India’s latest defence manufacturing agreement with Russia a template for future collaborations
The finalisation of the long-pending agreement for making Russian assault AK203 rifles in India not only paves the way for the Indian armed forces to get a modern gun, but it also creates a precedent for other foreign defence contractors looking to set up shop in India.
The Modi government’s Atmanirbhar Bharat (Self Reliant India) initiative will receive a huge boost when the AK 203 assault rifle factory in Amethi starts production. The points of contention, mainly over price, have been resolved between India and Russia and it is now up to the Indian government to sign the contract to place orders for the guns according to Russian officials.
The recent agreement with Russia is seen as yet another statement of intent and action by the Indian Ministry of Defence of showcasing the country as an attractive destination for investment to produce military equipment and platforms. Earlier last month, Indian defence minister Rajnath Singh had invited Swedish majors to set up manufacturing bases in India.
The defence minister cited the 74 per cent foreign direct investment (FDI) through automatic route and up to 100 percent through government route in the defence manufacturing sector as examples.
The plan is to manufacture 671,427 AK 203 rifles in India with complete technology transfer, which the Russia side has agreed to do within 32 months of starting production.
“We have finalised all the terms of the deal. The final approval is to be taken by the Indian government… We believe that the structural changes in the OFB will not affect the JV on the production of AK 203,” Dmitriy Sugaev, head of the Russian Federal Service for Military-Technical Cooperation (FSMTC), told ET.
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It is learnt that all the outstanding issues that had held up the project for two years – such as the price of each rifle, which the Indian defence authorities felt was too high, the fine print of the technology transfer and the protocols for training Indian personnel – have been thrashed out and agreed upon.
Final nod expected very soon
The next steps, a formal go-ahead from the Ministry of Defence and then the final approvals from the Cabinet Committee on Security (CCS), are expected to come in the coming months.
These rifles will replace the INSAS rifle developed by the Defence Research and Development Organisation (DRD), which has been the mainstay of the Indian armed forces since 1998. However, these rifles have faced operational and reliability issues from Day one, forcing the Defence Ministry to look for alternatives.
Finally, in 2018, the government decided to phase these guns out and, after extensive trials, selected the Russian AK 203, which is the latest and most advanced version of the world famous Kalashnikov AK 47 assault rifle.
Indo-Russia Rifles to be majority owned by India
The company that will make the rifles, Indo-Russia Rifles Private Ltd, is majority owned by the Ordnance Factory Board (OFB), which owns 50.5 per cent. Of the balance, 42 per cent is held by Kalashnikov and 7.5 per cent by Russia’s official arms export agency Rosonboronexport. The company is headed by a serving Indian Major General.
Under the terms that have been agreed upon, each rifle will cost $940 and Russia will receive a royalty of $80 per unit. This is much cheaper than the $1,200 per rifle that India has paid for importing 72,000 Sig Sauer 716 assault rifles from the US on an emergency basis to fulfil critical operational requirements.
This project will be a critical stepping stone for the Modi government’s initiative to build an indigenous defence-industrial base in the country with imported technology to start with, if necessary. Once India absorbs and masters the technology of making assault rifles, it could open up a lucrative export market for Made in India small arms.
64% of defence acquisition budget for domestic companies
To encourage more foreign companies to set up units in India and transfer technology to them, the government has allowed up to 74 per cent FDI in defence manufacturing units.
To further incentivise the Make in India push, the Defence Ministry has set aside 64 per cent of its $9.4-billion capital acquisition budget for 2021-22 for purchases from companies registered in India, including Indian subsidiaries of foreign defence contractors. This is an increase of more than 10 per cent over the figure of 58 per cent in 2020-21, when such an allocation was first made.
To give domestic firms a boost, the Defence Ministry has announced that henceforth 209 defence platforms and weapons systems will be acquired from domestic vendors only. This is expected to help India establish a technologically advanced defence manufacturing eco-system and shed its tag of being the world’s second largest arms importer.
The list includes items like assault rifles and light machine guns, light, medium and heavy combat armoured or mine protected vehicles, helicopter launched anti-tank missiles, wall penetrating imaging radars, 10 kilometre range battlefield surveillance radars, land-based medium power radars and thermal imaging and sight intensifiers for small arms including and mountain weapons locating radars, among others.
The agreement for the AK 203 rifle could serve as a template and precedent for future collaborations with strategic partners and defence contractors and this could sow the seeds of atma nirbharta (self-reliance) in the defence manufacturing sector.