Process ready to select private companies for mega defence orders

The defence ministry has finalised its roadmap for the selection of private sector companies for mega military production orders, with an elaborate procedure spelt out in a new policy to be unveiled this week. Financial strength, technical capability and existing infrastructure will be the main criteria for selection of the Indian companies while foreign partners will be selected in a parallel process on technical and commercial grounds.

ET has learnt that the defence ministry’s new strategic policy (SP) model will create a pool of six Indian companies that will be accorded special status. Once the pool is created, the companies will be given the opportunity to bid for mega defence production orders, expected to be worth over $20 billion.

As per the policy, in the first stage, the six Indian companies will qualify to bid for four upcoming projects – submarines for the navy, a single-engine fighter for the air force, helicopters and armoured vehicles for the army.

Interestingly, the new policy means that almost all memoranda of understanding (MoUs) that have been signed between Indian companies and foreign players over the last three years for these projects will be rendered infructuous, given the new model of selection. “The defence ministry will shortly invite companies for the qualification process. The companies will be asked to give their priority preference for the four projects. A total of six companies will be selected based on financial parameters and capability,” a senior official told ET.

The ministry has an ambitious target of nine months to select the pool of Indian companies. The selection will be carried out in a fivestep process, starting with financial and technical evaluation that will have certain criteria, including a Crisil A rating and a minimum turnover of Rs 4,000 crore for the past three years.

Concurrently, the ministry will initiate work to identify foreign partners for the four identified projects. This selection will be based on technical evaluations and field trials. Once the foreign vendors are shortlisted, the Indian pool will be invited to plan collaborations and present joint proposals that will be the basis of a final selection.

As per the policy, one Indian company will be allowed to participate in only one strategic partnership project to avoid a monopolistic situation. With this model, the ministry is hoping to avoid questions about competitiveness and price discovery, given that a pool of both Indian and foreign vendors will be competing for collaborative projects. “Concerns that were raised from various quarters, including from within the ministry, have now been addressed,” the official said.

While the industry is relieved that the stalled process – the SP model has been in the works for over two years – has got back on track, top executives said that they are waiting for the fine print of the policy that will contain details about the selection process.

 

By: ET

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