Govt to shortlist 6 firms as strategic partners for defence manufacturing
On Thursday, before a closed-door gathering of private defence industry chiefs in New Delhi, the Ministry of Defence (MoD) unveiled its longdelayed policy on identifying strategic partners (SPs) — chosen companies that will partner global original equipment manufacturers (OEMs) in building defence platforms in India.
While the MoD has not released details of the new policy, three individuals present at the meeting have shared with Business Standard the new policy’s scope, and the criteria and procedures for selecting SPs and foreign OEMs that they would partner.
The policy’s initial aim is to shortlist six top companies as SPs in four technology segments — singleengine fighter aircraft, helicopters, submarines, and armoured fighting vehicles. A company can be nominated an SP in only one segment, and will have to indicate its preferences while applying.
In 2015, the Dhirendra Singh Committee had recommended selecting SPs to build defence equipment. Last year, the V K Aatre Task Force laid down criteria for selecting SPs in 10 technology segments, including aero engines, artillery guns, ammunition, and smart materials. For now, however, the SP policy has been confined to just four segments to cater for urgently needed battlefield equipment.
This includes single-engine fighters, for which the air force has initiated procurement. The navy has framed its requirements for its next six submarines under Project 75-I. And the army, after exploring the indigenous option of developing its future main battle tank with the Defence Research & Development (R&D) Organisation, has changed its mind and issued specifications for buying foreign tanks.
For these procurements, which will all involve substantial incountry manufacture, the new policy envisages shortlisting Indian SPs and foreign OEMs through separate, but simultaneous, processes. Shortlisting of Indian SPs The first six SPs will be chosen from amongst Indian private firms in a two-stage process. To make it past the first gate, aspirant companies would have to meet stipulated financial and technical criteria. They must be Indian companies, as defined in the Companies Act, 2013; and have no more than 49 per cent foreign holding, with no “pyramiding” of foreign holding. The MoD’s stipulated financial criteria weed out all except large, established firms. These include consolidated turnover of at least ~4,000 crore for each of the last three financial years; capital assets of ~2,000 crore; and a minimum credit rating of CRISIL/Icra ‘A’ (stable). The MoD will also consider companies’ records of wilful default, debt restructuring and non-performing assets.
Companies making it past the first gate would undergo site verification in what is termed Stage II evaluation. An MoD team would visit company facilities to evaluate financial parameters and technical capability, with equal weight given to both. In this second round of financial evaluation, it will be ensured that the applicant company’s solvency ratio (external debt to net worth ratio) is no higher than 1.5:1; and its modified solvency ratio (external debt plus financial guarantees to net worth ratio) is no higher than 2.5:1. The debt to Ebidta (earnings before interest, depreciation, tax and amortisation) ratio can be no higher than 3.