Bengaluru Aero India show readies to receive Modi - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Tuesday 17 February 2015

Bengaluru Aero India show readies to receive Modi

By Ajai Shukla
Yelahanka, Bengaluru
Business Standard, 18th Feb 15

If such a thing is possible, Aero India 2015 is poised to be even more spectacular than previous editions of this biennial air show. The reasons are two-fold: First, international vendors continue flocking to India, which remains the biggest buyer of defence equipment in the international arms bazaar. Second, Prime Minister Narendra Modi promoting his “Make in India” project.

The Bengaluru airport terminal is festooned with massive hoardings, with Mr Modi looking out at arriving passengers. The billboards continue as one drives to the Yelahanka Air Force Station that traditionally hosts the show. They claim Aero India is “Asia’s Premier Air Show”, something that will be contested hotly by Dubai, Langkawi (Malaysia) and Zhuhai, where China last year debuted its Shenyang FC-31 stealth fighter.

The Aero India show has never been about spectacular cutting-edge aircraft. For foreign arms vendors, it has been an opportunity to suss out the mouth-watering Indian arms market and to talk face-to-face with Indian defence decision-makers who are normally cloistered out of reach in South Block, New Delhi. For Indian companies, Aero India has been a forum for striking up partnerships with foreign companies looking for offset partners.

This time there is a buzz of anticipation that the prime minister’s presence --- for the first time ever in an Aero India exhibition --- could ease the manifold barriers to doing defence business in India. Mr Modi is spending three hours at the air show and is expected to go around the exhibits and interact with Indian and foreign defence vendors.

Defence companies, both foreign and Indian, are waiting to find out how the PM’s “Make in India” drive plays out in defence production.  To be sure, licensing norms have been eased and the foreign direct investment (FDI) cap raised from 26 to 49 per cent, but this has not so far significantly shifted defence manufacture to India. For that, according to Indian defence companies, taxes and duties must be rationalised, protection be provided from foreign exchange rate variation, and access be provided to cheaper finance.

“Let us see whether the PM has substantive solutions to these key issues. Without addressing these, ‘Make in India’ will remain just a slogan”, says the CEO of a private sector company with interests in defence.

So far, the National Democratic Alliance (NDA) government has moved purposefully to mandate defence production in India. On Tuesday, on the eve of Aero India, the Cabinet Committee on Security (CCS) cleared the building in India of seven stealth frigates under Project 17A for Rs 50,000 crore.

On August 29, 2014, the defence ministry scrapped a tender for purchasing 197 light helicopters from the global market, ordering instead that they be built in India. On October 25, 2014, the ministry ordered that six submarines planned for procurement under Project 75I be built entirely in India, rejecting the navy’s request to build the first two abroad.

Indian defence company CEOs in Bangalore for Aero India 2015 say there is little use in the government ordering that equipment being procured by India be built here, if those production lines are shut down after the Indian order is met. The challenge for a “Make in India” programme is to create conditions in which vendors continue manufacturing in India, making their Indian facilities a part of their global supply chains even after meeting the Indian order.

“So far, the MoD has not shown a clear understanding of this structural issue”, says the defence company CEO.

These weighty issues will be discussed in a “CEOs Forum” that Defence Minister Manohar Parrikar will interact with in Bengaluru on Wednesday. But before that, there will be a spectacular opening ceremony for the PM, with an Indian Air Force flypast and an thrilling aerobatics display by the Tejas light combat aircraft and the Sarang aerobatics team that performs in the Dhruv advanced light helicopter.

Three Rafale fighters from the French military are at Aero India 2015 for daily aerobatics displays. However, with the Rafale deal spiralling into the ground, there is little of the excitement of 2011 when five fighters enthralled the visitors with competitive aerobatics, as vendors vied to impress spectators and buyers. This time, attention will focus on four world-acclaimed aerobatics teams: the Breitling Wingwalkers (US), Scandinavian Air Show, Flying Bulls from Czech Republic, and the British Yakovlevs formation display team.

A total of 328 foreign companies and 266 Indian companies will be participating in Aero India 2015, which is organised by the Defence Exhibition Organisation (DEO), a defence ministry wing.

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