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All India Radio (AIR): Defence Acquisition Council Finalises Strategic Partnership Model

  • August 22, 2017
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All India Radio
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Defence Acquisition Council Finalises Strategic Partnership Model

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TOPIC:

General Studies 2

  • Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

General Studies 3

  • Indigenization of technology and developing new technology.

In news:

The Defence Acquisition Council (DAC), Ministry of Defence finalised the broad contours of a long-term strategic partnership with the Indian private sector in defence manufacturing.

The policy will be implemented in a few select segments, initially the fighter aircraft, submarines, armoured vehicles and helicopters and others will be taken up later.

In this model, the foreign companies will be allowed in India to have an Indian partner and make defence equipment in India, – like helicopters, fighter planes, submarines, armoured vehicles, tanks etc.

The DAC is the top decision-making body on defence procurement, chaired by Defence Minister.

Reason

The policy aims to develop Indian defence-industrial ecosystem through involvement of both major Indian corporates and the micro, small and medium enterprises sector.

The policy will provide a mechanism for a long-term strategic partnership with industry majors through a competitive process. Here the industry partners will tie up with global manufacturers to seek technology transfers and manufacturing knowhow to set up domestic manufacturing infrastructure and supply chains.

The strategic partnership model is based on Dhirendra Singh Committee which suggested finding strategic partners for high-end defence production. As per the committee report, the defence manufacturing sector has been categorised into two groups.

  • In every sector, there should be certain strategic sectors to be identified. It includes segments of aircraft, helicopters, aero engines, submarines, warships, guns, including artillery guns, armoured vehicles that include tanks. It was suggested that only one partner should be finalised in each segment in this group.
  • In the second group, identify Indian companies, maximum two in each segment, who can undertake projects in those segments.it includes partners involved in metallic material and alloys, non-metallic material, including composites and polymers, and ammunition including smart ammunition

Thus, MoD will identify certain Indian partners as strategic companies and also identify certain equipment platform to be built in India. These companies then would become the chosen production partners in India.

SP Model

The strategic partnership model shall identify few Indian private companies as Strategic Partners who would initially tie up with a few shortlisted foreign Original Equipment Manufacturers (OEMs) to manufacture defence equipment.

As an idea, it is a good beginning. Anything which kickstarts production in India and encourages manufacturing industries is welcome. If the idea is to buy from the foreign companies even under this model, there is a need to tie up with Indian companies and make products in India. It looks more like buy and make Indian. But there shouldn’t be any micromanagement by MoD else it will disrupt the process.

The selection SPs and their foreign OEM partners would be based on a competitive process to be undertaken simultaneously. Parallel to the shortlisting of OEMs, the MoD would also identify a list of Indian companies in each segment based on certain technical, financial and infrastructure-related parameters. One thing to be noted is that existing Strategic Partners would not be the automatic choice for future contracts.

Advantage

Indian companies will be a majority stakeholder in such partnership. There is a possibility of export of equipment to friendly countries. The policy will give a boost to the ‘Make in India’ initiative in the defence sector and set Indian industry on the path to acquire cutting-edge capabilities.

Another possibility is that MoD may not have any holding rights over the equipment or IPR rights. However, no critical technology will be shared under this model.

Concerns

The past is not strong as earlier, the ‘Make’ and ‘Buy and Make (Indian)’ procedures, have failed to yield the desired results due to lack of institutional capacity and ability to guide the new process to its logical conclusion. Also, lack of reforms in the structures and decision-making processes create roadblocks for paths leading to fulfilment of goal.

Defence Procurement Policy

In DPP, there was a provision of buying from foreign companies, lot of equipment were license produced in India. There was a need of creating composite defence procurement organisation which would streamline mega arms acquisitions as well as leverage them to build a robust defence industrial base (DIB) in the country. Defence procurement board, defence acquisition council, capital acquisition wing, etc. everything are interrelated. There is a talk of separate wing in defence ministry- the defence acquisition wing which will amalgamate the purchase, offset, bringing in more technology, getting into R&D. If strategic partnership model is adopted by MoD, it will be handled by same organisation.

A defence procurement procedure was introduced in 2006. Its been 10 years and not a single contract has been singed. It was an idea which encouraged the Indian industry to take up design and development of prototypes of futuristic equipment. These things should not be repeated now.

Conclusion

The foreign companies are not expected to transfer the state of the art technology. There will be current technology transfer. India can buy from the companies making things here but there should be a condition that after this process, there should be rights of upgrade with the Indian companies. The foreign companies can then tie up with other Indian companies through separate JVs. Hence this is a win win situation for both as they get to establish long term relationship.

However, not much should be expected to be done in an instant. Once the draft is made, it will go to finance ministry, then cabinet committee on security and then final policy decision will be taken. This process will itself take few years and then the manufacturing will be carried out. Hence, the deliveries of the essential defence equipment shouldn’t be expected sooner than 5-6 years.

Connecting the dots:

  • Highlight India’s defence procurement policy 2016 in view of India being one of the largest importers of defence equipment in world.
  • What is strategic Partnership model? Explain its impact on India’s defence manufacturing capability and economy.

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