Rahul Bhonsle
Apr 24, 2016
One of the key recommendations of the Dhirendra Singh Committee which was set up to examine the defence procurement procedure and suggest measures for indigenisation under the overall rubric of the Make in India programme was selection of Strategic Partners on the lines of the Raksha Udyog Ratnas from the private sector. This was in the Buy and Make category of defence acquisition – that is direct procurement of fully formed equipment from a foreign vendor, “followed by indigenous production in a phased manner involving ToT of critical technologies as per specified range, depth and scope from the foreign OEM”.
As a follow up, the Ministry of Defence (MOD) constituted a Task Force under the Chairmanship of Dr. V.K. Aatre former Scientific Adviser to the Raksha Mantri (RM) with experts from various fields as members. The Task Force was to examine in detail the process of selection of Strategic Partners and recommend specific criteria as well as draft a long-term covenant to be entered into between the Government and the selected Strategic Partners.
While the Dhirendra Singh Committee recommended broad parameters for selection to include financial, technical and so on, details have now been worked out by the Aatre Task Force.
The Task Force deems that this is a de novo requirement as such a model does not exist globally, which is not surprising given that Western countries having advanced industrial base going back to centuries already have well established private players in the defence sector.
The other major defence industry is in Russia and China which is mainly state driven thus lacks relevance to the Indian context viewed from the private sector perspective.
India is one of the few countries today or perhaps the only country with large armed forces without a viable indigenous defence industrial base
The present dependency on government and public for systems integration has left the private sector to Tier 1 and 2 levels in the supply chain. At the same time some private sector players have developed depth of knowledge and experience in defence manufacturing and have been urging the government for many years to provide them a level playing field.
Thus Strategic Partners initiative comes at the right time when both the government and the industry are willing to take the plunge.
Quite rightly establishing the right norms for selection of Strategic Partners is necessary and the Aatre Task Force was charged to do the same.
Broadly speaking the criteria for selection of companies as strategic partners identified by the Aatre Task Force is threefold – capabilities in system engineering, supply chain management and financial stability
The Task Force has divided the weapons system segments recommended by the Dhirendra Singh Committee into two groups. Group I Segments comprise of (a) Aircraft (b) Helicopters
(c) Aero Engines (d) Submarines (e) Warships (f) Guns (including artillery guns) (g) Armoured vehicles including tanks. While Group II Segments include (a) Metallic material and alloys (b) Non-metallic material (including composites and polymers) (c) Ammunition including smart ammunition
Networks were a separate segment recommended by the Dhirendra Singh Committee the Task Force has not, “Specifically listed it as a separate standalone item in respect of which a Strategic Partner should be appointed. The Task Force recommends that MoD may consider that the development and manufacture of Networks be done through Development Partners”.
Given the importance of information networks both within a weapons system as well as between systems dependence on Development Partners may be a negative step and would have to be reviewed by the MOD as there is a need for Strategic Partners in this segment as well. As Development Partners will be selected on a competitive basis and networks remain a key component of every weapon platform, this will remain a major grey area.
In the initial phase the Task Force has recommended the following Segments be considered for selection: in Group I (a) Aircraft (b) Helicopters (c) Submarines (d) Armoured vehicles including tanks and in Group II (a) Ammunition including smart ammunition
While exclusion of warships in Group I segment is understandable, lower priority of guns may not be justified as large acquisitions are envisaged in this segment in the near future. With the Artillery modernisation plan of the Indian Army envisaging up gradation to the 155mm calibre by 2027, over 2600 guns will be procured over the next 10 years. Thus nomination of Strategic Partners in this segment should have been given priority. More over a number of Indian private sector partners have invested considerable sums including joint ventures with foreign majors for meeting the requirement of artillery guns. These will face a major disappointment apart from the delay in provision of guns for the Army.
On the definition of eligibility the Task Force deems that the applicant must be a public company as defined under the Companies Act, 2013 and has restricted foreign direct investment in the same to be limited to 49%. On the whole ownership of the enterprise will rest with a resident Indian which is understandable.
The most controversial recommendation of the Aatre Task Force is likely to be that of limiting one strategic partner per segment in Group I as it feels that, “Selecting more than one Strategic Partner in relation to Group I may lead to technology, plant and financial investment of one Strategic Partner developed for a project being wasted if the next project of the MoD is won by the second Strategic Partner ...”
While this stands to logic, the current investment pattern of private defence industry majors in India is such that they are not likely to accept this term easily.
For instance major players as L & T, Tata Group, Mahindra and Bharat Forge amongst others have invested considerable sums in all or more than one segments such as artillery guns, submarines, aerospace and armoured vehicles. These companies will lose out on the investments made so far. More over the industrial licences have been issued to these companies in these segments already thus restricting them to only one segment is not likely to be welcomed.
At the same time one single entity will not be able to fulfil the large scale deficiency of systems in the armed forces running into hundreds, thus a review of this restriction appears inevitable.
Similarly in Group II for ammunition there may be a number of Strategic Partners who would have to be nominated with the varied types of munitions that are required by the armed forces.
The Task Force has identified detailed parameters both technical and financial for selection of the Strategic Partners which needs deliberation separately. Weight age for each criterion has also been recommended. Some of these criteria may rule out leading industry players whose profitability or credit rating does not reflect experience and competence wherein they have already been lead suppliers to the armed forces. This issue may require attention.
While the Task Force has recommended a time frame of selection of the Strategic Partners within nine months from date of acceptance of the Report, given the complicated nature of the selection process and what is likely to be literally, “cut throat,” competition in case MOD accepts the clause of eligibility of a company for only one segment.
The Task Force has underlined specific contract with the MOD and hand holding of the Strategic Partners with an independent regulator to monitor as a dispute resolution mechanism as well as to remove bottlenecks in the procurement process.
In fact the Department of Defence Production (DDP) needs to hold this charge for an independent regulator may prove complicated given that the government is the owner of all R & D and production in this sector be it by public or private sector. The DDP should supervise government, public and private sector defence industry and ensure a level playing field based on competence. At present DDP’s loyalty to its own charge the Ordnance Factory Board and Defence Public Sector Undertakings (DPSUs) has led to allegation of nepotism.
All in all the Aatre Task Force has done a commendable work in bringing out clear cut criteria for selection of strategic partners in the defence private sector.
While details will be no doubt ironed out, there are some major issues that are likely to remain contentious and the MOD needs to take all stake holders into confidence to resolve these earliest before finalising the Chapter on Strategic Partners and Partnership in DPP 2016.
No comments:
Post a Comment