The Hinduja group has formed an independent company to spearhead the defense business as it plans to cash in on the growing global demand for defense products. The UK based group holds 60% and its flagship in India Ashok Leyland owns the balance in the new company called Ashley Defense Systems.

The move is aimed at expanding the scope of defense business, which sells a range of logistics vehicles and light armored products, through global alliances. The energy to hospital conglomerate is talking to global defense majors for a possible collaboration. Mr GP Hinduja, co chairman of Hinduja group said that "We are negotiating with global defense majors for partnership and new technology and intend to announce the collaboration in 2 to 3 months.”

The government has opened up foreign direct investment in the defense sector in 2006 through the policy of offsets, raising prospects for business conglomerates such as the TATAs, M&M and L&T to expand their businesses. M&M has tied up with US defense major BAE Systems and L&T plans to team up with EADS. Foreign companies are allowed to invest 26% in the joint venture.

India can produce defense equipment almost 15% cheaper owing to low cost labour, triggering an inflow of global biggies in the defense space to look for potential tie ups with Indian vehicle makers.

The offset rules requires for manufacturers to invest 30% of the value of the procurement in India. Mr Amber Dubey director, (aerospace and defense) of KPMG said that "The offset rule will require for foreign defense companies to look at India who are used to high quality precision manufacturing and have necessary infrastructure.”

According to a research report, Indian defense expenditure is slated to touch INR 100,000 crore over the next 3 to 4 years with 20% open to the private sector. The government has maintained the ratio of defense expenditure to GDP even during the economic slowdown.

(Sourced from ET)