The Economic Times reported that Government of India has cleared the first 100% foreign direct investment (FDI) in the defence sector, with permissions granted to Sweden's Saab to set up a new facility that will manufacture rocket launchers for the infantry.
The FDI proposal, valued at under ₹500 crore, was cleared last month.
Economic Times quoted Mats Palmberg, chairman and managing director, Saab India as saying, "We are proud to be the first global defence company to be approved by the Indian government for 100% foreign direct investment for our new Carl-Gustaf manufacturing facility in India." "This is another step in Saab's commitment to 'Make in India,' and we look forward to continuing our collaboration with our Indian partners and to supporting the Indian armed forces with production of Carl-Gustaf in India," he added as per the Economic Times.
Policy on 100 % FDI in Defence
While India has been encouraging FDI in the defence sector the regulations for the same remain mired in a multi agency approval maze.
100 % FDI has been approved vide Government vide Press Note No. 4(2020 Series) dated 17.09.2020 Issued by Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.
This is for Defence Industry subject to Industrial license under the Industries (Development & Regulation) Act, 1951 and Manufacturing of small arms and ammunition under the Arms Act, 1959.
The condition for 100 % FDI however is if the same is likely to result in access to modern technology or for other reasons to be recorded.
Other conditionalities envisaged are security clearance by the Ministry of Home Affairs and as per guidelines of the Ministry of Defence.
The investee company should be structured to be self-sufficient in the areas of product design and development.
The investee/joint venture company along with the manufacturing facility, should also have maintenance and life cycle support facility of the product being manufactured in India.
Foreign Investments in the Defence Sector are also subject to scrutiny on grounds of National Security and Government reserves the right to review any foreign investment in the Defence Sector that affects or may affect national security.
The challenge for obtaining approvals is therefore daunting, but apparently SAAB has cleared the gauntlet.
Possible Considerations for SAAB Approval
Saab’s Carl-Gustaf® has been extensively in use by the Indian Army since the 1970’s. The shoulder fired rocket launcher is portable and manpack thus has proved to be an ideal infantry sub unit weapon with multiple options of munitions.
With sustained demand for the system in the Indian Army it was evident that a manufacturing plant in India made imminent sense.
Saab announced in September last year that it will set up the same with production to start in 2024. “The facility will support the production of the Carl-Gustaf M4 for the Indian Armed Forces as well as components for users of the system around the world,” said the SAAB press release on the occasion.
The company Saab FFV India, which was under registration then plans to make the latest generation of the state-of-the-art weapon in India and assured to fully meet the requirements of “Make in India”.
The release indicated that “Saab FFV India will deploy complex technologies including the latest sighting technology and apply advanced manufacturing techniques like carbon fibre winding for the Carl-Gustaf system including the latest M4 weapon,” though whether there will be transfer of technology and to what extent is not clear.
“It is a natural step to set up a production facility for Carl-Gustaf M4 in India given the long and close association we have with the Indian Army as one of the foremost users of the system. We are glad to be able to contribute to the Government of India’s goals of developing a world class defence industry and proud to offer the Indian Armed Forces our Carl-Gustaf M4 made in India,” Görgen Johansson, head of Saab’s business area Dynamics was quoted in the Press Release.
Saab has partnered with Indian companies to make parts or components for Saab’s products on the global market. Saab said it will continue its partnership with Munitions India Limited (MIL) and Advanced Weapons and Equipment India Limited (AWEIL) to manufacture the Carl-Gustaf weapon and its ammunition the release stated.
Setting up of the plant in Haryana is a win win for the Indian armed forces, defence Industry as well as the Swedish company SAAB. A manufacturing base within the country will overcome any supply chain constraints which are evident with multiple conflicting ongoing with India’s core military technical partners Russia and Israel.
Prospects for Defence Exports
The Carl Gustaf is being used by several armed forces in the world. In a recent press release SAAB announced that it has received an order of 300 systems from Japan Self-Defense Forces, JGSDF, “for the supply of the man-portable, multi-role weapon system Carl-Gustaf®. The order includes over 300 systems and deliveries will take place in 2025”.
The rocket launcher is a popular weapons system across the World with at least over 45 armies across the World using the same.
The Haryana factory could form a global export hub for the system as well as components, fulfilling India’s quest to be a leading defence exporter.
Prospects for Gripen
SAAB has also offered the Gripen E, single seater 4.5-generation aircraft for the Indian Air Force fighter programme for procurement of 114 aircraft along with Lockheed Martin's F-21, Boeing's F/A-18, Dassault Aviation's Rafale, the Eurofighter Typhoon and Russian aircraft MiG 35.
The Indian Air Force is reportedly keen for a twin engine fighter in which case how much preference will be given for the Gripen E is not clear.
SAAB on the other hand is also known to be pitching for setting up a complete plant for manufacture of the Gripen E in India on the same lines as that for the Carl Gustaf.
While a combat fighter aircraft is far more complex system that a rocket launcher, SAAB’s experience in navigating India’s complex approvals for defence manufacturing may be a positive and force other competitors to offer similar sweeteners.
As for now the Carl Gustaf manufacturing plant in India is indeed a plus for SAAB as well as for Indian defence acquisition system.