The Tata Group: leading the charge in defence

(Part 1 of a four-part series on the private sector in defence)

(Photo: Ratan Tata visits the Tata stall during the Defnnce India 08 exhibition in New Delhi in February 2008)

by Ajai Shukla

(Business Standard: 20th Feb 08)

The most prominent theme in defence production today is the surging presence of India’s private sector. At the Defence India 08 exhibition (Defexpo), in New Delhi last month, private Indian corporate houses like the Tatas, L&T and Mahindra Defence Systems seriously challenged the traditional dominance of Russian conglomerates, and the eight Indian defence public sector undertakings (DPSUs).

Amongst the most aggressive of India’s hopeful new Lockheed Martins is the Rs 1,30,000 crore (US$32 billion) Tata Group, which has launched a carefully crafted bid to become a major player in India’s defence industry. Since the time defence manufacture was opened to the private sector in 2001, the 98 companies of the Tata Group --- including Tata Motors, Tata Power and Tata Advanced Materials --- have notched up significant successes. Now senior Tata Group executives have told Business Standard the details of a coordinated group strategy to grab a serious share of India’s defence market, worth an estimated Rs 2,00,000 crores ($50 billion) over the next five years.

The first important steps have already been taken, says Sukaran Singh from Ratan Tata’s office: two new corporate structures have been set up to spearhead the Tatas’ drive into defence. Tata Advanced Systems (TAS) will be the umbrella organisation for the Tata Group’s thrust into defence and security.

The other entity, Tata Industrial Services Ltd (TISL), which will be looked after by Sukaran Singh himself, will focus on global partnerships, including the growing opportunities from offsets. Uma Pillai, formerly Secretary of Defence Production in the Ministry of Defence (MoD), will head the offsets business.

“Manufacturing and developing capability already exists in the 98 Tata companies… All the resources of these companies, like Tata Consultancy Services, Nelco, Tata Power, Tata Motors, Titan Precision Engineering Division and Tata Advanced Materials will be harnessed by TAS and TISL”, explains Sukaran Singh. “They will bring a new corporate approach to deal with the risks, the global partnerships, and the capital that will be needed for defence… and still remain 100% Tatas.”

TAS has already crossed the first hurdle; it has obtained seven critical industrial licences, broad enough to cover most defence products (see table at the bottom). While TAS has the licenses, the actual development and manufacture will be done across 11 other Tata Group companies, which already possess the tooling and facilities necessary. The Tata Group has no plans yet to set up manufacturing or R&D facilities specifically for defence.

Sanjay Kapur, a former army colonel, now General Manager, TAS, explains the Tata strategy, “Legal understandings already exist between TAS and eleven group companies. When a project comes up, TAS simply leases space from one of those companies, uses their facilities, and pays them. It’s a purely commercial arrangement.”

Business is already coming in. During the Defexpo in February, TAS signed a deal with US helicopter maker, Sikorsky Aircraft Corporation, to manufacture cabins for their S-92 helicopter. The Tata Group also grabbed India’s biggest-ever outsourcing joint venture, inking a half billion dollar deal with Boeing to manufacture military components for the F-18 Super Hornet fighter, the CH-47 Chinook helicopter and the P-8 Maritime Patrol Aircraft. This is the first time American defence products will be manufactured in India; Boeing hopes that India will buy all three of those aircraft.

“We’ve identified the aircraft parts”, says a senior Tata executive. “By June 08 we will have announced the JV with Boeing.”

Will the Tatas allow different entities from within the Tata Group to compete with each other for a contract? Not yet, explains Sukarn Singh. “Risk allocation issues don’t allow us the luxury of allowing competition just yet. We don’t want resources to be wasted.”

The first big test is the Tatas’ quest for the Rs 4000 crore ($1 billion) project to develop a state-of-the-art Tactical Communications System (TCS) for the Indian Army. In a sign of growing confidence, the Tata Group has asked the MoD not to buy the TCS from the global market. The Strategic Electronics Division (SED) of Tata Power is heading an all-private consortium (which includes Delhi-based private company, Precision Electronics, US major, Raytheon, and European conglomerate EADS-Defence Systems as technology partners) that argues that the TCS can be made in India.

Tata Group licenses for defence production

1.        Battlefield transparency and network enablers
2.       Assembly of ground and naval weapons
3.       Manufacture and ruggedisation of military products
4.       Electronic Warfare (EW) Systems
5.       Ground, naval and air combat and surveillance systems
6.       Field artillery, anti-tank weapons and associated systems
7.       Airborne assemblies, avionics systems, including UAVs