The Narendra Modi-led government had given its initial nod to the proposal for divestment of four out of nine government-owned defense firms in April this year.
This divestment is being considered as the first step towards privatization of these companies to augment the defense manufacturing capability to achieve defense exports worth $2 billion and absorb work orders for $15 billion in offsets for foreign defense imports.
“Divestment will infuse greater professionalism and transparency in the functioning of these PSUs (public sector undertakings), plagued by issues concerning quality and productivity,” says Amit Cowshis, former financial advisor to Ministry of Defense.
Until now, most of India’s defense companies were mainly engaged in assembling imported parts for which the government had to cough up large amounts of foreign exchange – almost one third of total sales. According to an estimate, state owned defense firms imported parts, components and raw materials worth to $12 billion in last five years from international market.
Currently, India has 39 ordnance factories, 9 defense public sector firms; and more than 150 companies in the private sector. Despite such a huge number of defense firms, India continues to import more than 65% of its defense requirements.