Ministry, industry divided on strategic partnerships in defence procurement

Key domestic players in the defence sector want the Defence Ministry to create space for their foreign partners as well in the chapter on strategic partnerships (SPs) in the new Defence Procurement Procedure (DPP).

The Defence Acquisition Council (DAC), which is chaired by Defence Minister Manohar Parrikar, is scheduled to meet on Saturday to discuss the important provisions of the chapter that remains pending. Leading players from the private sector are expected to make their case during the meeting while vying for strategic partnerships in various segments.

The 10-member committee that was set up for selecting strategic partners for various platforms from the private sector under VK Aatre, former scientific adviser to the defence minister, had suggested one or two SPs each in six different segments – aircraft, warships, armoured vehicles, ammunitions, target acquisition and reconnaissance and critical materials.

While the Defence Ministry is keen to have two SPs in each segment, the industry wants their foreign partners also to be allowed in these segments. This is because some of the big players such as the Tata Group, L&T, Mahindra and Reliance Defence are lobbying to be strategic partners in segments like aircraft, submarines and helicopter.

“Reality is none of the Indian private sector players have manufactured aircraft, submarines or helicopters. Besides, this requires foreign partnership for technical know-how and expertise,” a source told BusinessLine .

The industry is also concerned that not allowing foreign partners might not augur well for competition and bigger players might resort to monopolistic practices, said another official.

According to a top executive from a leading defence firm, the new DPP has already addressed their concerns on SPs by introducing four categories of procurement – indigenously designed, Make-I, Make-II and Buy and Make Indian.

“All these four categories cover the entire issue of procurement and how partnerships will be formed. There is no need to have the SP chapter separately,” the industry representative said.

The Aatre Committee had presented its report to the Defence Ministry in January. However, the new DPP came into effect from April 2 without finalising the SPs.

Parrikar had told BusinessLine that even after finalising SPs it might take a couple of more months to finish the process. At present the industry has been instructed to follow the SP guidelines from the old DPP till the new one is firmed up.