NEW DELHI — India's long-awaited strategic partners policy has been approved, paving the way for the selection of private sector companies to produce weapons in partnership with overseas original equipment manufacturers.
Under the SP policy, four weapon programs, estimated to be worth more than $30 billion, have been identified. The programs involve submarines, helicopters, single-engine aircraft and armored vehicles/main battle tanks.
Under the policy, foreign OEMs will be selected directly by the Ministry of Defence and not the strategic partner from the private sector, as was initially discussed. The ownership of the joint venture along with the OEM has been vested with the Indian entity by capping the foreign direct investment, or FDI, to 49 percent.
Analysts say the issue relating to the ownership of intellectual property rights and defense technology transfer are no easy issues, as OEMs may be reluctant to set up a joint venture without a controlling stake.
"Many details will have to be worked out in the process of bidding and contracting. For instance, issues relating to patents and IPRs will have to be resolved. This is easier said than done," said Vivek Rae, a former director general of acquisition for the MoD. "Holding OEMs responsible for product quality and performance could also be problematic. There will be many difficult obstacles to be crossed before any contracts materialize.
"The policy is unlikely to satisfy OEMs who may be looking for majority stake before transferring sensitive technology."
The domestic strategic partner with whom the overseas OEM will finally strike a joint venture will not shortlist the OEM because the selection will be made by the MoD under a procedure beginning with a documented expression of interest.
"It seems that strategic partners will have no say in selection of the original equipment manufacturers, and vice versa," according to Amit Cowshish, a former financial adviser of acquisition for the MoD. "While there is no alternative to the platform being selected by the ministry/services, the provision that the strategic partners will be free to talk to all shortlisted manufacturers could create some problem, particularly in a situation in which only one platform has been shortlisted."
On the likely response of an overseas OEM, Cowshish said: "I do not know how excited the Indian companies are going to be, but from the perspective of the foreign original equipment manufacturers, the scheme contains many inhibiting features, the restriction on FDI being just one of them."
However, Laxman Kumar Behera, a research fellow with the Institute for Defence Studies and Analyses, said foreign OEMs should not be "unduly perturbed" by the latest policy because "it is not the first time that India is seeking technology transfer or license manufacture of foreign defense equipment. The only thing that has changed is that unlike in the past, when license manufacturing was undertaken by ... one of [the] public sector entities in the new arrangement, it is private sector which would do the job."
The managing director of DCNS India, Bernard Buisson, said the company "will continue to apply the same transparent process to transfer the needed technology into the requested domains. Our successful experience in technology transfer should allow us to respond and fulfill future requirement formulated by Indian Navy to be implemented through SP programs."
Only one strategic partner will be selected for each defense program, but the process involves competition and a procedure that some analysts say could be lengthy.
Ankur Gupta, a defense analyst with Ernst & Young India, views the policy as a "move in the right direction."
However, a CEO from a private defense firm who spoke on condition of anonymity, said: "There is almost no similarity between the original SP policy and what has been released except the name! There is open competition now, and probably things could take a lot longer then originally envisaged."