News wrap: DefExpo 2014

The 2014 DefExpo, which took place February 6-9 in New Delhi, gave foreign vendors the opportunity to showcase new technology for the Indian market, but observers were quick to note the lack of major deals announced at the event.

An article in Business India noted the growth of the Expo.

“India, along with China, Russia, South Korea, Brazil and Japan, continues to increase defence spending. Indeed, the presence of over 500 exihibitors are the four-day long DEFEXPO 2014, which is almost twice that of those who turned up for the previous even in 2012, is testimony to the growing importance the world attaches to India’s emergence as a leading arms importer.”

However, other commentators were less enthusiastic. Writing in Defense News Vivek Raghuvanshi argued that the lack of major announcements made the event a disappointment.

“Defexpo 2014, India’s biannual land, naval and homeland security exhibition, fell short of expectations since it saw no major teaming announcements between overseas and domestic companies.”

“Analysts expected a greater rush for such announcements in the quest to tap into India’s defense market, predicted at $150 billion over the next seven to 10 years.”

Raghuvanshi also noted the emphasis placed on homegrown technologies, which were the highlight of the show.

“The highlight of the exhibition was the display of homemade defense products, coinciding with the Indian Defence Ministry’s decision to prioritize indigenous companies during competitions.”

Other commentators also took a pessimistic view of the event. In the Asian Age, S. Raghotham highlighted the downturn in mood at Expo, in comparison to previous years. He linked this change to the challenges faced by foreign firms in the military procurement process.

“When it became known some years ago that India planned to spend over a $100 billion in buying military equipment over the ensuing decade, foreign military equipment makers salivated at the opportunity, and rushed to India, building offices in Delhi and engineering and R&D centres and partnerships, signing up Indian partners for joint ventures, showing their “commitment to India”, and pouring thousands of dollars into participating in India’s two biannual flagship military exhibitions, DefExpo in the capital’s Pragati Maidan and AeroIndia Show at the Yelahanka Air Force Station in Bengaluru.”

“Cut to February 2014, as the eighth edition of DefExpo got underway on Thursday, the mood — especially among the foreign manufacturers, but also among Indian private and public sector companies — has soured….The reasons are not far to seek: An already notoriously slow, complicated and often controversial military procurement process has been pushed into near paralysis — over two dozen foreign companies stand “blacklisted” by the MoD, some high-profile procurement decisions have stalled, new layers of red tape have been added in what’s apparently an effort to curb corruption in defence procurement.”

An editorial in the Financial Express noted that the Expo exposed the need for higher FDI caps in the defense industry to promote the growth of technology transfers.

“The other, more vital, issue concerns that of technology transfer. Given how the defence forces need state-of-art technology, Indian manufacturers simply cannot get this without greater FDI levels—why would any foreign manufacturer bring in cutting-edge technology in a firm it controls just 26% of.”

“None of this is to say that top Indian firms cannot develop technology on their own—they can, and they have—but if there is to be a vibrant enough local base of producers in India, allowing 51% FDI levels is critical. The government’s plan to work on allowing more FII—to add up to the same 49% or 51%—simply won’t do the trick.”

Many commentators also noted the difficulties and delays the elections pose for potential defense deals. Writing in the Indian Express, N C Bipindra noted that the elections have cause many vendors to rethink their strategy in India.

“With the UPA government unlikely to return to power after the Lok Sabha polls this year, it would take the next government at least three months to settle down in the job and another three months to understand the defence purchases that are in the works and in advanced stages of negotiations before it would sign them.”

“This has led to major global defence firms recasting their plans for India, with some of them stopping their expansion plans, others applying brakes on their campaign in tenders and some others reworking their strategies.”

“Insiders also said the exact number of companies doing a rethink at this point of time was not available readily, but “the overwhelming sentiment was shared by nearly all of them.”