Private sector rivals object to Tata Motors’ selection for building infantry combat vehicle

The army's workhorse BMP infantry combat vehicle, which the FICV will replace

By Ajai Shukla

Business Standard, 14th Dec 16

On Wednesday, the ministry of defence (MoD) will meet to clear two winners of India’s biggest “Make” programme --- a Rs 50,000 crore project to design, develop and manufacture 2,600 Future Infantry Combat Vehicles (FICVs) that will replace the army’s obsolescent fleet of Russian-origin BMP-II armoured infantry carriers.

But a battle royal is brewing up over the winners of this lucrative contest. While the selection of Larsen & Toubro (L&T) is acceptable across the board, at least two vendors --- Reliance Defence and Mahindra & Mahindra --- have objected to the selection of Tata Motors, which has bid in consortium with Bharat Forge.

Their primary objection is that Tata Motors does not meet the MoD’s commercial eligibility criteria, which requires a candidate company to have a “consistent profitable financial record showing profits in at least three years of the last five years and with no accumulated losses.” Tata Motors made a loss of Rs 4,739 crore last year, which was greater than its profits in the four preceding years.

Tata Motors has contended that if profits from its UK-based subsidiary, Jaguar Land Rover (JLR) were to be counted, it had a consolidated turnover last year of Rs 263,695 crore and a net profit of Rs 13,986 crore.

However, the objecting companies point out that the MoD had twice clarified, first in October 2015, and then in January 2016, that domestic operations alone would count towards a company’s commercial eligibility profile. If JLR’s profits were not to be counted, Tata Motors’ earned just Rs 38,176 crore from domestic operations last year, generating a loss of Rs 4,739 crore.

A second objection is over the foreign nationality of Tata Motors’ chief executive officer (CEO), Guenter Butschek, who was appointed on February 15. The criteria for a defence manufacturing licence requires a company’s CEO to be an Indian national.

Interestingly, in a long-drawn internal argument within the Tata Group, doubts over Tata Motors’ eligibility had been raised by its group company, Tata Power (Strategic Engineering Division), to justify bidding separately for the FICV.

This had been reported by Business Standard (February 15, “Rs 50,000 crore contest to build future combat vehicle kicks off today”). This has now been verified by Economic Times, which has quoted an unidentified Tata Sons board member, who says that Ratan Tata was “dismayed” when the two Tata group companies put in separate bids.

It is unclear how these objections will be viewed by the Defence Procurement Board (DPB), the MoD’s top procurement body that will consider the FICV decision on Wednesday.

The FICV is a tracked, armoured vehicle that protects infantrymen from small arms fire and artillery shrapnel while moving around the battlefield. According to the army’s specifications, the FICV is required to be amphibious and air-portable; and to fire anti-tank guided missiles that can destroy enemy tanks 4 kilometres away.

Eight Indian proposals to build the FICV were submitted to the MoD. These came from L&T; Tata Power (SED) in partnership with Titagarh Wagons; Tata Motors in partnership with Bharat Forge; Mahindra & Mahindra; Reliance Defence; Rolta India; Punj Lloyd, and the Ordnance Factory Board (OFB).

While the OFB will be automatically nominated, the DPB will select two more private sector consortia to design and develop the FICV. The MoD will reimburse 80 per cent of their design and development costs, and select the better of the two designs for production.