Germany, India near $5.2bn deal to build six submarines. Why is this a big deal?

Bloomberg |
Jun 06, 2023 02:52 PM IST

The preliminary agreement will be signed in the presence of Germany's defence minister Boris Pistorius who arrived in New Delhi Tuesday for a two-day visit

Germany and India are closing in on a deal to build diesel submarines in the South Asian country as Russia’s prolonged war in Ukraine pushes New Delhi to expand its sources of military hardware beyond its top supplier Moscow.

German and Indian companies are nearing a deal to build submarines in India.(via REUTERS)
German and Indian companies are nearing a deal to build submarines in India.(via REUTERS)

Also Read | India’s dependence on Russian arms not in Germany’s interest: German minister

Thyssenkrupp AG’s marine arm and India’s Mazagon Dock Shipbuilders Limited are likely to jointly bid for an estimated $5.2 billion project to build six submarines for the Indian navy, according to people with knowledge of the matter.

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The preliminary agreement or memorandum of understanding will be signed in the presence of Defense Minister Boris Pistorius who arrived in New Delhi Tuesday for a two-day visit, German and Indian officials said.

Pistorius told public broadcaster ARD that the submarine deal will be on the agenda when he visits Mumbai Wednesday.

His role is to “support and assist” the negotiations between German executives traveling with him and their Indian counterparts, he said in the television interview. “This would be a big and important contract not only for German industry but also for India and the Indian-German strategic partnership,” Pistorius said.

Also Read | US defence secretary Lloyd Austin to arrive in India on two-day visit today

India’s Ministry of Defense and Mazagon Dock Shipbuilders didn’t respond to requests for comment. A German Defense Ministry spokesperson and a Thyssenkrupp Marine Systems representative declined to comment.

The Kiel-based defense manufacturing giant had shown no interest in jointly manufacturing submarines in India when the tender was announced two years ago. Now with the war in Ukraine in its second year and China moving in lockstep with Russia on the war, the West and in particular Germany, are placing their bets on India becoming a bulwark against Beijing’s growing diplomatic and military assertiveness.

For the submarines, India has identified Mazagon Dock Shipbuilders and Larsen & Toubro to tie up with foreign defense majors to build the diesel attack submarines. A key target for a partnership had been Thyssenkrupp Marine Systems, which is one of two submarine manufacturers globally to have air independent propulsion — a technology that helps conventional submarines stay underwater for longer.

Also Thyssenkrupp-made submarines were used in the past by the Indian navy, making them a far more compelling choice compared to South Korea’s Daewoo and Spain’s Navantia group.

German Chancellor Olaf Scholz wants German and European defense companies to step up their efforts to supply New Delhi with modern military gear as a way to help Prime Minister Narendra Modi’s government wean off its dependence on Russia in the defense sector.

India has emerged as one of the swing states buying large quantities of discounted crude from Moscow while continuing to engage the US and its allies. New Delhi has used a lingering border dispute with China to carry on buying weapons from Moscow – its biggest supplier of military hardware though deliveries have stalled as Russia and India struggle to find a payment mechanism that doesn’t violate US sanctions.

Submarines are a key need for New Delhi due to its aging fleet. To effectively patrol the Indian Ocean, the Indian navy needs a minimum of 24 conventional submarines but currently has only has 16. Of this fleet, aside from six recently built vessels, the rest are over 30 years old and likely to be decommissioned in years to come.

India, which is part of the so-called Quad grouping that includes Japan, US and Australia, has been pushing for these countries and European allies to share technology to build submarines. However there’s been a general reluctance to pass on technology given India’s proximity to Russia and Modi’s “Make in India” policy to boost local manufacturing and create jobs.

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