There is still some way to go for the government to hand over big-ticket defence production to the private sector.
While the rules of business to unshackle defence production from the government domain have been put in the public space, healthy scepticism remains on how the new strategic partnership model, which proposes to hand over big ticket manufacturing to private industry in building the new military industrial complex in the country, will pan out.
The strategic partnership policy, which has been incorporated in the Defence Procurement Procedure 2016, was uploaded on the ministry of defence (MoD) website on May 31.
The policy broadly set rules for private Indian companies to take up projects in collaboration with foreign vendors in four streams: design, develop and manufacture fighter aircraft, helicopters, submarines and armoured fighting vehicles/main battle tanks.
A company can take part only in one project.
The rules are stringent for the Indian firm, the strategic partner and its foreign partner. There is apprehension that the tough procedures might prove to be a deterrent. The policy says the foreign vendor will have to be responsible, along with the Indian firm, for certification and quality of the products supplied to the MoD.
Foreign vendors will be judged on 6 grounds: range, depth and scope of technology offered in identified areas, extent of indigenous content proposed, extent of eco-system of Indian vendors proposed, measures to support Indian vendors in establishing system for integration of platforms, plans to train skilled manpower and extent of future research and development planned in India.
If the Indian company and its partner are selected, a broad roadmap would have to be provided on the indigenisation plan in terms of value of production. The government is convinced that the move will spur defence production and put an end the woes of the armed forces, which need to be modernised with advanced weapons and platforms.
The new policy is not the only step taken by the Modi government, as it comes with taking off many items from the license list and increasing the foreign direct investment (FDI) cap in the defence sector from 26 to 49 per cent. But despite the move, the FDI flow has not been encouraging.
“As the strategic partnership model is designed to build indigenous manufacturing capacity on major defence platforms, the applicant company and subsequently the strategic partner, when appointed, should be an Indian company owned and controlled by resident Indian citizen,” said one the strategic partnership rule.
It meant that the Indian partner would carry most of the risk while the foreign vendor will essentially be responsible for ensuring transfer of technology and other aspects related to the support to the domestic environment. The rules are clear. The maximum permitted in the sector FDI shall be 49 per cent. In addition, no pyramiding of FDI in Indian holding companies or in Indian entities subscribing to shares or securities of the applicant company or the strategic partner shall be permitted.
