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INDIAN DEFENCE COMPANIES FATIGUE

INDIAN DEFENCE COMPANIES FATIGUE OUT AS OPTIMISM TURNS TO PESSIMISM
By Bulbul Singh

25 Aug 07. After drawing ambitious plans on defence production and manufacturing, several Indian defence majors are showing signs of fatigue as the defence orders are not coming in. They are only banking on the futuristic offset defence market and no major joint ventures with overseas defence companies are coming through. Cumbersome procedures in the Ministry of defence on procurement is one of the main reason for the slow growth of the Indian private sector defence companies

A senior official of Mumbai-based private sector defence major Larsen & Toubro (L&T) said, “Participation procedures in the defence sector are very cumbersome and some of these procedures are not clearly defined ever since the entry of privates sector companies was allowed in the private sector since 2002.”

It is for this reason that L&T has not projected any defence targets in the near future as the executive said, “the defence sector orders are hard to get because the Ministry of Defence can pass orders to participating companies not merely on business basis but other factors as well. It is for this reason that L&T has signed only MoUs so far and not any joint venture.”

An executive of Tata Power said even though they have licenses which have a market worth over $5bn in the near future, no concrete orders are there with the Indian defence forces for the Indian companies as they have to compete with overseas defence major. Overseas defence majors are also not forthcoming in forging alliances with the Indian defence sector private companies as the Foreign Direct Investment limit is only 26 per cent.

“Only MoUs are being signed so far” said the Tata Executive.

Offset market potential is there for the Indian defence sector companies, but even here the rules are so cumbersome that even the bureaucrats of the Defence Ministry are not clear themselves about the procedures. In addition the offset clause is leading to delay in procurement which already is very slow on account of bureaucratic delays in the Indian defence ministry. The Request for Proposal for the $12bn Multirole Medium Range Combat Aircraft (MMRCA) has yet to be issued by the government two years after issuing the Request for Information. At this rate it will take another five to seven years for the contract to mature. “Add to this the offset obligations which will delay the contract finalization by another 30 months, added the Tata Power executive.”

Indian defence ministry officials said, “Currently overseas companies are only identifying futuristic partners for carrying out mandatory offsets, most of which will be direct offsets. Several overseas companies are taking over small companies to prepare for the compulsory outsourcing procedures which could mean only inflated bills, and offsets only on paper bills, confessed the defence ministry officials.”

The defence forces have already made it known to the Indian defence ministry that the offsets are coming in the way of the procurement of essential weaponry for the forces as it is leading to excessive paper work to fulfil the procedural obligations.

The executive of Tata Power said the competitive bidding process needs a re-look as some private companies have been asked to develop prototypes but even after many years, the orders have not been forthcoming. The investment of these private players have thus gone in vain

In addition the Defence Ministry has yet to issue giving priority status, called Rashtriya Udyog Ratna status (RUR) to around one dozen companies, more then an year after the list has been informally finalized The one dozen companies are to be given a special status of Raksha Udyog Ratnas (RUR) which will enable them to import equipment for R&D duty free, and avail other concessions which the state owned

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