Defence ministry bites the bullet, rewrites rules to let private companies make arms

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NEW DELHI: The defence ministry has empowered itself to select private sector companies for production of weapons being bought from foreign vendors under a transfer of technology (ToT) pact with a new set of guidelines that specify qualifying criteria, including experience and financial strength.

The new guidelines under the defence procurement policy have opened up what in the past has been a bastion of public sector units (PSUs) that would be automatically designated as the nominated production agency for ‘Buy and Make’ category of purchases.

In theory, the new guidelines empower the ministry to now select private sector companies for contracts in which a weapon system is to be mass produced in India after purchasing technology from a global firm. In the past, such contracts like the Kamov 226 helicopter program and the aborted deal for Medium Multi Role Combat Aircraft (MMRCA) that had been won by Dassault’s Rafale had Hindustan Aeronautics Limited (HAL) as the production agency.

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The ‘eligibility criteria for Indian private firms as production agency’ were notified on September 27 but have only now come into light. These include instructions that the Indian companies would need to have a minimum of two years of experience in the sector, should be engaged in manufacturing and should be controlled by Indian citizens.

On the financial side, the specifications are that the turnover the companies to be considered should not be less than 10% of the estimated project cost for the past two years and that none of its records should show it or its directors as a ‘wilful defaulter’.

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“The contract in buy and make category is placed on a foreign firm. The TOT (transfer of technology) is then transferred to a production agency in India by the vendor (sic). Since the technology is being acquired along with the procurement of defense equipment, the same is directly or indirectly financed by MoD and hence the decision to transfer the technology has to be done in a fair and transparent manner,” the new guidelines say.

It is unclear currently which all programs would fall under this category, given that the plan is to place most major orders through the MoD’s strategic partnership program that is yet to fully take off. Industry experts feel that some upcoming orders for small arms in particular could be categorised under the new guidelines.

Experts feel that while the criteria will kick start the process of getting the private sector in, this could also lead to complications on the process of selection. “In the past too, there was no formal bar on the private sector but as there were no guidelines, the public sector was being nominated as the production agency. In theory, this will help the MoD in selecting a private sector entity to be nominated as a production agency,” Amit Cowshish, former financial advisor (acquisition) says.





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