker NPO Saturn to expedite development.

2. ATV exists and is well advanced in development in Vishakapatnam. Read Sandeep Unnithan's detailed article in India Today a couple of months ago for everything you would want to know.

3. Arjun trials are still being conducted in Rajasthan... they began late last year. The tank encountered some glitches. Trials continue.

4. Astra is under development in DRDL, Hyderabad, since 2004. Last year they did controlled flight trials on the Astra. This year they will try guided flight and try to integrate it on the Sukhoi. The target date for induction into service is 2012.

5. The INSAS rifle has been in service with most of the Indian Army for a decade now. The INSAS LMG is almost ready for induction.

Anonymous said...

Thanks a bunch Mr. Shukla! Wow, I didn't know the Insas is the main field gun of our army. And I've never even heard of that LMG stuff.

I guess my info is quite outdated! Thanks again by the way!

As for the rest, well it seems like the usual delay. Testing.. developing.. problems.. tieups.. we've heard all to much of those.

Thanks

(Rudra)

sniperz11 said...

Ajaiji, could you provide more info about the problems that Arjun has been having? I heard the same thing about Arjun having problems in the AUCRT, but there were no more details... could u fill us in there please. Thanks in Advance.

Anonymous said...

^^
Hey u r the sniperz11 in wikipedia right? Guess who am I? came across this and it appeared to be the same name!

sniperz11 said...

yes anon. I'm the same guy. I obviously dont know who u are since you're obviously posting as anon :-P.

P.S., lets take this discussion out of this page... let it remain on topic. If you want to contact me, there are quite a few ways to do that. Cheers.

Ashok said...

I was very happy to know that the private sector is rapidly advancing in the fore of defense production.
I am of the firm beliver that like a tiger cannot fight with borrowed teeth & claws like wise a country cannot be dependent on external power to supply it with armaments to secure its frontiers.
The armed forces also needs a lot to do in its supply chain management instead of depending on its old age systems.
Cna you also give us a feed back on what L&T, Mahindra's etc are doing
Regards

A.K.VArma