Defence procurement: No consensus on strategic partnership

The Defence Ministry seems to have gone back to where it started on the issue of selecting strategic partners (SP) for various procurement programmes.

Defence Minister Arun Jaitley held his first meeting on the issue with the stakeholders here on Thursday. Some of the issues that emerged as major stumbling blocks were that of grand-parenting and price discovery, according to sources.

A top official in the Ministry told BusinesLine requesting anonymity that, “There is still no meeting ground yet on the issue. The industry is severely divided and a consensus looks difficult at this point. However, the Ministry is keen to push the policy.” Under the SP model there will be four broad categories – combat aircraft, helicopters, submarines and armoured vehicles – within which the government will award programmes to the private sector.

Hence, the Defence Ministry is of the view that “at least” two strategic partners should be allowed in each segment so as to arrive at a “reasonable” price discovery otherwise it may lead to a monopolistic situation, sources said.

Sources also added that some of the defence firms have made it clear to the government they will not support “open competition” in a particular programme in which they already have the required competencies.

For example, if the government intends to procure helicopters for the armed forces, then it should accord first preference only to those companies that have a proven track record in producing helicopters and not those which have been selected as strategic partners for making helicopters.

“The Ministry is working towards institutionalising a transparent, objective and functional mechanism to encourage broader participation of the private sector in defence manufacturing under the Make in India framework,” stated a release by the Defence Ministry after the meeting with stakeholders.

The Defence Acquisition Council (DAC), which is chaired by Jaitley, will be meeting on May 15 to decide on the draft policy.

But considering the divergent views within the industry, it seems unlikely that a final call will be taken on the matter, sources added.

Once approved, the policy will be inducted as a separate chapter in the Defence Procurement Procedure 2016.

“There is a lot at stake here. There will be fierce competition and fierce rivalry if the SP policy is finalised,” said Amit Cowshish, former financial advisor to Defence Ministry and currently a Distinguished Fellow at IDSA.

The SP policy is aimed at boosting manufacturing of critical defence armaments by the private sector.

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