Parrikar engages private defence industry to boost indigenous arms

By Ajai Shukla

Business Standard, 28th Dec 14

For the first time since the private sector was allowed into defence production in 2001, a defence minister has met face-to-face with private sector defence CEOs to discuss the role they could play in boosting defence production in India.

On Saturday, at the Taj Vivanta Hotel in Goa, Defence Minister Manohar Parrikar --- alone except for a personal secretary --- met for three hours with captains of private defence industry. Not one of his ministry’s five secretary-level officers was in attendance. Nor was anyone from the public sector invited.

Major issues discussed included the “Make” category of procurement; ways of harnessing Micro, Small and Medium Enterprises (MSMEs); and boosting defence exports.

The industrialists who flew down to Goa for the meeting included Baba Kalyani from the Kalyani Group, and the defence vertical chiefs of Bharat Forge; Larsen & Toubro; Tata Advanced Systems; Godrej & Boyce; Ashok Leyland; Punj Lloyd, Alpha Design Technologies; Zen Technologies; Data Patterns and Pipavav Shipyard. Local Goa group, Dempo, also sent a representative. The Confederation of Indian Industry (CII) organised the meeting.

Business Standard has been briefed on the meeting by three CEOs who attended. All of them agree that, after thirteen years of operating from the sidelines under three successive defence ministers --- George Fernandes of the National Democratic Alliance (NDA); and Pranab Mukherjee and AK Antony of the United Progressive Alliance (UPA) --- Parrikar’s readiness to interact face-to-face is an encouraging indicator of change.

“We spoke frankly and Mr Parrikar listened carefully, interjected frequently and took notes during the meeting. For the first time in a decade, we (private sector defence companies) believe we will be allowed to use our capabilities in the defence of India”, says HS Shankar, who attended the meeting as chief of defence electronics company Alpha Design Technologies.

A central issue discussed was the “Make” procedure, which was devised to allow private companies a larger role in designing and building defence equipment, with the ministry of defence (MoD) reimbursing 80 per cent of the development cost. However, since the “Make” procedure was instituted in 2008, not a single project in this category has been successfully floated by the MoD.

A new “Make” procedure has been in the pipeline for years, but there is little consensus on its form, even amongst private industry. Parrikar indicated the new procedure would be finalised by end-January.

Industry representatives suggested that no programmes be tendered under the “Make” procedure until there was clarity on its final form. They cautioned that it was very different from the prime minister’s (PM’s) “Make in India” initiative, which is about boosting manufacture. The “Make” procedure, in contrast, is about developing design capability and intellectual property (IP) in the country.

Parrikar requested CII for a note that explained IP issues, including the critical issue of who should own the IP generated through the “Make” procedure --- the company that generated it, or the MoD which paid for it.

Zen Technologies proposed that the MoD not accept low indigenous content of 30-50 per cent, which the current Defence Procurement Procedure mandates in certain categories of procurement. Instead, 90 per cent indigenisation should be aimed at. Parrikar requested for a paper on a new procurement category, called “Pure Indian”, which would demand near-total indigenisation.

Parrikar proposed an assured R&D work share for MSMEs under the new “Make” procedure. He mooted a national registry of defence MSMEs, based on capability criteria. Once registered, an MSME should be supported with exemptions from burdens like Earnest Money for defence tendering.

Parrikar highlighted the need to boost defence exports, a requirement the PM has also stressed. He proposed issuing a negative list and positive defence export list. While no exports would be permitted to countries on the negative list, those on the latter would require no export clearances.

Also discussed was the relative success of Indian Space Research Organisation (ISRO) compared to the Defence R&D Organisation (DRDO). Many ascribed ISRO’s success to the autonomy that came with being directly under the PM. The defence minister revealed that he had ordered greater financial powers to the DRDO’s departmental heads. Each of these Director Generals, who oversee specific technology areas like aerospace, missiles and underwater systems, will now be empowered to spend up to Rs 150 crore. The onus of delivering usable defence equipment would be squarely on their shoulders.