DEFENCE DEALS: CUTTING LOSSES
Defence minister Arun Jaitley has pulled the plug on four long-delayed defence purchases worth over Rs 20,000 crore. Last month, a Rs 10,900 crore contract for surface-to-air missiles for the army was scrapped in favour of an indigenous missile system. Now Jaitley has recommended the cancellation of contracts for armoured recovery vehicles (ARVs), naval multi-role helicopters (MRHs) and torpedoes, worth about Rs 10,000 crore, which were comatose with the MoD for years.
In 2011, the MoD had placed a Rs 1,770 crore contract with Bharat Earth Movers for 204 ARVs— used to tow tanks—made by Poland’s Bumar. Delays resulted in a 20 per cent increase in cost thanks to the appreciation of the dollar. Another contract, worth Rs 1,800 crore, for the purchase of 98 Blackshark torpedoes manufactured by a subsidiary of Finmeccanica (now Leonardo) came under a cloud after the firm was accused of paying bribes. The fourth—for the purchase of 18 naval MRHs—hit an impasse in 2014, when commercial bids by Sikorsky for S-70B choppers were found to be way above the Rs 6,000 crore the MoD had set aside.
Jaitley’s decision could be a mixed blessing for the armed forces. Once these contracts are scrapped, it is likely they will be refloated as Make in India projects and government-to-government deals. MoD watchers tie the cancellations to the government’s policy on strategic partners—helicopter manufacture is one of four areas where the government sees private sector firms tying up with foreign partners—and US firms are strong contenders in this regard. Though the hardware is still years away from induction and will likely see significant cost escalations, the armed forces can take heart from the fact that the wheels of decision-making have started moving again.
Jaitley has recommended the cancellation of defence contracts worth about Rs 20,000 crore