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Indian Industry Report Highlights Older Equipment Providing More Impetus For Defense Spending

Already conducting a program of heavy investment in modern, Western equipment India's military released a report stating a large amount of their existing hardware could be considered outdated. The report was prepared by KPMG and the Confederation of Indian Industry. That organization obviously has a vested interest in convincing the Indian government to make a large investment in upgrading their military as some of the money will flow to their member companies.

India has recently moved to buy more Western equipment rather then its traditional suppliers from Russia and indigenous sources. There is a major fighter contest underway featuring U.S. and European manufacturers. The country recently also purchased aircraft from Boeing (BA) and Lockheed Martin (LMT). There is also a plan to procure new helicopters that has started and ended twice due to problems with the proposal process and some corruption issues.

Israeli companies have been able to sell systems as well including an airborne early warning system in a deal worth billions. Israel is also building a network of armament and munition factories to support all of India's defense services in a contract worth several hundred million dollars.

India faces not only external disputes with Pakistan and China but internal security issues as well. The Mumbai attack highlighted the need to invest in border security and maritime patrol assets. The P-8 aircraft being built by Boeing will replace the aged Russian Ilyushin-38 aircraft and provide a significant upgrade in capability.

The Navy is also planning on leasing a modern Russian nuclear attack submarine to augment its force of conventional ones made in Russia and Europe. A contract to build a French submarines in India has been ongoing for several years no actual vessel has been delivered and may not until 2012-2014. The lease will cover a capability gap while these are completed and new submarines are purchased.

India's market is already attracting attention from the large European and U.S. defense contractors who see these overseas sales as a way to make up for the potential declines of domestic budgets. Changes in Indian law about the use of offsets and allowing foriegn joint ventures are also making it easier for these companies to bid. The focus to date has been on new air and naval assets but eventually new ground equipment will be needed. This will create a demand that U.S. and European tank and artillery manufacturers will be fighting to fill. This competition will aid India in getting the best value possible for their defense investment.

India is positioning itself well to take advantage of the availability of the world's defense industry. It is able to draw upon the best of the U.S., Europe and countries like Israel with a solid domestic defense establishment eager to sell to new customers. They are also trying like Brazil to be able to transfer this technology and capability to their domestic industry. This means in a few decades it may be Indian companies competing with Boeing and BAE Systems (BAE.L) for sales.