Forbes India 15th Anniversary Special

Reliance Defence inks pact with Serbia's Yugoimport to make ammunition in India

Partnership eyes Rs 20,000 crore worth of orders from Indian armed forces over 10 years as Anil Ambani-led Reliance Group bets on the defence sector

Published: Jun 20, 2017 03:58:49 PM IST
Updated: Jun 20, 2017 05:13:38 PM IST

Reliance Defence inks pact with Serbia's Yugoimport to make ammunition in India Image: Valentyn Ogirenko/ Reuters

In yet another indication of the heightened interest among global defence manufacturers to explore the Indian market, Yugoimport, a Serbian state-owned company that makes ammunition, signed a strategic partnership with Reliance Defence Ammunition (RDA), an Anil Ambani-led Reliance Group firm.

RDA, which is a subsidiary of Reliance Infrastructure, and Yugoimport will “work together in the field of ammunition, amongst others, with projected minimum requirement of Rs 20,000 crore over the next 10 years from the Indian armed forces,” a statement issued on Tuesday read.

After coming to power in 2014, the Narendra Modi-led Indian government had liberalised the norms governing foreign direct investment (FDI) in the defence sector. FDI to the extent of 49 percent is allowed under the automatic route, and FDI beyond that limit may be permitted if the government approves such a plan on a case-to-case basis.

But in the absence of any concrete and meaningful orders awarded out to these private sector and foreign companies, many of these partnerships exist on paper without much operations on the ground.

To further strengthen private sector participation in the Indian defence sector, the government also announced the Strategic Partnership Model that aims to create a defence manufacturing ecosystem comprising large companies and small and medium enterprises, by selecting certain private firms to build submarines and fighter jets in India in partnership with foreign companies.

According to Reliance’s statement, the Indian government has recently issued eight RFPs (request for proposal) for different grades of ammunition, opening up this area to private sector participation for the first time. These proposals envisage transfer of technology by the OEM (original equipment manufacturer)—usually the foreign company—and indigenous manufacturing in India. India currently imports 50 percent of the ammunition requirement by value, which is worth around Rs 10,000 crore.

The Anil Ambani-led Reliance Group sees a promising future for itself as a defence manufacturer. Even as it scales down some of its other ventures like infrastructure and telecommunications, and sells assets to pare debt, it has made some bold bets to further its defence business. In March 2015, Reliance Infrastructure acquired Pipavav Defence and Offshore Engineering Co and renamed it Reliance Defence and Engineering Ltd (RDEL). According to its website, RDEL is the first private sector company in India to obtain the licence and contract to build warships.