09:53 GMT, November 16, 2010 defpro.com | India's Defence Minister Shri A.K. Antony plans to give fresh impetus to the Indian shipbuilding sector by allowing privately held Indian shipyards to participate in naval procurement tenders and, thereby, create greater competition in a market which was previously reserved to so-called Public Sector Undertakings (PSU) or foreign manufacturers. According to Antony, 65 to 70 per cent of the Indian defence equipment is currently being imported. His plan is to "reverse this trend".
However, to bring a change to the defence segment, which is still dominated by state-run defence manufacturers, a new government policy for procurement of new equipment is required. In a speech on Thursday, in which Antony announced this major shift, he said: "January 2011 onwards we hope to introduce the new Defence Production Policy as well as the Defence Procurement Policy. [...] We are going to take some more drastic steps to achieve our goal of speedy indigenisation." According to Anthony, this policy change towards an equal public-private competition in government procurement programmes will initially be limited to the Navy and would then gradually be extended to procurement procedures of the Army and Air Force.
Antony stated that the government's aim is to support a strong indigenous defence industrial base and emphasised:
"a country like India cannot indefinitely depend on foreign suppliers for majority of our equipments." The process of indigenisation as yet was focussed on strengthening PSUs in their efforts to develop and manufacture defence equipment. However, many national procurement programmes have been troubled by delays, increasing costs and technical problems.
As defpro.com reported earlier this year, the Ministry of Defence and India's Defence Research and Development Organisation (DRDO) exchanged blows in a general dispute on the delays in procurement programmes (see
http://goo.gl/5D0fO). After the DRDO was criticised for various delays in defence projects, the organisation's chief, V K Saraswat, defended the DRDO's performance and accused, in particular, the Armed Forces of preferring the procurement of existin
g, foreign solutions over indigenously developed and manufactured defence systems. "The services also must understand that while the temptation may be overwhelming to field proven, state-of-the-art imported systems, they (domestic industry) too have a role to play in the economic and industrial growth of the country. No foreign system can be customised to completely address our long term requirement," he said in May.
In a written statement to members of the Parliament of India in early May, the Defence Minister laid out the delays and increases of costs of prominent defence programmes. T
hese include the Tejas light combat aircraft (4 years delay), the development of a naval light combat aircraft (more than 4 years delay), the Integrated Guided Missile Development Programme (more than 15 years delay) as well as the engine for the light combat aircraft (14 years delay) "Delayed Projects of DRDO"). Minister of State for Defence Shri MM Pallam Raju also put his finger on this weak spot by pointing out the need of competitive and reliable PSU's and Ordinance Factories (OFs), adding: "We should strive hard in ensuring adherence to delivery schedules so that our Defence PSUs and OFs will also emerge as reliable global players in the field of Defence Production."
Ongoing huff between the Defence Ministry and the DRDO, OFs and PSUs may be a unique chance for privately held Indian defence companies to get their foot in the door and take advantage of a more competitive national market. It will furthermore open up opportunities for foreign investment in Indian companies, in particular in shipyards, and far-reaching industrial co-operation with international partners. This may also increase technological capabilities and knowhow of Indian companies and create additional jobs.
Antony clearly outlined the path for both PSUs and the private sector to begin as of next year: "There is no option, but to remain globally competitive and efficient and not rest on past laurels, or achievements. Both the Defence PSUs and the private sector must carve out respective niches for themselves, by developing their own fields of specialisation. These specialisations must complement each other's efforts and thus generate an even more healthier and competitive environment.
In light of comprehensive plans to restructure the DRDO, in order to make the organisation more effective and to create a greater Armed Forces-DRDO-industry interface, the new policies must achieve a structural and political environment which allows the private sector to join research and development activities with interest to national security and to receive a transparent access to government procurement programmes. In his speech, Antony stressed the need for R&D and constant coordination between the DRDO and the Industry Partners. Thus, the mammoth political task of transforming the DRDO into a sustainable organisation for future Armed Forces requirements is being increased by the effort to converge the interests of the public and the private sector.