Airbus Tata Collaboration: How Will It Benefit India

How does a successful technology transfer or manufacturing of high-tech products benefit a nation? To understand, we don’t have to look far beyond, as India is the best example. From manufacturing Covid-19 vaccines for the world to producing long-range air superiority fighters for the Indian Air Force, it has helped India to create an ecosystem of highly skilled workforce and capabilities to pursue new opportunities.

And Airbus Tata collaboration for manufacturing the C-295 transport aircraft is a shot-in-the-arm development. So let’s understand how it will push local manufacturing and benefit the Make in India initiative.

Overview of Airbus Tata Collaboration

In September 2021, the Ministry of Defence (MoD) signed an estimated ₹21,395 crore deal for 56 C-295 transport aircraft with Airbus Inc for the Indian Air Force.

The entire project is unique, and the first-of-a-kind project for India as the military aircraft will be manufactured in India under the transfer of technology by a private sector company. To bag the deal, Airbus, along with its Indian partner, Tata Advanced Systems Ltd (TASL), placed the bid.

Only Hindustan Aeronautics Limited (HAL) was known to execute such transactions earlier. And the silver lining is that the production line will meet other countries’ export needs. Making significant progress on the deal, on October 30, 2022, Prime Minister Narendra Modi laid the foundation stone of the manufacturing facility in Vadodara, intending to roll out the first aircraft in September 2026.

Airbus Tata Collaboration- A Case of Make in India

The manufacturing of C-295 in the country is a significant development. It will help India become a global manufacturing hub, support the development of indigenous products and R&D, and allow rapid modernization. For instance, TASL will partner with TCS and more than 125 MSME suppliers to manufacture C 295. The project may generate 600 highly skilled jobs, over 3,000 indirect jobs, and additional 3,000 MSME opportunities generating 4.25 million man-hours of work.

The experience will go a long way in manufacturing high-tech defense products and create a new ecosystem for manufacturing fixed-wing aircraft, the capability which India lags.

For instance, HAL recently completed the deal of manufacturing 140 Sukhoi 30 MKI for the Indian Air Force. Over the year, HAL developed over 2,000 Micro, Small, and Medium Enterprise (MSME) vendor bases for the Sukhoi project that will now be used to ramp up the capacity to overhaul aircraft. Also, the production line can be used in manufacturing India’s next-generation fighter aircraft like the Tejas-MK-1A or building 5th-generation fighter aircraft.

Why is Defense the Focus in Make in India?

The Airbus Tata Collaboration is one more example of how the government is focusing on ramping up defense manufacturing capabilities under the Make in India initiative.

The country must have hi-tech manufacturing capabilities to catch up with the pace of the developed world and new emerging economic scenarios. And large defense orders with offset clauses play a significant role in developing hi-tech industrial capabilities for the country and generating meaningful employment opportunities.

And India wants to be a vital defense manufacturing hub. The government is helping through a five-pronged approach to working on that objective. In the last seven years, India’s defense spending doubled from $32.4 billion in 2015-16 to $62.8 billion in 2021-22. Simultaneously, the government has made 5 crucial policy changes in defense procurement:

New defense acquisition procedure: The Defense Acquisition Procedure (DAP) 2020 formulated rules for procuring new defense technology equipment with a greater focus on the Make in India efforts and MSMEs. Higher usage of indigenous content, design, and development and improving ease of doing business to attract foreign companies to manufacture in India.

Foreign Direct Investment (FDI): Allowing 74% FDI under automatic route will encourage foreign companies to invest and produce in India.

Technology Development Fund: The scheme aims to promote self-reliance in defense technologies and allow more MSMEs and startups in the defense manufacturing space.

Import Embargo: Banning the import of defense equipment that can be manufactured with indigenous technologies and foreign collaboration in India, thus making room for the private sector to invest and add capacities.

Growth in Exports: One of the key focuses of the new Defense Acquisition Procedure is to meet the requirement for India and make for the world. With exports of just under $255 million or  ₹ 1,940 crores in 2014-15, Indian defense exports have touched  ₹13,000 crores mark in 2021-22 fiscal and have already touched  ₹8,000 crores mark in the first six months of FY 2022-23.

With the government planning to make India a defense manufacturing hub for the world and grow the size of the Indian defense manufacturing industry to $5 trillion by 2047 from the current $1 trillion, it paints a bright picture and opportunities for MSMEs, startups, and private and public companies.

The Airbus Tata collaboration is a much-needed development in that direction. As the Prime Minister mentioned at the foundation stone laying ceremony of the C-295 manufacturing facility, India plans to become a significant transport aircraft producer and manufacture big commercial planes.

If things move in the right direction or as planned, the defense sector will also be the biggest wealth creator of the next decade. Stocks of defense companies like Hindustan Aeronautics, Bharat Dynamics, Solar Industries, Bharat Electronics, etc., have given investors higher double-digit CAGR returns in the last three years.

Does this mean that you blindly invest in defense stocks? No, remember FRAI – find, research, analyze and then invest.

Disclaimer Note: The stocks mentioned in this article are just for information. He/she should not consider this a buy/sell/hold from Research & Ranking. The company shall not be liable for any losses that occur.

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Read more:  How Long-term investing helps create life-changing wealth – TOI.