DPP – Pri­vate sec­tor awaits fair share


If any­one were to ask whether the De­fence Pro­cure­ment Pol­icy (DPP) has been enun­ci­ated, the an­swer would be yes, but par­tially. When De­fence Min­is­ter Manohar Par­rikar first un­veiled the DPP amid me­dia blitz, it was dis­cov­ered to be with­out the ap­pen­dices and an­nex­ures, which were sub­se­quently is­sued af­ter lapse of some more weeks. How­ever, the por­tion defin­ing the ‘strate­gic part­ners’ has still not been fi­nalised. There are re­ports of dis­cus­sions be­ing held on the is­sue of strate­gic part­ners but the fi­nal word from the gov­ern­ment is still awaited. Key do­mes­tic play­ers in the de­fence sec­tor want space for their for­eign part­ners also in the chapter on strate­gic part­ner­ships, not just nom­i­nat­ing In­dian com­pa­nies as strate­gic part­ners.

A ten-mem­ber com­mit­tee un­der V.K. Aa­tre, for­mer sci­en­tific ad­vi­sor to De­fence Min­is­ter, had been set up to ad­dress the is­sue. This com­mit­tee had rec­om­mended that one or two strate­gic part­ners be nom­i­nated for each of the six dif­fer­ent seg­ments of: one, air­craft; two, war­ships; three, ar­moured ve­hi­cles; four, am­mu­ni­tions; five, tar­get ac­qui­si­tion and re­con­nais­sance, and; six, crit­i­cal ma­te­ri­als. The dilemma that ap­par­ently pre­vailed was that: first, pri­vate indige­nous firms have prac­ti­cally no ex­pe­ri­ence in man­u­fac­tur­ing air­craft, he­li­copters, war­ships, sub­marines; sec­ond, in ab­sence of indige­nous tech­ni­cal know-how, the only av­enue is to im­port it – hence for­eign part­ner­ship is im­per­a­tive, and; third, not al­low­ing for­eign part­ners could lead to mo­nop­oly of the big play­ers.

Al­ready there have been re­ports of big play­ers like L&T, Re­liance De­fence, Mahin­dra and Tata lob­by­ing to get nom­i­nated as strate­gic part­ners es­pe­cially in ma­jor seg­ments like sub­marines, air­craft and he­li­copters. There­fore, lim­it­ing strate­gic part­ner­ship only to In­dian firms meant leav­ing the bal­ance indige­nous in­dus­try play­ers in the dock. Though the DPP has al­ready spelt out the four cat­e­gories of pro­cure­ment (in­dige­nously de­signed, Make-I, MakeII and Buy and Make In­dian), it does not quite ad­dress the is­sue of strate­gic part­ner­ship. This is the rea­son, the chapter on strate­gic part­ners is yet to be is­sued de­spite the Aa­tre Com­mit­tee pre­sent­ing its re­port to the Ministry of De­fence (MoD) in Jan­uary 2016. There­fore, the DPP was is­sued with­out fi­nal­is­ing the chapter on strate­gic part­ners. As per me­dia re­ports, the De­fence Min­is­ter has in­di­cated that two strate­gic part­ners may be cho­sen for each seg­ment. Hence, when the chapter on strate­gic part­ner­ships will be is­sued re­mains an open-ended ques­tion.

Me­dia quot­ing an un­named se­nior MoD of­fi­cial says this is part of a larger con­sul­ta­tion pro­cess and no fi­nal de­ci­sion can be taken so quickly as any pro­posal will have to go to other min­istries for ap­proval. Ap­par­ently, the De­fence Min­is­ter has told the me­dia that even af­ter fi­nal­is­ing strate­gic part­ner­ships it might take a “cou­ple of more months” to fin­ish the pro­cess. A cen­tral pre­sen­ta­tion by MoD to con­cerned min­istries with re­quest to re­spond in a time frame could re­solve such vi­tal is­sues speed­ily, but it is go­ing to be usual file push­ing. Mean­while, the in­dus­try has been in­structed to fol­low the strate­gic part­ner­ship guide­lines from the old DPP till the new chapter is is­sued. The fact re­mains that indige­nous pri­vate sec­tor lacks tech­ni­cal ex­per­tise for big projects and while talks on fu­ture strat­egy have been on­go­ing for months and years, ex­e­cu­tion on ground has been lit­tle not­with­stand­ing big-ticket im­ports signed and re­ports of de­ci­sions in prin­ci­pal about big-ticket joint ven­tures, which are yet to be signed.

Iron­i­cally, big-ticket ex­ports do not bridge crit­i­cal voids holis­ti­cally in back­drop of the changed na­ture of con­flict. The pri­vate in­dus­try at large, in­clud­ing for­eign firms, there­fore have lit­tle rea­son to trust what the gov­ern­ment pro­posal for strate­gic part­ner­ships will be, and more im­por­tantly how it would be ex­e­cuted. Big-ticket im­ports ap­pear to be more an ex­er­cise in bal­anc­ing our re­la­tions with US and Rus­sia. There is no con­cern what­so­ever about the ex­cru­ci­at­ingly long de­lays both in di­rect im­ports and joint ven­tures, the FGFA, Rafale and M777 how­itzers be­ing just few ex­am­ples.

As per the De­fence Ac­qui­si­tion Coun­cil’s (DAC) re­view re­ported in me­dia, the present gov­ern­ment since com­ing to power had ap­proved pro­pos­als for de­fence pro­cure­ment worth ` 1,50,000 crore, and pro­pos­als for an­other ` 1,50,000 crore were in the fi­nal stages of ap­proval—ap­provals of more than ` 2,00,000 crore been given so far. But ac­cord­ing to data pro­vided by MoD, it has ac­tu­ally signed only five deals of more than ` 2,500 crore since May 2014; one, ` 45,021 crore for con­struc­tion of 7 x seven Shiva­lik class frigates signed with pub­lic sec­tor Mazagon Dock Lim­ited and the Gar­den Reach Ship­builders and En­gi­neers Ltd, two, ` 7,910-crore for ad­di­tional In­te­grated Air Com­mand and Con­trol Sys­tem (IACCS) for IAF signed with pub­lic sec­tor BEL; three, ` 13,970-crore for Apache he­li­copters signed with Boe­ing; four, ` 8,047-crore deal for Chi­nook he­li­copters also signed with Boe­ing, and; five, ` 2,625crore deal for Smerch multi-rocket launcher sys­tem signed with Rus­sian firm Rosoboronex­port. All, th­ese ma­jor deals have ei­ther been signed with PSUs or for­eign firms.

It is also im­por­tant to note that FDI in de­fence re­ceived since 2013 was: $36.046 mil­lion in FY 2013-14; $45.148 mil­lion in FY 2014-15; $56.457 mil­lion in FY 2015-16, and: $7,456 mil­lion up to May 2016 wherein pro­pos­als by M/s Tata Siko­rosky Aero­space Lim­ited, Sin­ga­pore and by M/s Quan­tum Tech­nolo­gies LLC, United King­dom, have been ap­proved. This is good im­prove­ment in FDI though we have long way to go. The Depart­ment of In­dus­trial Pol­icy and Pro­mo­tion (DIPP) has also re­port­edly is­sued 342 li­cences to 205 In­dian pri­vate com­pa­nies for man­u­fac­tur­ing of de­fence equip­ment such as ar­tillery guns, tanks/com­bat ve­hi­cles, UAVs, he­li­copters, radars, etc, but what the indige­nous pri­vate sec­tor at large is wait­ing for is sign­ing of con­tracts.


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