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Wednesday, October 5, 2022


A Private Matter


Even as another defence deal falls through the crack, the wait for the domestic manufacturers from the private sector to land up a lucrative deal has turned even more prolonged
PRAMOD KUMAR | Issue Dated: October 5, 2016, New Delhi
Tags : Defence Sector | IL-78MD-90A | Il-76MD-90A | MMTT Deal | MMRCA Aircraft |

The big news in the Defence Sector last month was the cancellatin of a billion dollars’ worth of contract for the Multi-Role Tanker-Transport aircraft. India has suspended its planned acquisition of six Airbus Defence & Space A330 multi-role tanker transport (MRTT) aircraft, creating uncertainty about its long-term air-to-air refuelling capability.

It is not that these aircraft are not useful for the Indian Armed Forces. Had that been the case there would have been no contact at the very first place. And neither would have been there been any need for a second global-tender. It is being said that a particular plane of Russian make is being prioritised over others. For the first time Russia has offered New Delhi IL-78MD-90A, which is a modernized version of the Il-76MD-90A military transport, also known as the Ilyushin-476.

This is not the first time that the government has cancelled such a deal. A similar contract for MMTT was cancelled in the year 2006 as well. However the cancelling of this tender might have a domino effect as well. It is widely rumoured among the Mandarins in the South Block that the MMRCA deal featuring France’s Rafael Aircraft is also on the verge of collapse. These slew of cancellations has adversely affected the morale of not only the Defence Sector but of the players in the private sector as well who were issued licences to manufacture the products in India, and have little or nothing to manufacture till now.

As far as the MMTT deal is concerned, it is rather surprising that the global tender was cancelled for the second time. It is particularly perplexing considering that air-to-air refuelling is critical during operations especially for MMRCA aircraft like Rafael. Ministry officials, in their defence, said that the billion dollar worth deal was not cleared by the Finance Ministry as the latter believed that the amount being paid could not be justified in any way. Such a big amount could be used judicially under the Make in India product. The question then arises about what will be the fate of private defence companies which were looking at this deal for a turnaround. As far the information that is available, most of the major contracts are being given either to the public sector or signed with foreign collaborators. Take the case of the Rs 13970 crore Apache helicopters deal. The same goes for the Rs 8000 crore deal for Chinkook helicopters. The same has been signed with American Aerospace Technology. The Smerch Multi Rocket Launcher System for the army has been signed with Russian firm Rosoborn Exports. As far the defense deals with the public sector are concerned, according to the available data, the MOD has signed five deals of more than Rs. 2500 crore since 2014. The biggest gainer of defence production awards are Mazagon Docks and Garden Reach Steel Industries. They have got the orders to construct seven Shivalik Class Frigates under Project 17-A. Public sector giant Bharat Electronics Limited has also got the one of the best deals worth Rs 7,910 crore for Integrated Air Command and Control System (IACCS) for the Indian Air Force.

According to the sources from Defence Ministry, the government is still to make purchases worth Rs 150,000 crore. The Defence Acquisition Committee has taken the decision on the purchase, technology transfer and joint production of Rs 150,000 crore worth of weapons. It is estimated that in the coming five months, projects of similar worth will be approved too. Roughly, Rs 300,000 crore of orders are what we are looking at, at this time.

However, there are pitfalls in the way. The Defence Acquisition Committee is still to get a go-ahead on these projects from the Cabinet Committee on Security (CCS) and Cabinet Committee on Economic Affairs (CCEA). And this is easier said than done. To start, the entire procedure takes anything between 8-9 months. Some domestic defence production companies have given separate petitions to PMO, as well as to Defence Minister Manohar Parrikar, asking them to shorten the time-limit of all the deals that have either fallen through or are yet to be floated. In their defence, these companies maintain that neither do they want to compete with foreign corporations nor do they plan to become a hindrance in the way of any deal that might go though. However, they want preference to be given to the private sector as well, especially under the umbrella of the Make in India program, which plans to revitalise the private sector.

It was because of their pleading that Prime Minister Modi has asked the Defence Acquisition Committee to think over the entire purchase mechanism in order to accommodate the private players as well, all the while not compromising with the defence of the country. The Defence Minister subsequently went on to hire a bureaucrat, an old hand from his Goa days, Vivek Ray, to man the newly formed defence organisation. The committee will submit its report to the Defence Ministry soon. It will result in a revaluation by DAC, and will guide all the new purchases. Rumour has it that the government has created a secret dossier of all the private players who participated at the Defence Expo in Goa, and is trying to evaluate their worth, credibility, production capability and technological know-how. It is being said that the future projects will be given away on the basis of this evaluation.

Representatives of private companies met with PM’s Principal Secretary Nirpendra Mishra and complained that in spite of all their efforts and government’s assurances, the private firms are not getting any procurement deals. They also maintained that while their overhead expenses are mounting, it is only the foreign companies that are bagging deals. There is no positive impact on the FDI in anyway. In early June, a lot was made of the opening of the doors for foreign investment in the Defence sector under the approval route through ‘State-of-Art Technology to Modern-Technology’, but till now not a penny has been invested. Some of the foreign firms are so fed-up of the arrangement that they have threatened their Indian counterparts of withdrawing from the partnership.

Mishra, on his part, directed the officials from the Defence Ministry to look for the ways for more participation of the private players. It has been three months to that day and nothing has moved. Nothing positively at least.

People who know the intricacies of the matter maintain that while the Defence Procurement Procedure under the Make in India program has been approved, and even has been put on line; but the Strategic Partnership Program has not been approved by the Defence Ministry till now. According to the program, the government can select any one private company as a strategic partner and give contacts for a period of 20-25 years to manufacture submarines, tank and aircraft. This is in line with how government deals with the public sector companies. Any private company worth an annual turnover of Rs 1000 Crore can apply for this position. Needless to say, Adani and Ambani Groups have already done all the groundwork in anticipation of such a status. Ambani Group in fact hired over 100 officials who had retired from Defence sector or had a know-how of the matter some months ago in anticipation of the deal. The deal never came through and the newly-hired were shown the door in merely three months of their hiring.

Private companies also allege that the government resorts to pettiness when it comes to the private sector. They also indicate towards an interview by the Defence Minister where he had conceded recently that the bureaucrats have formed such a cobweb that it is difficult to get things done. The government on its part put forward that there are concerns about the quality of the final product as far as private companies are concerned. It gave an example of the field gun contract which was awarded to a private firm. While the sample was satisfactory, when the quality testing of the final product started, it became obvious that it had teething problems and didn’t match the prescribed quality standards. The ministry quickly recounts several similar examples.

While both the parties have their own sets of grievances; needless to say, its impact on the ‘Make in India’ program would be disastrous to say the least.

With inputs from Brig (rtd.) Pramod Singh and Vivek Singh

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Issue Dated: Feb 5, 2017