NEW DEHLI — Despite a robust push by the National Democratic Alliance political party to kick-start Make in India defense programs, the highest decision-making body of the Indian Ministry of Defence, the Defence Acquisition Council, on Monday failed to formalize the much-awaited Strategic Partners policy, which aims to roll out all big-ticket defense programs in the country.
"The SP policy aims to boost Make in India defense programs worth $30 billion by private sector defense companies and [has been] under formulation for [the] past two years but could not be cleared because of lack of celerity within the government and the [defense] industry," a top MoD official said.
"Several Make in India defense programs, such as submarines, single-engine fighters, multiple types of helicopters [and] other land systems are to be acquired under the SP policy, which is still far away for final clearance."
Basic guidelines have been crafted to create only six strategic partners from domestic private sector companies that will be selected and then asked to prefer their sector — submarines, armored vehicles, or fighters and helicopters — but one [strategic partner] will be allowed only one segment of the four projects, the MoD official disclosed.
However, analysts say there are differences within the private sector industry in the selection process of a strategic partner, in addition to other issues.
"I will be surprised if the details of the scheme have already been worked out by the MoD (at the May 15 meeting). There are several issues which need to be resolved before the policy takes shape," said Amit Cowshish, former financial adviser for capital acquisition for the MoD.
Another major point that has emerged lately is that the MoD is in favor of not awarding contracts to defense projects in competition on a nomination basis, as is being done in the case of state-owned companies.
"The key issue is whether big defense contracts can be given to Indian private sector companies on nomination basis. This is a tough nut to crack since allegations of corruption, crony capitalism and lack of transparency are bound to arise," said Vivek Rae, former director general for acquisition for the MoD.
On the sticky issues of the policy, Rae said: "The draft policy envisages competition for award of strategic defense contracts, i.e., there will be at least two bidders shortlisted for each contract. This assumption may not hold for major systems like submarines or may be undermined by unrealistic bids by public sector companies. This would defeat the intent of the policy for promoting the private sector."
It still isn't clear how the overseas equipment manufacturers, or OEM, will be selected. Whether the strategic partner will select its overseas partner and then bid for the defense project or the MoD gives clearance to the overseas OEM that can then select its Indian entities remains to be decided.
Jayant Damodar Patil, head of defense and aerospace business for Larsen & Toubro, said: "Government will select them (the overseas OEMs) based on [an] expression of interest (EOI), and the Indian companies will later speak to all shortlisted foreign OEMs and submit best bid (lowest-price bid)."
On selection of overseas OEMs, Rae offered: "Leaving the decision to the Indian bidders could also be considered, with marks being awarded for the selected partner during the bid evaluation process. This would provide flexibility to Indian companies."
According to Rajinder Bhatia, president and CEO for aerospace and defense for private sector company Bharat Forge Group "big private players are holding back their investments to participate in big-ticket defense programs that will not only create high-tech defense capability but also establish vibrant supply chain in the country."
However Ankur Gupta, a defense analyst with Ernst & Young India, said the SP policy is unlike any policy seen on an international scale. "But then, not many nations can have the tag of being the largest defense importer in the world whilst being in a volatile neighborhood. Thus, a unique problem requires a unique solution.
"Any delay means a potential loss of business for the private players, but ultimately means non-availability of critical equipment for the user. This then leads to operational shortfalls and gaps being introduced in the armor of the [Indian] defense forces."
Cowshish felt the impasse could be overcome. "Many projects are held up pending unrolling of the strategic partnership model, but, quite frankly, I have always held that it need not have been that way. There was, and continues to be, no reason to hold up any project for this reason as there are other ways of achieving the same objective, i.e., involving the private sector entities in defense production," he said.