The Indian government’s recent decision to relax FDI norms in defence has brought in a wave of dynamism into the sector. The Dollar Business caught up with Kiran V., General Manager – International Marketing, Bharat Electronics Ltd., one of the few defence exporters from India, to learn what the policy change means for the sector.

Interview by TDB Intelligence Unit | September 2016 Issue | The Dollar Business


TDB: What is your outlook for the defence market in India? How have market dynamics changed post-FDI deregulation in the sector?

Kiran V. (KV): The defence market in India has a lot of potential. Though the country has not been able to do large scale procurement in the last few decades, a host of Indian defence needs are going to be addressed in the next five to eight years and that is a positive sign for the sector.

We believe that the change in FDI rules shall act as a motivation for various companies in the defence manufacturing sector to join hands to do better. One must understand that no individual company has all the strengths and capabilities to meet the requirements of this mammoth sector. We expect domestic and international companies to collaborate and build partnerships in this sector. Therefore, a number of partnerships and joint ventures have been announced in recent times and more are expected in future. The trend of collaborations translates to a veritable opportunity for organisations like ours. We are definitely looking forward to partner with organisations that have similar objectives but have strengths in different core areas.

Over a period of time, not much rivalry will exist within the country. Like I said earlier, we expect to see a lot of partnerships among companies with interests in the Indian defence market. For instance, Bharat Electronics Limited (BEL) has several core strengths and capabilities. But this sector is so vast that no company can command capabilities in all the aspects of product manufacturing. We are open to partnerships, not just with foreign companies but also with domestic companies and public sector units. In fact, we have recently signed a MoU with Hindustan Aeronautics Limited (HAL) and are pursuing  discussions with some others as well.

TDB: During one of our recent visits to Pipavav in Gujarat, some officials of Reliance Defence & Engineering said that lack of testing facility and scarcity of talent are some of the major obstacles for private players who are entering the sector. Your take.

KV: Since we have been operating in this sector from 1954, we have our core strengths, and command capability and skills. We also possess a large infrastructure, skilled manpower and technology, and are willing to build partnerships for mutual benefit. There have been discussions with Reliance Defence & Engineering Ltd. to identify areas where we could synergise and collaborate. There are a host of test facilities available with us and we welcome the industry to collaborate with us to use this infrastructure.

 
TDB: What kind of changes do you foresee in the Indian defence product market in the next decade?

KV: It is the pronounced wish and will of the Indian government and people to generate enough knowledge and capability to design, develop and manufacture defence and electronic equipment within the country, and this is the very mandate which drives the current policies. Over a period of time, may be in the next decade, a large amount of defence products requirements will be fulfilled by Indian companies. As we become capable of meeting domestic requirements, we shall also simultaneously build and enhance our capability to export.

TDB: Going forward, what are the core areas that your company will focus on, both in terms of markets and products?

KV: We are a technology driven company, and hence, we shall continue to design and develop products indigenously. We develop products not only to meet the requirements of our own market but to cater to overseas markets as well. Further, we will continue to focus on exports of our core products and systems like the surface to air missile systems, radars, sonars, communication systems, and turnkey solutions among others.

In our product portfolio, we also have several civilian equipment which are exported to different parts of the world. We are one of the biggest manufacturers of electronic voting machines in the world. Incidentally, we helped Namibia conduct its general elections, electronically, last year.

TDB: ISRO has proved that it can place satellites in orbits at 1/10th of the cost which its competitors incur. Can we replicate a similar success in our defence sector?

KV: We need to analyse what has helped ISRO to launch and place satellites in a more cost effective way as compared to the rest of the world. The major reason for ISRO to be able to keep costs under control is because the company uses indigenously developed technology. Since, we are also capable of developing products on our own, we could deliver products at a much cheaper price. There are no licence costs and we are not
dependent on any other country.

TDB: Given the current global economic scenario, do you think the fear of default in payment looms large in high-value products export category?

KV: The chances of default in payment always prevail. There are ways and means to make sure that these risks are mitigated at the initial stage of discussion and at the time of signing the contract. Most of the contracts that we sign are based on Letter of Credit (LC) and we deliver goods only when we realise the money.

TDB: India is one of the largest defence equipment buyers in the world. Does it make India a more lucrative market for BEL vis-à-vis export markets?

KV: India’s defence market is pretty big and we are eager to play a big role in the domestic market. But then, it’s the overseas market that is going to drive the business for Bharat Electronics Ltd. and all such other Indian companies. Our capability to export will determine where we stand in the global defence products and equipment market.

TDB: Do you consider Africa to be more lucrative as compared to Europe and other such developed markets?

KV: Africa is a good market to address but there are also some other lucrative markets in the Far East like Indonesia, Thailand, Malaysia, Vietnam, Myanmar and Philippines. These are countries which now have a reasonable amount of money and their economies are striving to be more self-sufficient. These countries want us to be their partner and are potentially big markets for us.   

TDB: Are there any specific challenges that could act as a deterrent for the growth of Indian defence exports?

KV: Competition in terms of both technology and price have a profound impact on the growth of Indian defence exports. It would be advantageous for the Indian defence industry to have a more explicit support from the government to ensure competitiveness on both fronts. For instance, FDI in R&D can be considered as an offset for technology infusion into the country. If technology improves, it will automatically enhance our export  competitiveness.

TDB: What would be your advice to entrepreneurs who are eager to explore opportunity in defence exports?

KV: One thing that we need to keep in mind is that we cannot do any defence related business by obtaining technology from elsewhere. My advice to people who are eager to enter the defence business is they should start by investing in R&D and develop products. Product design and development can be done in partnership with existing players. It will be best if Indian companies join hands and develop products than import technology, which can be prohibitively expensive. The government’s stress on R&D and indigenous development of products is a wise move.