How India plans to change its defence acquisition process

New Delhi: In a move that will change India's defence acquisition process, government plans to enter into "strategic partnership" with domestic private firms in six critical areas, replacing the system of awarding contracts to lowest bidder.

The Defence Ministry has set up a high powered committee under the chairmanship of former DRDO chief VK Aatre to recommend guidelines for selecting Indian private firms for strategic partnership under 'Make In India' initiative in the six areas which include submarines, aircraft and missiles, Defence Minister Manohar Parrikar said on Saturday.

"Instead of asking for tendering and all those things, a process of selecting a right partner is chosen. If you select through L1 (lowest bidder), you may end up with someone who is not capable. My aspect of success is capability of that partner," Parrikar told reporters here on the sidelines of a FICCI organised seminar.

He made it clear that there won't be any repetition of the entity. "There won't be repetition. If an X group has been taken in as a strategic partner in one segment, it will not be considered for another segment. It can participate in partnership for other products".

Explaining the concept, Parrikar gave the example of state-run Mazagon Dock Limited (MDL) which is building six Scorpene submarines and is also vying for a separate contract for additional six convention submarines worth over Rs 60,000 crore.

"It is obvious if you have an MDL which has the capacity, you can have one private sector (entity). You cannot have 10 private sectors (entities) or two private sector (entities) because obviously you cannot go on buying 100 submarines. The number is 30 as per Cabinet Committee on Security and may be we will go for a few more. But basically, you need one or two shipyards," he said.

He said the question was which will be the private shipyard with which strategic partnership can be signed.

"As I said MDL has capability and let one private sector come in. Who is that private sector, how do you select? It is not toss and neither my decision. So there has to be some mechanism and for that we have the committee under chairmanship of Aatre along with some top experts," he said.

He said once the domestic strategic partner is selected, talks with foreign technology provider or FDI partner will be undertaken to carry out the project.

Strategic partnership was one of the proposals of the Dhirendra Singh committee which had recommended a slew of steps to ease the defence procurement policy.

The Aatre committee, which has experts from banking, chartered accountancy among others, has been asked to submit a report within three weeks, Parrikar said.

However, he added that a few more weeks might be given.

The six segments identified are - aircraft and their major systems, warships of stated displacements, submarines and their major systems, armoured fighting vehicles and their major systems, complex weapons that rely on guidance system, C4ISTR (Command and Control System) and critical materials (special alloys and composites).

Dhirendra Singh committee in its report had said that having been declared a Strategic Partner in any one platform, or a family of complex weapons or a major network programme, that entity or its associate or subsidiary should not be eligible to be chosen as a Strategic Partner for any other purpose under this dispensation.

"This is to prevent conglomerate monopolies emerging at the very start without production even having commenced.

"Likewise, they will also not be allowed to have cross-holdings in each others? companies. The available capability and capacity in the concerned public sector unit will be an additional safeguard against any monopolistic tendency on the part of the Strategic Partner," the report had said.

The developments are part of measures being introduced by Parrikar which will finally shape the new Defence Procurement Policy (DPP) being worked out by the government.

A number of contracts are awaiting the new DPP which is expected to come out with clear instructions for procurement, role of middlemen, blacklisting of firms and offset policy among others.