Guidelines for establishing joint venture companies by DPSUS

The Union Cabinet on February 9, 2012, approved the guidelines for establishing joint venture (JV) companies by defence public sector undertakings (DPSUs). Salient features of the JV Guidelines contain provisions for the following important matters that are critical from a national security perspective: Enhancing fairness and transparency in the selection of the JV partner. Ensuring a well-defined nature and scope of the JV. Retention of the affirmative right of DPSUs for prior approval to key JV decisions such as amendments to the Articles of Association of the JV Company, declaration of dividend, sale of substantial assets, and formation of further JVs/subsidiaries. Exit provisions for the DPSU. Regular reporting and monitoring of the functioning of the JV company. The JV guidelines will provide a streamlined, fair and transparent framework for entering into JVs by DPSUs, with the ultimate objective of better risk-management, greater efficiency, shorter time frames for delivery to meet the increasing demands of our armed forces, and for enhancing self-reliance in the defence sector as a whole. The formation of JVs will henceforth be undertaken by Board-managed DPSUs within the framework of the JV guidelines.

Background

With the objective of achieving substantive self-reliance in defence production, the Ministry of Defence had issued the Defence Production Policy in January 2011 with the approval of the Defence Acquisition Council. In order to synergise and enhance the national competence in producing state-of-the-art defence products in a globally competitive manner, the policy allows for adoption of all viable approaches such as formation of consortia, joint ventures and public private partnerships within the government approved framework.

With the objective of making the public sector more efficient and competitive, the Department of Public Enterprises (DPE) has granted enhanced autonomy and delegation of powers for formation of JVs and subsidiaries by profit-making Navaratna and Miniratna public sector enterprises (PSEs) and for formation of technology JVs and strategic alliances by Navartna PSEs.

In order to further bolster the DPE guidelines, with the approval of the Cabinet, the Ministry of Defence will issue the JV guidelines, in order to harness the emerging dynamism of the private sector in India and increasing opportunities to obtain advanced technologies from foreign sources through adoption of appropriate partnership approaches by DPSUs that can further the objective of achieving substantive self-reliance in defence sector.