NEW DELHI — India's Ministry of Defence (MoD) has decided not to give DCNS of France permission to develop a local, fully owned subsidiary to manufacture air-independent propulsion (AIP) submarine systems on the advice of state-owned Defence Research and Development Organization (DRDO), which is developing its own AIP systems, according to a senior MoD official.
DRDO had "impressed" upon the ministry that DCNS wants to bring to India the same technology that DRDO is developing, said the MoD source, who spoke on condition of anonymity.
DCNS is the first overseas company to have sought clearance to invest 100 percent through FDI by setting up a fully owned subsidiary in the defense sector.
The Indian government in June this year changed the FDI laws to make it easier for overseas companies to receive permission for a 100 percent FDI in the defense sector.
However, Arun Prakash, a retired Indian Navy admiral, disagrees with the ministry's decision.
"If we keep a cool head, we should allow this (clearance of DCNS proposal) to proceed uninterrupted. This is most valuable and arcane technology, and there is a lot we can do with it in the future," Prakash said.
Bernard Buisson, the managing director of DCNS India, did not comment on the proposal's rejection, despite repeated requests.
No MoD officials would comment on the DCNS proposal; nor would they comment on whether reports of the leakage of vital data pertaining to six Scorpene submarines being produced under license by DCNS at Mumbai-based Mazagon Docks Limited (MDL) could have led to the proposal's rejection.
"I do not think cancellation of the ongoing project will solve any problem or mitigate the setback faced by the Indian Navy (because of the leak)," said Amit Cowshish, a former MoD financial adviser.
A senior Indian Navy official noted that the homemade AIP system is at a "project definition" stage, the prototype is being developed and once ready will be fitted in the last two French Scorpene submarines being built at MDL.
Early this year, DCNS had sought a license with 100 percent FDI to set up a company to undertake design and industrialization studies, research and development activities, manufacturing, and maintenance in relation to AIP systems for submarines. The DCNS proposal was deferred in March by the Foreign Investment Promotion Board, the body under the Ministry of Commerce and Industry, which assigns FDI licenses.
The Indian Navy is to float a $12 billion tender next year for the purchase of six AIP-enabled subs under Project P 75I. DCNS is aggressively chasing the program.
The tender will be given to a domestic shipyard, which in turn will tie up with an overseas company to build the six subs.
Along with DCNS, Germany's ThyssenKrupp Marine Systems, Navantia of Spain, Saab of Sweden, Rubin Design Bureau-Amur Shipyard of Russia, and Mitsubishi Heavy Industries and Kawasaki Heavy Industries of Japan are in the race for the program.
"DRDO fears that with DCNS getting 100 percent FDI approval then it could become easier for DCNS to sell its AIP technology for the forthcoming tender of six Submarines with AIP technology," said a senior naval analyst, who spoke on condition of anonymity.