NEW DELHI — India's effort to boost the private sector defense industry by exclusively providing big-ticket orders on nomination basis through the enactment of the Strategic Partners policy faces delays.
The current finance minister, Arun Jaitley, who on March 13 also became the country's defense minister, wants to make sweeping changes in this space.
Defense projects worth more than $35 billion hinge on the Strategic Partners policy, which has been awaiting adoption for a year, a senior Ministry of Defence official noted.
Jaitley's modified Strategic Partners policy could include the selection of at least three or four private sector companies from the nominated production agencies, as opposed to the earlier proposal of selecting one or two.
An additional change could include "not giving big-ticket defense contracts exclusively on nomination basis, as is presently being given to the state-owned defense companies but through competition," the MoD official said.
"In the absence of a (Strategic Partners) policy, all orders for major platforms will continue to go to the public sector," according to Vivek Rae, a former MoD director general for defense procurement. "Policy regarding strategic partnerships with defense industry, including private sector, is very important for development of the defense industrial base in the country."
When implemented, shortlisted strategic partners will partner with foreign original equipment manufacturers and then compete through commercial bids to secure final orders — as against the earlier proposal of giving orders on a nomination basis, the MoD official explained.
The Strategic Partners policy was drafted by the outgoing defense minister, Manohar Parrikar, with the aim of creating capacity in the private sector that exceeds that of state-owned defense companies.
Indian private companies have shown interest in building aircraft, helicopters, aero engines, submarines, warships, guns (including artillery guns) and armored vehicles (including tanks) under the policy.
The policy's implementation had run into bureaucratic wrangling within the MoD. While the Department of Defence Production within the MoD is in favor of selecting only one private company to be designated as the nominated production agency for each big-ticket program, the Defence Procurement Board, also under the MoD, wants more than one production agency to be selected.
"The policy is delayed due to conflicting views within industry as well as government of India," said Rae, adding that there are concerns that sole-source procurement from a few companies will result in charges of favoritism and a lack of transparency.
Apart from divisions within the MoD, there have been differences within the private sector itself.
"The strategic partnership model was recommended by MoD's sponsored Aatre Committee in April last, but it left a large number of loose ends to be tied up by the government before it could be operationalized. The devil is always in the detail. There are too many questions concerning [the ability to implement] the scheme, to which there are no easy answers, the criteria for selection of the partners being just one such issue," said Amit Cowshish, a former additional financial adviser for the MoD.
The SP policy is part of the ruling National Democratic Alliance's Make in India efforts, under which most of the weapons would be locally made in tie-ups with overseas companies. Currently, India imports about 65 percent of its weapon and equipment needs.
"Private sector majors have been looking forward to the implementation of the strategic partners model," said Jayant Damodar Patil, the senior vice president for defense and aerospace at private engineering giant Larsen & Tourbo.
"Without such a model, private sector would continue to remain fringe players in the sector, as is evident from the meager volume of contracts being placed on them thus far by the MoD."
Cowshish, however, said a delay of the policy has had any adverse impact on the government's focus on Make in India.
"It will be unreasonable to expect Arun Jaitley to accord top-most priority to the scheme for strategic partnerships, for this is not an issue that is holding up procurement," Cowshish said.