Pvt sector to develop Rs 10,000 cr army communications network

The Indian industry gears up to begin developing the Tactical Communications System (TCS), a backbone communications network, like the British Army's Falcon mobile network seen here

Industry consortia to be formed for developing high-tech system

by Ajai Shukla

Business Standard, 6th Oct 10

In a giant first step towards bringing India’s reputed IT industry into defence production, the Indian Army has approached six private sector IT majors for developing a high-tech communications backbone network for the Indian Army.

The army’s communications chief, Lt Gen P Mohapatra, revealed today that the army had sent out security-classified “Expressions of Interest”, or EoI, for developing a Tactical Communications System (TCS), which will provide a robust, snoop-proof, mobile, cellular network for the Indian Army’s voice and data communications during battle.

The EoI, which Business Standard has reviewed, has gone out to at least five private companies: Tata Power (Strategic Electronics Division); HCL Infosystems; Wipro Technologies; Rolta India; and L&T. Another potential candidate, Tech Mahindra, was ruled out as it did not qualify as an Indian company because of a foreign holding component higher than 26%.

In addition, three public sector undertakings --- Bharat Electronics Ltd (BEL); Electronics Corporation of India Ltd (ECIL); and ITI Ltd --- have also received the EoI.

In the 16 months since the TCS project was sanctioned by the apex Defence Acquisition Council on 18th May 09, the MoD has tried to hand over the project without bidding to defence PSU, Bharat Electronics Ltd. As Business Standard reported (3rd Mar 10: MoD sidelines pvt sector in crucial defence project) the MoD cited “communications secrecy” as the logic for handing over the project on a plate to BEL. After protracted internal debate, the MoD decided to allow the Indian private sector to participate, with the Defence R&D Organisation (DRDO) developing the secret algorithms required for encoding communications.

Recipients of the EoI say the TCS development and production will cost up to Rs 10,000 crores. But the TCS is only a foot in the door for the private sector. CII Director General Chandrajit Banerjee estimated today that there are about Rs 30,000-40,000 crores worth of defence electronics systems in the pipeline.

Recipients of the EoI must respond within two months (it was issued on 24th September) giving out details of the consortia they create for the TCS project; their technology development plans; development milestones; and time schedules. They must also spell out their estimated capital expenditure for designing and developing a prototype system. Based upon this, the MoD will select two companies, which will each build a prototype of the TCS. The better of the two will manufacture the seven TCS systems that the Indian Army needs.

The EoI places the TCS project in the “Make” category of the Defence Procurement Procedure of 2008 (DPP-2008). Under this, the MoD will fund 80% of the development costs, while the selected company (termed the Development Agency, or DA) will fund the remaining 20%. The “Make” procedure mandates that at least 30% of the system must be indigenously developed. However, one of the companies that have received the EoI confidently claims that it will develop at least 70-80% of the system in India.

In a bold departure from its earlier practice of selecting the lowest bidder, the MoD has indicated that indigenisation and technological quality of the product would be considered in choosing a Development Agency. The EoI states, “The contribution of the Indian industry in acquiring and developing Technologies in critical areas shall be a key criterion in assessment of various proposals (sic).”

Intriguingly, the MoD has issued EoIs in the TCS project only to companies that fulfilled the criteria developed for nominating Raksha Udyog Ratnas (RuRs), a concept that the MoD went on to reject. These criteria, which are mentioned in the EoI, include: registration at least 10 years ago as a public limited company; FDI holding of under 26%; annual turnover of at least Rs 1000 crores; a minimum credit rating of CRISIL/ICRA-‘A’; and a positive net worth and profitable operations in at least 3 out of the last 5 years.

The TCS project is India’s second project under the “Make” procedure, after the Future Infantry Combat Vehicle (FICV) development project (Business Standard, 9th Aug 10, Indian industry at landmark defence tender). But MoD sources, pointing out the significance of the TCS, say, “The FICV is just a stand-alone armoured vehicle. In contrast, the TCS is a network-centric backbone that connects crucial systems in the electronic battlefield; it connects the sensors, the shooters, the decision systems and the command hierarchy. It is the backbone for everything.”