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BW Businessworld

Building A Positive Sentiment

The defence procurement procedure should be followed in letter and spirit and not just become only a guiding document!

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The allocation of defence in India’s Union Budget is approximately $34.53 billion and 31.1 per cent of the defence budget is spent on capital acquisitions. Sixty per cent of defence related requirements are met by imports, which offers a huge opportunity for import substitution.

Defence product development gestation is long and most available technologies have been dependent on international platforms. Some Government institutions have done a commendable job of setting up a diverse engineering and manufacturing footprint and the DRDO has developed several platforms in India, at the same time the pace needs to accelerate to reduce India’s dependence on imports. Here the private sector together with global arms manufacturers can play a major role as they will move fast to rapidly expand the footprint in India.

The early adopters have moved quickly, however, these ventures have not gained traction in terms of orders from customers which in almost all cases is the Ministry of Defence (MoD) or the Ministry of Home Affairs. In order to accelerate the Make in India programme, we need to address some of the problems that are stalling the momentum – the need to award immediate orders to legitimate players and adhere to the terms of the Defence Procurement Procedure (DPP).

The intent to create an Indian footprint is clearly visible, however in the absence of definite orders, international players are forced to rethink their market strategies. Our joint venture with Israel Weapon Industries (IWI) is a case in point. We were among the first to bring in FDI in defence after the sector was opened up to 49% investment by foreign players under the automatic route and the ‘Make in India” initiative was announced.

We set up a state of the art manufacturing plant at Malanpur in Madhya Pradesh that has the capability to make the latest generation of small arms that our armed forces and paramilitary desperately need. The intent was to execute orders that our collaborator, IWI, expected to receive for bids they had submitted several years ago with complete transfer of technology to India.

However, their two bids (for the CQB Carbine and Light Machine Guns) in which multiple vendors participated and IWI cleared all trials were retracted after several years as they were declared ‘Resultant Single Vendor’ due to failure of their competitors during trials. This, despite the provision in the DPP that clearly explains that a resultant single vendor will not be considered a single vendor for the purpose of placing an order. Our collaborator is obviously extremely disappointed as even after spending millions of dollars on NCNC trials and investing in a JV plant, orders that were legitimately due to be issued to them have not seen the light of day. Such decisions are likely to impact the ‘Make in India’ initiative that we have wholeheartedly embraced. We now await orders from the MoD.

It is understandable that other international companies would wait for indication of orders before setting up a large footprint in India. It is evident that additional investments are unlikely to be made unless orders are forthcoming. For India this is an opportunity it should not miss as big players wait in the wings to set-up manufacturing operations for large programs like those for aircraft but wait for these bottlenecks to be resolved, needless to say, their patience is slowly but surely, wearing thin. Acceleration of investments is completely dependent on the immediate award of projects and palpable traction experienced by the players in the foray.

The process of procurement still remains unduly long despite a revised DPP announced in 2016. Also, the DPP should be followed in letter and spirit and not just become only a guiding document!  

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Atul Punj

The writer is CMD of Punj Lloyd Group

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