The Indian government has rejected a proposed joint venture between Israel’s Rafael and Mahindra Defence Systems to produce anti-torpedo systems, a move that surprised Mahindra officials and could undermine future foreign teaming efforts with private Indian companies.
Indian Defence Ministry sources said the ministry opposes such teaming projects if they involve the Indian private sector in strategic programs. Instead, the ministry supports establishing relationships for such sensitive projects only through the Defence Research and Development Organisation (DRDO).
Mahindra already has a joint venture with BAE Systems to manufacture defense land systems products.
The joint venture proposal would have given Mahindra 74 percent equity and Rafael 26 percent. It was turned down by the Foreign Investment Promotion Board (FIPB) last month, said Khutub Hai, a retired Indian Army brigadier and CEO of Mahindra Defence systems. The company is “unhappy” with the decision by the Indian government, which gave no official reason for its denial.
“Both Mahindra and Rafael are surprised at the decision as both are reputable companies which have extensive engagement with the government of India on projects related to defense and homeland security. We will be seeking clarification on the reason for this rejection,” Hai said.
Hai expressed his “shock” over the decision while Rafael is already engaged in developing high-tech defense systems in India. Rafael and DRDO jointly are developing India’s long-range surface-to-air missile systems and armoring technologies.
No Rafael executive was available for comment.
In March, the two companies signed a memorandum of understanding to jointly develop a variety of defense systems, including anti-torpedo systems, electronic warfare systems, advanced armoring systems and remotely operated weapon stations for the Indian Army’s $11 billion Future Infantry Combat Vehicles program.
“The decision to turn down the [joint venture] between Mahindra Defence Systems and Rafael is a retrograde step as it will discourage overseas defense companies from forging tie-ups with the domestic private sector companies to produce high-tech defense systems,” said Nitin Mehta, a defense analyst here.