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Strategic ties with foreign OEMs

Indian firms will be partners in new model for defence manufacturing

In a few weeks, the Union government will sound out five or six private sector majors to execute mega defence deals in four key areas — submarines, single-engine fighter aircraft, helicopters and armoured vehicles.

With the Union Cabinet taking note of the strategic partnership model last week, the Defence Ministry is awaiting its formal notification.

“The Cabinet has taken note of it. It will now formally come to the Ministry and then get notified as a separate chapter under the Defence Procurement Procedure. The process should roll out immediately after that,” a senior defence official told The Hindu .

Each of the four segments has programmes under way. “A lot of work has already been done on all these platforms. Short-listing the original equipment manufacturers (OEM) should not be difficult,” the official said and expressed confidence that the first contract should be concluded in a year to a year-and-a-half.

Private sector majors will be selected as the strategic partner for each segment and they will tie up with the foreign OEMs. “We had suggested a mechanism for implementing the policy. We need a composite structure in the Ministry to roll out the policy quickly unlike the present system,” the official said. The mechanism is essential, officials said, as there are various stakeholders involved in the procurement process such as the acquisition wing and services.

The present defence procurement policy, which is handled by the acquisition wing, is cumbersome.

Incorporating DPSUs

While the SP policy is for the private sector, the government has stated that it look at the feasibility of how defence public sector undertakings (DPSU) can be involved in the process and what their contribution would be. “There was a lot of resistance from the DPSUs and the Department of Defence Production to be involved in the policy,” a source added.

The source said that all DPSUs had full order books and were working at full capacities, and added that probably at some stage in future, there could be collaborations between them and the selected SPs.

The deals in the four segments are six submarines under Project-75I expected to cost around Rs. 50,000 crore, deal for 100-plus single-engine fighter aircraft estimated at Rs. 60,000 crore, the Future Infantry Combat Vehicle programme estimated at around Rs. 50,000 crore and utility helicopters for the Navy estimated at Rs. 12,000 crore.

There are broadly six or seven companies viewing to become strategic partners which will be selected by a two-stage evaluation process. Minimum criteria have already been drawn up in Stage I and those shortlisted will be will evaluated in detail under Stage II.

Larsen & Tourbo, Mahindra, Tata Advanced Systems Ltd., Tata Motors and Reliance Defence and Engineering Ltd. are leading the race. From the public sector, only Mazagon Docks Ltd. will compete as it is currently building the French Scorpene submarines.

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