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Make-In-India set to pave way for mergers, acquisitions in Defence Sector

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By Ritu Mousumi Tripathy

The audacious Make-In-India programme, launched by the new Government at the centre, has unfolded a plethora of new opportunities, equations and new ways to make India self-reliant in the coming decade. The Defence sector, which has been listed as one of major areas urgently needing indigenisation, appears to have braced up for consolidation through new mergers and acquisitions.

And the beginning has just begun!

Privately-run Mahindra & Mahindra (M&M), which is steadily stepping into India's burgeoning and lucrative defence sector, has already made the foray to acquire ABG Shipyards.

M&M has cearly showed its seriousness about doing business in the defence sector and has inked a number of partnership deals with many global defence and aerospace companies to produce systems and equipment for the industry.

ABG Shipyards, the largest private-sector shipbuilder of India, has delivered more than 160 vessels worldwide. The company, however, has reportedly run into rough financial weather and is in advanced stage of talks to bring in a strategic partner or even sell a controlling stake in the company. Besides the Mahindra Group, another Indian firm and a few Singapore companies have also been approached by the promoters of ABG Shipyards for a deal, according to reports.

Even before initiating talks with ABG, the Mahindra group had been negotiating to buy a stake in the Pipavav Defence, another private-sector entity and a leading shipbuilder with contracts from Indian Navy to build offshore patrol vessels. The talks, however, could not materialise amidst reports that the shipbuilder had been in talks with India's Hero Group and French shipbuilder DCNS for selling a controlling stake. No confirmation about any further development in that regard have emerged so far.

Amidst all such reports and speculations, if Mahindra & Mahindra succeeds in its latest bid with the intent to expand its land and naval defence equipment base, it will open up a fresh new chapter in India's Defence domain wherein mergers and acquisitions will become a welcome sign to build up a robust defence industrial base.

One of the primary goals of pushing Make-In-India in Defence Sector is to achieve economies of scale involving cost advantages for an organisation with increased scale of production and operation over a period of time. Such economies of scale would be possible if and when the Government, and moreover, the customer, i.e. the Indian Military, reposes its faith in the indigenous defence systems and make a pitch for their production and induction. 

With the Government set to pump in more funds for the Defence Sector in the forthcoming Budget, along with a proposal to form a separate policy for this sector for greater clarity, forming new partnerships, both by the public as well as private-sector firms, will go a long way in realising all the far-fetched goals of defence indigenisation -- promoting self-reliance, technology upgradation, achieving economies of scale and developing capabilities for exports in the defence sector.

It will bring in a new revolution towards designing, developing, producing high technology military systems and platforms to meet the domestic demand as well as to compete at the global stage.

Also important to highlight here is the case of state-owned defence enterprises, having huge infrastructural set-up built over the years with the Government's help, to embrace the new trend and take steps towards either partnering or acquiring other small, medium or large-scale entities, public or private. Such a step will surely form a solid foundation for a massive financial build-up and a highly-skilled talent pool taking utmost advantage of the already existing infrastructural set-up to innovate, design and produce cutting-edge militarily hardware.

Defence technology has always been considered a strategic asset for any nation. And when it comes to gaining expertise in such a critical asset, it often becomes imperative to form alliances and partnerships for the obvious reasons that such an expertise demands huge investments, highly-skilled workforce, uninterrupted Research & Development work and infrastructure set-up.

Thus, consolidation in the defence sector will be a promising factor in not only expanding the domestic defence industrial base but also towards reaping the long-term benefits of India's ever-growing military market and the enormous opportunities it will offer in the coming decade or so.

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