The present government will be remembered primarily for numerous failed policy initiatives with the nuclear issue heading the list. Despite repeated assertions of its progressive pretensions, it considers it prudent to sacrifice all innovative proposals at the altar of political expediency and an overpowering urge to remain in power. The proposal to grant Raksha Utpadan Ratna (RUR) status to select private sector companies is the latest addition to this casualty list.
In 1998, the Ministry of Defence (MoD) took the first major step to involve the private sector in defence production. Six Joint Task Forces were constituted with the Confederation of Indian Industry (CII) to cover the following aspects:
- Defence-Industry Long Term Partnership.
- Defence-Industry Partnership on Commercial Process.
- PSUs/OFB/Private Sector Complementarity.
- DRDO-Industry Partnership.
- Defence Export Strategy.
- Defence-IT Industry Partnership.
Consequent to the recommendations of the Task Forces, the government announced a major policy change and opened defence production to the private sector in January 2002. It also allowed 26 per cent direct foreign investment. The private sector was euphoric and anticipated huge business opportunities. However, its hopes were soon belied; it realized that the public sector continued to get preferential treatment and the private sector had to remain content with supply of some sub-assemblies and components. Moreover, as stipulations governing foreign investments were highly skewed, there was no inflow of foreign funds. In short, there was no change in the ground situation.
Repeated representations to MoD resulted in the constitution of the Kelkar Committee. It was tasked, inter alia, to examine and recommend modalities of integration of the user (services), the Defence Ministry and Indian industry (both private and public) in the defence acquisition process. The Committee commenced work in July 2004 and submitted its report in two parts in April 2005 and November 2005, respectively. A number of presentations were made by private sector entities. They wanted to be treated on a par with the public sector as regards receipt of imported technology, fulfilment of offset obligations and joint development with the Defence Research and Development Organisation (DRDO).
The Kelkar Committee concluded that the private sector has to be co-opted as an equal participant if India is to achieve the oft-stated objective of self-reliance in defence production. Instead of issuing a carte blanche to the private sector, it suggested a discerning and judicious approach. It recommended that select private sector industry leaders be bestowed RUR status and treated on a par with the public sector for all defence acquisition purposes, to include the following:
- Design and development of high-technology complex systems under the new ‘Make’ procedure.
- Bidding for defence contracts, production of platforms and integration of large weapon systems.
- Receipt of contracted foreign technology and indigenous production thereafter.
- Discharge of offset obligations.
- Receipt of funds for developmental projects.
The above suggestions were accepted by the MoD. Department of Defence Production issued detailed guidelines in May 2006 spelling out eligibility criteria and laying down the selection procedure. It was mandated that a company aspiring for RUR status has to be a public limited Indian company registered for a minimum of 10 years with capital assets in India not less than Rs 100 crore and turnover not less than Rs 1000 crore for each of the past three years. Additionally, the company should have a consistent profitable financial record showing profits in at least three years of the last five years and with no accumulated losses. Foreign holding was pegged at a maximum of 26 per cent. The company should have an established track record in engineering (including software) and manufacturing for real value addition. Most important, the company should either possess a licence/LOI for production of defence items or obtain it within six months of application for RUR status.
The first Selection Committee was constituted in May 2006 under Prabir Sengupta. It was asked to make recommendations in respect of each applicant company, to be placed before the Defence Acquisition Council for acceptance. Names of the companies recognised as RUR entities were to be declared by March 31, 2007. The private sector was ecstatic and responded enthusiastically. Fortyone companies applied. The Committee invited around 15 to make detailed presentations. Twelve were shortlisted and recommendations forwarded to MoD in June 2007. The list reportedly included reputed players like L&T, Tata Group companies, Kirloskars, Ashok Leyland, Godrej and Boyce, and Mahindra and Mahindra.
Names of the companies recognized as RUR
entities were shortlisted and forwarded to
MoD in June 2007. However, there has been
no official announcement so far
However, there has been no official announcement so far. When queried, the Minister of State for Defence Production Rao Inderjit Singh admitted in February 2008 that the Committee report was with the government and under examination.
Though some opposition was to be expected from the public sector, its intensity and stridency has been surprising. For public consumption, imperilment of national security is being touted as the stated rationale for the opposition; the real reason is a creeping sense of insecurity. Opposition has been orchestrated by the public sector undertakings through the trade unions affiliated to the Left parties, as they perceive RUR as a threat to their existing monopoly and domination. Aware of their own weaknesses, they are wary of competing against RUR companies on an equal footing. They are conscious of the private sector’s efficiency vis-à-vis their own functioning. Therefore, it is a question of survival for them. More important, the public sector enterprises are exploiting their clout with the Department of Defence Production to scuttle the proposal.
Opposition has been orchestrated by the
PSUs through trade unions affiliated to Left
parties, as they perceive RUR as a threat to
their existing monopoly and domination
This has left the private sector wondering whether the government is genuinely interested in its participation in defence production. Many companies have invested considerable funds and signed multiple agreements with foreign firms. Their sense of exasperation was visible during the last Defexpo in Delhi and their enthusiasm appeared to be on the wane. “We have obtained licences for the manufacture of a large variety of defence systems, signed a number of MoUs with foreign companies and invested considerable resources over the last five years, but we are yet to get an order. I wonder how long we can continue like this,” commented a senior executive of a highly active private sector company. “Every time we are close to getting an order, it gets passed on to the public sector on some specious grounds,” he added. It is time the government displays its resolve and implements its stated intentions.
