India’s Rs 50,000-cr submarine project faces delays amid contractor disputes

This delay hampers the Indian Navy’s efforts to strengthen its presence in the Indian Ocean as China continues to expand its influence in the region.

The project, now delayed by a year, may face further setbacks, according to two senior officials privy to the matter.

A test of India’s defence acquisition policy

The project’s slowdown not only impacts India’s military modernisation but also serves as a test for Prime Minister Narendra Modi’s new defence acquisition policy.

The policy mandates foreign manufacturers to collaborate with Indian firms and transfer technology, fostering local production in the world’s largest arms-importing nation. German firm ThyssenKrupp Marine Systems, partnering with Mazagon Dock Shipbuilders Ltd., and Spain’s Navantia SA, collaborating with Larsen & Toubro Ltd., are the key contenders for this project.

Market impact: Defence PSU stocks tumble

The delay has taken a toll on market sentiment. Shares of Mazagon Dock Shipbuilders fell over 2% in trading, extending losses to 4.4%. Other state-run shipbuilders like Garden Reach Shipbuilders & Engineers and Cochin Shipyard Ltd. also experienced a decline.

Objections raised after key field trials

The delays stem from approximately six objections raised by local contractors after field trials in June, which tested crucial submarine technologies. Complaints include alleged procedural violations and unclear instructions on conducting the trials. With each grievance needing through probe, the timeline of the project will be extended.

Sources suggested the objections may also be a tactic by some contractors fearing exclusion.

Larsen & Toubro declined to comment specifically, stating: "The field trial evaluation process is ongoing at the Ministry of Defence; it would be inappropriate for us to comment on it at this stage."

The Ministry of Defence has established a committee to evaluate the proposals and provide recommendations for a final decision.

India’s aging submarine fleet in need of immediate modernisation

India’s submarine fleet, comprising about 16 Russian and German-made vessels, is showing its age.

Many have undergone multiple upgrades over the past three decades but are nearing the end of their operational lifespan. The new submarines were initially scheduled to join the fleet by the early 2030s, coinciding with the decommissioning of older vessels.

India plans to develop two nuclear-powered submarines with conventional weapons.

Strategic importance: A boost for domestic manufacturing

A successful implementation of this program could elevate India’s status as a cost-effective hub for defence manufacturing, particularly as demand for military hardware rises in Europe due to Russia’s war in Ukraine.

Strengthened ties with Western allies, including through the Quad alliance with the US, Australia, and Japan, further underline India’s strategic importance in countering China in the Indo-Pacific.

Germany and Spain show interest

Defence cooperation took centre stage during recent visits by German Chancellor Olaf Scholz and Spanish Prime Minister Pedro Sanchez to India. Both leaders emphasized co-development and joint research in defence manufacturing.

A joint statement from India and Germany on October 25 affirmed:  Both sides committed to supporting strategic exports to India and encouraged co-development, co-production, and joint research between the respective defence industries.”

Uncertain outlook

While the project aligns with India’s push for self-reliance in defence, the ongoing disputes and procedural hurdles cast uncertainty over the timeline. The outcome of the committee’s evaluation and subsequent resolution of contractor complaints will be crucial in determining the project’s fate.