German Submarine Deal Nears as India Seeks Non-Russian Defense Solutions

Following the arrival of Germany’s Defense Minister Boris Pistorius in New Delhi for a two-day visit, reports indicate that a Memorandum of Understanding is expected to be signed regarding a $5.2 billion deal for construction of six diesel-electric submarines. The agreement would involve joint manufacture of diesel-electric attack submarines (SSKs) featuring air-independent propulsion (AIP) for greater endurance and equipped with land-attack cruise missiles and capability to integrate indigenous weapons and sensors.

The joint bid for the project involves Germany’s Thyssenkrupp Marine Systems (TKMS) and India’s Mazagon Dock Shipbuilders Limited.

Referred to as Project 75 India (P-75I) by the Indian Ministry of Defense, the diesel-electric submarine project was cleared by the Defense Acquisition Council (DAC) under the Strategic Partnership (SP) category of the country’s Defense Procurement Procedures on January 31, 2019.

Under India’s SP policy, foreign original equipment manufacturers (OEMs) are selected directly by the Defense Ministry on the basis of requirements and the technology offered, after which they are tied up in a joint venture with a private Indian company that has been shortlisted for that particular sector.

The Indian Defense Ministry issued requests for Expressions of Interest (EOIs) to local shipyards on June 20, 2019, pushing the program forward. Mazagon Dock Shipbuilders Ltd and Larsen & Toubro (L&T) were then tapped as the two preferred local shipyards to tie-up with foreign vendors.

A separate, restricted EOI followed in July 2019, with five foreign OEMs receiving them: Daewoo Shipbuilding & Marine Engineering (DSME) of South Korea, offering its KSS-III; Navantia of Spain, with its S-80; Naval Group of France, putting forth the Scorpène 2000; Germany’s Thyssenkrupp Marine Systems (TKMS), with the Type 214; Sweden’s Saab, with the A26; and Russia’s Rubin Design Bureau, offering the Amur 1650 submarine.

Saab eventually dropped out of the competition, citing the requirements related to the timeframe and the SP arrangement. France’s Naval Group then announced its withdrawal from the competition on May 23, 2022, thereby bringing the competition to four bidders.

With India looking to continue moving away from its longstanding dependence upon Russian military hardware, the opportunity to tie-up with Germany presents a palatable option.

Bogged down in its invasion of Ukraine, Russia is forced to prioritize allocation of domestic hardware to the front lines of its conflict, thereby making supply to foreign procurers a secondary concern. Beyond the production pressures Russian manufacturers are facing, after-sales support and provision of sufficient quantities of spare parts are likely to prove hurdles moving forward.

Another thorny issue involves U.S. CAATSA (Countering America’s Adversaries Through Sanctions Act) sanctions, which seek to prevent countries from purchasing Russian weapons systems. Under the U.S. sanctions regime, any third party that conducts sizable transactions with the individuals or entities outlined in the CAATSA is liable for punitive sanctions.

This is particularly problematic for India, which  is used to conducting arms agreements and transfers with Russia on a large scale. Through mid-2019, India either had inked agreements or was in advanced negotiations with Russia for procurement of up to $20 billion worth of Russian-sourced military hardware.

As a result of the CAATSA sanctions, Indian banks with significant exposure to the U.S. have opted to suspend payments and installments to Russia. This, in turn, led India and Russia to try to devise a road map for circumventing the sanctions in order to push ahead on delivery of Russian military hardware via a mix of foreign currencies and a rupee-ruble transfer mechanism. However, a suitable payment mechanism has proven elusive.

Germany now sees a chance to swoop in and pick up export orders while stinging Russia’s arms industry and economy at the same time. From Germany’s perspective, the clinching of the P-75I submarine contract would be a “good get,” as India previously opted for the French Scorpène from Naval Group to meet its original Project 75 submarine requirement over the German Type 214 back in 2005.

But as with all large-scale Indian defense procurement tenders, the proof will be in the signing of a final contract.

Until then, the Indian Navy – which has a pressing need to add more conventional submarines to its fleet  – will continue to suffer from capacity shortcomings. The service currently fields around 18 submarines despite a minimum requirement for 24 vessels. Two-thirds of these are at least 30 years old and are closing in on being retired.

Even with fast-track acceptance of the TKMS-Mazagon bid as the preferred winner, once the ensuing price negotiations and contract finalization are taken into account, the lead-in submarine would likely not arrive before 2030, unless the lead-in submarine is constructed entirely at TKMS’ shipyard in Kiel.

Nonetheless, diversifying external sources of supply and growing its domestic defense industrial base through the Make in India economic initiative are core goals for New Delhi. The former goal aligns with that of Germany. The latter – initially a problem for TKMS –  is something Berlin is willing to deal with as it seeks to build a strategic partnership with India.

About Daniel Darling

Dan Darling is Forecast International’s director of military and defense markets. In this role, Dan oversees a team of analysts tasked with covering everything from budgeting to weapons systems to defense electronics and military aerospace. Additionally, for over 17 years Dan has, at various times, authored the International Military Markets reports for Europe, Eurasia, the Middle East and the Asia-Pacific region. Dan's work has been cited in Defense News, Real Clear Defense, Asian Military Review, Al Jazeera, and Financial Express, among others, and he has also contributed commentary to The Diplomat, The National Interest and World Politics Review. He has been quoted in Arabian Business, the Financial Times, Flight International, The New York Times, Bloomberg and National Defense Magazine. In addition, Dan has made guest appearances on the online radio show Midrats and on The Media Line, as well as The Red Line Podcast, plus media appearances on France 24 and World Is One News (WION).

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