UNITED24 - Make a charitable donation in support of Ukraine!

Weapons of Mass Destruction (WMD)

India to Offload 25% Share of Four Government Defense Firms

Sputnik News

12:49 13.04.2017

The Indian government has agreed to sell up to 25 percent stake in government-owned defense companies, involved in shipbuilding and guided missiles, to give a push to defense manufacturing within the country.

New Delhi (Sputnik) – The government also approved the listing of four out of nine such firms on the stock market. Four firms, namely Bharat Dynamics Limited (BDL), Garden Reach Shipbuilders & Engineers Ltd (GRSE), Mazagon Dock Shipbuilders Limited (MDSL) and MIDHANI will be listed on stock exchange. Currently, the government holds 100% stake in all these companies.

Established in 1970, BDL manufactures guided missiles and allied defense equipment. GRSE and MDSL are India's larger shipbuilding companies. MDSL is building the Scorpene class submarine in co-operation with French company DCNS. GRSE makes warships and auxiliary vessels for the Navy and the Coast Guard. Apart from shipbuilding and ship repair, GRSE is one of the few versatile shipyards having its own engineering and engine division.

"It is the first step towards disinvestment which alone can infuse greater professionalism in the functioning of these public sector units (PSUs), plagued by issues concerning quality and productivity. Private shareholders would demand greater cost efficiency and accountability," said Amit Cowshish, the former financial advisor to the Defense Ministry.

Following the demise of the Soviet Union, Russia, the UK and France pushed to privatize state-owned defense manufacturing companies. But India did not change its ownership pattern all these years. The decision to sell stake has been considered as the beginning of privatizing these companies to augment defense manufacturing capabilities to achieve defense exports worth $2 billion and absorb work orders for $15 billion in offsets for foreign defense imports.

Currently, most of the defense companies in India are engaged in assembling products, which involves spending a large amount of foreign exchange on imports – approximately one-third of total sales. It is estimated that defense PSUs have imported parts, components and raw materials worth $12 billion in the last five years. The Indian finance ministry had announced in the budget presentation this year that the listing of PSUs will foster public accountability and unlock the true value of these companies.

"Post-listing, the value of a Central Public Sector Enterprises (CPSE) has the potential to be unlocked in multiples of the book value of its equity with a respective increase in their market capitalization. Once the book value of CPSEs is discovered through the listing process, it will facilitate the raising of resources by these companies at comparable cost and hence, achieve higher growth through their expansion/diversification," said a statement from the government.

The government of India had initiated the first strategic sale of an Indian defense public sector undertaking by approving 26% stake sale in military vehicle manufacturer BEML.

India had 13% share in the global arms import during 2012-16. Despite announcing major reforms in foreign direct investment norms and Make in India component, the Indian military continues to depend on the international market.


Join the GlobalSecurity.org mailing list