NEW DELHI — A recommendation by an Indian Defence Ministry committee that strategic partners for major defense projects be limited to domestic companies with healthy balance sheets has raised objections that such a policy would unfairly restrict new, emerging firms that likely would have greater debt.
As India plans to make major changes in its policy to acquire weapons estimated at over $150 billion in the next 10ten years, a special committee set up by the Ministry of Defence (MoD) has recommended that only those domestic private sector defense companies should be chosen as Strategic Partners (SPs) in big ticket defense projects which have a healthy balance sheet.
"The report of the special committee [Aatre Committee] headed by India's former Defence Research and Development Organization chief Dr. Vasudev Kalkunte Aatre, if accepted, will change the way India will acquire future weaponry," said Nitin Mehtaa a defense analyst here.
However, The recommendations, of the report submitted to the MoD last week but and not made public so far, lay have laid down such criteria for selection of strategic partners that would favor a SPs which will allow selection of a few major defense companies and leave leaving out the upcoming ones, said an MoD source. The report recommends has recommended that the selections of strategic partners SPs will be based solely on done only the basis of the commercial strength. of the company and having a healthy balance sheet.
Such a standard Analysts say, the criteria to select strategic partners based largely on commercial basis could lead to rejection of rising upcoming new domestic companies as they would have debt related to to take care of as they investment in defense infrastructure. Rejecting these companies as strategic partners Their rejections as SPs could spark enrage strong opposition to the effort and threaten derailing the whole initiative.
Based on the Aatre Committee report, the government would will decide which how private sector defense companies would will be selected as strategic partners (SP) and then award given big ticket defense projects on nomination basis — a process that until now was limited to -till now awarded only to state-owned defense companies
An executive of private sector company Tata Group said selection the criteria of selection should be a mix of financial status, long-term vision, stability and capability of a company.
Making a strong case for promoting private sector participation in building India's defense infrastructure, the Tata Group executive said, "Some sectors where India is good like automobile, communications, etc., need to be pushed even further for defense requirements. The recent nomination of state-owned Ordnance Factory Board (OFB) for the Future Infantry Combat Vehicle (FICV) is ridiculous. If this trend continues, the entire concept will get killed."
However an executive of another private sector defense major, Larsen & Toubro, (L&T) Ltd. said, "It is prudent for the MoD to ascertain that the company selected as SP has sound financial health, so that MoD is assured that the SP would be able to execute such long-term and financially demanding systems/platforms successfully."
An executive of a new private sector defense company who requested not be to named said there will be opposition if to any move by the government moves to promote only a select few defense majors. Commercial criteria should not be the only basis for selection; and technical know-how should be given adequate weight, the executive said. age.
He went on to say,"Opposition from the domestic defense companies to the Aatre Committee report will have to be taken into consideration by the government and [it is] hoped the ruling Narendra Modi government will give a chance to new companies also to get defense projects."
There is unanimity in views that India will continue to depend on weapon imports of weaponry for a long time and the strategic partner process SP basis of production could help build defense infrastructure.
"Imports will continue to play a large role for the foreseeable future. However the [strategic partner]SP model will go a long way in enhancing India's defense manufacturing base," said Ankur Gupta, defense analyst with E&Y India.
Vivek Rae, former director general of the Defence Procurement Board in the MoD, said, "Only companies with deep pockets and established credentials can qualify as strategic partners. Others will have to be satisfied as tier 1 or tier 2 vendors to strategic partners. This is a welcome initiative by MoD and [I] hope it will be carried to a successful conclusion."