June 18, 2018

Indian cancellation of defense equipment orders hurts investor sentiment: Experts

The Indian government’s penchant for canceling or withdrawing tenders for defense equipment at the last minute is likely to hurt investor confidence in the country, experts said on Sunday.

New Delhi called off a $9 billion deal to co-develop with Russia a next-generation fighter aircraft, after the state-owned Defense Research and Development Organization (DRDO) said it would do the job in-house, Indian media reported this week.

Under the deal, a significant amount of the research would have been carried out in India. Russia had agreed to tailor the aircraft to Indian needs, and was to hand over all the technology, the Economic Times reported.

India is the world’s largest importer of defense equipment, and imports at least 90 percent of its equipment, including parts for assembly.

The government of Prime Minister Narendra Modi wants the country to decrease its reliance on foreign firms, reduce its import bill and manufacture equipment in-house.

But India lacks much of the high-end technology needed for such equipment, which is why deals where foreign partners agree to share technology are useful for its long-term plans, experts say.

When such deals are canceled, “it greatly reduces confidence in India,” said Saurabh Joshi, editor of StratPost Media Pvt Ltd., a defense news website.

“We can’t willy-nilly… accept arguments that a particular equipment can be developed and produced indigenously before such tenders are withdrawn,” he added.

“There should be an adequate test to develop and produce indigenously. Otherwise, we’re simply postponing an acquisition process by 10 to 15 years, and it’s the armed forces that have to go without critical equipment until then.”

Experts say one reason for the government canceling orders could be a lack of funds. The Russian deal is not the only one to be jettisoned recently.

New Delhi scrapped a $500 million deal for Israel’s Spike Anti-Tank Guided Missile. Israel had agreed to transfer the technology to India, and had set up a factory in a venture with an Indian company. The reason given for the cancellation was the same: To develop the missiles indigenously.

A tender was also withdrawn for short-range surface-to-air missiles, with Israel’s SPYDER system having been the front-runner, experts said.

On average, it takes a tender at least six years to go through the various steps before the final purchase order can be placed.

Any company that loses a bid has to account for that time and investment to its head office and its board, Joshi said.


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