R Shankar Raman, CFO of Larsen & Toubro (L&T), one of India's largest engineering and construction conglomerates, has called for a significant shift in India's defence procurement strategy. He emphasized the need for increased participation from domestic private companies, which currently hold a smaller share compared to state-owned enterprises and imports.
In an interview with the Financial Times, Raman highlighted L&T's robust production capabilities, which he believes exceed the current procurement opportunities offered by the Indian government. L&T, which derives approximately 5% of its $27 billion annual revenue from defence, has recently secured substantial contracts for naval shipbuilding and radar equipment supply to the Indian Air Force. The company also manufactures weapons delivery and air defence systems.
Raman urged the government to expedite its defence procurement program, stating, "We've been constantly lobbying... saying that the government should fast-forward this whole programme." He emphasized the need for an overhaul of India's defence infrastructure and the importance of involving capable entities like L&T to achieve this goal.
India, being the world's largest importer of military hardware, relies heavily on foreign suppliers, particularly Russia. While the Modi administration has taken steps to liberalize defence procurement and enhance transparency, the sector remains dominated by state-owned corporations, which Raman described as "not very efficient."
Several large Indian conglomerates, including L&T, Adani Group, and Tata Sons, have entered the defence sector as the government seeks to bolster indigenous military technology and supplies. This aligns with the broader "Make in India" initiative aimed at revitalizing the country's manufacturing sector.
Raman advocated for a change in mindset within the government, urging them to move away from the perception that private sector involvement equates to profiteering at the government's expense. He stressed the importance of increased private sector engagement to meet India's defence needs.
Analysts anticipate a significant rise in corporate participation in the defence industry. CRISIL Ratings, an Indian subsidiary of S&P Global, projects a 20% growth in revenues for 25 private aerospace and defence companies it covers in the fiscal year ending March 2025.
Ankit Mehta, CEO of ideaForge, a leading Indian drone manufacturer with the Indian military as its primary client, echoed the sentiment of growing opportunities in the sector. He mentioned the company's plans for substantial growth in its development team and expansion into the US market.
Raman expressed optimism that with increased government support for private procurement, defence could constitute 10% of L&T's portfolio within five years. Defence currently represents the largest ministerial outlay in India's budget, accounting for 13% of central expenditure.
