Make In India For India’s Defence: Path Breaking Strategic Partnership Model Cleared

The Defence Ministry on Saturday finalised the ‘broad contours’ of defence policy that seeks to engage Indian private sector to manufacture high-tech defence equipment in India.

Popularly known as the Strategic Partnership (SP) model, the policy was cleared by the Defence Acquisition Council (DAC) chaired by Defence Minister Arun Jaitley. Under the policy—which will now be taken to the Cabinet Committee on Security (CCS), the highest decision making body for defence and security matters—four segments will be opened for private sector manufacturing companies. They are: Single engine fighter aircraft, helicopters, submarines and Main Battle Tank/Armoured Fighting Vehicles.

Once cleared, the policy will, according to the details available with BharatShakti.in (BSI), enable participation of private Indian firms in ‘Make in India in Defence.’ The SP is expected to play the role of a system integrator by building an extensive eco-system comprising development partners, specialised vendors and suppliers, in particular, those from the MSME sector.

Initiated by the Jaitley’s predecessor Manohar Parrikar, the Strategic Partnership Model has been discussed, debated and thoroughly analysed in the MoD besides extensive consultations with private players for over two years.

To ensure that wider number of companies participate in the process of defence manufacturing in the private sector and the SP maintains focus on a core area of expertise, only one SP will be selected per segment. To retain flexibility and facilitate evolution of the concept tempered by experience, addition of more segments or further sub-division of the identified segments may be considered by the MoD as deemed necessary, a highly placed official revealed to BSI.

Under the new model, while the single engine fighter aircraft and helicopters segment will be open only to the private sector at the moment, for submarines and AFV/MBT, the DPSUs and OFB respectively will also be eligible for competition in the selection process for SPs. A similar assessment will be made for any further segments identified under SP model in future, the official added.

Clearly, it appears that the MoD has had to compromise– because of strong objections put up by the public sector organisations–on its earlier stand that DPSUs and OFB will be kept out of the competition.

However, the MoD has made it clear that to manufacture major defence platforms, the SP will require tie-ups with foreign Original Equipment Manufacturers (OEM), to cover manufacturing, transfer of technology (ToT), assistance in training skilled human resources and other support. Such partnerships or tie-ups between SP and OEM may take the form of joint ventures, equity partnership, technology-sharing, royalty or any other mutually acceptable arrangement between the companies concerned subject to the ownership conditions laid down by the MoD.

There are of course certain other conditions that the OEM-SP joint ventures will have to fulfil before becoming eligible to compete in the process. For instance, according to the policy guidelines that BSI has had an occasion to peruse, the applicant company and subsequently the strategic partner when appointed should be an Indian Company (As defined under the Companies Act, 2013), owned and controlled by resident Indian citizens. The management of the applicant company should be in Indian hands, with majority representation on the board of directors. The chief Executive (s) of the applicant company shall be resident Indians who are part of the Indian Group owning and controlling the Applicant Company or the strategic partner.

The short listing of the OEMs will also be an elaborate process. The process of short listing of OEMs will be done simultaneously with the process of identifying potential SPs. According to the MOD document, it will involve several steps:

* Issue of (Request for Information ( RFI) to potential OEMs;

* Formulation of Staff Qualitative Requirements (SQRs); the SQRs will cover aspects of the platform as well as weapons required, wherever feasible;

* Based on SQRs and information already available/collected, an (Expression of Interest (EoI) will be issued to OEMs in each segment;

* EoI shall define the technologies to be acquired, including the details of the weapons and associated sensors along with the range and

depth of transfer of technology (ToT) to achieve the stipulated level of indigenisation and development of industrial eco-system in India;

* OEMs shall provide response to the EoI within two months;

* Based on the responses TEC will be carried out;

* OEMs that meet TEC requirements will be shortlisted for each segment, with the approval of DAC;

* Even if only one OEM is shortlisted, the process will be taken forward.

* Finally, short listed OEMs will have to provide an undertaking confirming their willingness to cooperate with the SP to manufacture the platform in India including handholding and support, transfer of technology and indigenisation. The OEM will also have to comply with the condition of providing life cycle support for the platform in collaboration with the SP.

Similarly, based on the AON approved by the DAC, segment-wise RFPs shall be issued to the shortlisted Indian Companies. RFP shall broadly seek following details:

* Commercial offer for the identified platform and 10 years Performance based logistics (PBL)/other maintenance arrangements specified.

* Mandatory requirements related to indigenisation roadmap, transfer of technology, creation of R&D capabilities and skilling provisions etc.

The list of shortlisted OEMs shall also be annexed to the RFP so that the shortlisted Indian Companies can freely engage with such OEMs and finalise their techno-commercial offer in agreement with any of these OEMs. One Indian Company can engage with any or all OEMs, but can finally submit only one offer in agreement with any one of the OEMs. As an exception, in segments with diverse platforms such as helicopters, potential SPs may submit response with more than one OEM to have best technology solution.

This means, the objections raised by some of the Indian private sector players in limiting their participation in just one of the four segments, have been overruled by the MoD.

Interestingly, the MoD document lays out a future roadmap for subsequent acquisitions. It says, in parts : “To achieve self-reliance, within the country, subsequent acquisitions in the identified segments/platforms should ideally be carried out from Indian Companies under Buy (IDDM), Buy(Indian), Buy and Make (Indian) and Make categories of acquisition under DPP. This can be accomplished only when Indian companies make considerable long-term investments in capacity creation and capability development including infrastructure, tiered eco-system of vendors, skilled human resources, futuristic R&D etc.”

In order to motivate the Indian companies to achieve these objectives, the process for evaluation of bids for subsequent acquisitions shall apart from commercial offer, provide adequate weightage for the following factors pertaining to their experience and track record in the respective segment:

* Investments by Indian companies to construct and improve segment specific infrastructure like workshops and production lines as well as availability of skilled manpower

* The nature of R&D investments made by the companies including tests and evaluation facilities and infrastructure;

* Development and acquisition of relevant technologies and execution of advanced and state-of-the-art manufacturing processes;

* The extent of the eco-system created such as the number of vendors developed and the value of orders placed on these vendors.

The SP model, if implemented quickly and in totality, is likely to infuse self-sufficiency in defence manufacturing and help reduce India’s dependence on weapons import.

This piece was originally published on bharatshakti.in and has been republished here with permission.