New Delhi: The defence ministry’s decision to allow companies outside state control to build fighter jets, submarines and armoured vehicles is likely to help Indian defence manufacturing firms.

Larsen and Toubro Ltd, Ashok Leyland Ltd, Mahindra and Mahindra Ltd, Reliance Infrastructure Ltd, Tata Group, Punj Lloyd, Adani Group and Bharat Forge Ltd, which have existing defence businesses, are likely to benefit the most from the decision, analysts say.

While Tata and Reliance Infra have taken steps to build aircraft, Larsen and Toubro could enter the submarine space while armoured vehicles could be an area of interest for Bharat Forge, Mahindra and Tata, said Laxman Kumar Behera, senior research fellow, Institute for Defence Studies and Analyses (IDSA).

“This was a long time in the making. Finally the government and industry have agreed to it. It will be interesting to see how it unfolds," Behera said.

For one, there will be a question of oversight over private companies and whether the defence ministry has the wherewithal to do so, he said.

Second, there would be a need to evolve a mechanism on how to deal with contractual changes, according to Behera. So far, it was easy for the government to seek a change in a contract as most of the companies were state owned, private companies may not be able to adjust to this easily.

Thirdly, the future of state-owned giants including Hindustan Aeronautics Ltd and Mazagon Dock Ltd will need to be redefined as over time private players will create parallel manufacturing lines. For now, these firms have orders for many years but after that the government will have to figure out how to balance or take the international route where private sector dominate the space, said Behera. “We can’t have two sets of players in the same segment. You cannot sustain two aircraft lines. It’s a clear indication that government is looking away from the PSUs. In the long term, you can have a scenario of privatization of PSUs," he added.

On Saturday, defence ministry gave the go-ahead to this strategic partnership model after deliberating on it for the second time this week.

“Breaking new ground, the defence acquisition council, under the chairmanship of defence minister Arun Jaitley, on Saturday finalized the broad contours of a policy aimed at engaging the Indian private sector in the manufacture of high-tech defence equipment in India," the ministry said in a statement.

The policy is likely to be examined by the finance ministry before being considered by the cabinet committee on security. “The policy will give a boost to the ‘Make in India’ policy in the defence sector and set Indian industry on the path to acquiring cutting-edge capabilities which will contribute to building of self-reliance in the vital sector," the ministry said.

This model was proposed by the Dhirendra Singh Committee in July 2015. It had said that for the “Make in India" initiative to become wider in the defence sector, the government should adopt a strategic partnership model, whereby a private firm is chosen for the development of a specific identified platform.

Last year, the then-defence minister Manohar Parrikar had announced that the policy on SP model would be unveiled soon.

PTI contributed to this story

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