Defence Ministry's move to fund weapons development with private companies favoured

NEW DELHI: The defence ministry’s move to fund 90 per cent of the developmental cost of select new weapon systems by the private sector, with a guaranteed return of the remaining 10 per cent invested by the entity has found favour across the industry as well as its plans to reserve smaller contracts for MSMEs.

While the new defence procurement policy is expected to come into effect only by March, Defence Minister Manohar Parrikar has announced a major change in the ‘Make procedure’ that would also provide private companies a 20 per cent ‘mobilization advance’ under a separate category.

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In future purchases, the government would select certain products to be bought under the ‘Make procedure’, say a future infantry combat vehicle or a new assault rifle. This would go only to eligible Indian players who would then carry out research and development on the basis of the military’s requirements. While the Make process was also present in older policies, no project has yet materalised through the process due to several bottlenecks and constrains that were brought forward by the industry.

The defence ministry has tried to address this by providing for a mobilization advance to kick start research by the private industry. In case a product is completely funded by the industry and made to the requirements of the forces, the ministry would 100 per cent of the developmental cost in case it does not purchase the system. Many bottlenecks faced by the industry will be done away with. The amended DPP will give a boost to indigenous design and development as well as manufacturing. Amendments will create a win-win situation for Indian Defence Forces and the Indian Defence Industry,” Baba N Kalyani, Chairman CII National Committee on Defence said.

All defence products which will have a developmental cost of less than Rs 10 cr have been reserved for Micro Small and Medium Enterprises (MSMEs). “The revised Make procedure addresses the most pressing concerns of the private sector and also ensures a significant role for MSME'S. The Mod should now endeavour to release a greater number of programs in this category,” said Ankur Gupta of EY.

However, the industry is keen for decisions on more pressing issues, including the new procedure for blacklisting of foreign firms accused of corrupt practices as several tie ups and joint ventures hinge on the ministry’s decision.

Also, the strategic partnership model details are also awaited, even though Parrikar has indicated that the process will take several months for clearance as it also requires cabinet approval.