eye on defense june 2015
TRANSCRIPT
Contents title
Contents subjects
June 2015 Eye on Defence
Dear readers,
The manufacture and possession of arms and ammunition is regulated under a licensing system established by the Arms Acts (1959) and Arms Rules (1962), and is under the Government’s purview. The manufacturing of small arms for armed forces/para-military forces/police, is confined to the Department of Defence Production viz Ordnance Factories (OFs). The manufacture of small arms, light weapons and ammunition thereof has not been allowed in the private sector. In the past, the MHA had promulgated
a draft Arms and Ammunition Manufacturing Policy, which allows the Department of Industrial Policy & Promotion (DIPP) to issue licenses to the private industry for the manufacture of arms and ammunition. Though some of the industries had applied and received an Industrial License for small arms and ammunition, eventually the case did not progress as the MHA was unable to issue the licenses. With increasing shortfall in terms of the technology and the volumes of small arms required by the forces, the Government has decided to involve the private sector in the manufacture of small arms. A draft Arms Act-2015 has been formulated, wherein the private industries will be allowed to manufacture and proof test arms & ammunition of all kind including the ones being used by military. It has been indicated that within 2-3 months, this act is likely to be promulgated. This issue of the Eye on Defence intends to study the various regulations affecting small arms manufacture in India, existing inventory, and the opportunities arising out of this market for the private sector in the near term, while outlining the concerns and issues related to small arms manufacture in India.
The revision of the Defence Procurement Procedures (DPP) is a bi-annual exercise, resulting from stakeholder discussions, industry feedback and experiential learning. The Government has recently set up a 10 member Committee to review DPP-13, with a view to enhance transparency and ease procedures within defence procurement, in line with its “Make in India” initiative, for the defence and aerospace industry. In the current issue of the Eye on Defence, we have included a few recommendations that may be useful in bringing efficiency and transparency into the policy, while addressing issues that are faced by the private sector during participation in projects governed by the DPP.
Among the regular sections, we have industrial license applicants, RFIs/RFPs released, new projects and investments, JVs and alliances, country-level deals and the latest buzz in the industry.
I hope you find this issue useful. It has been our constant endeavor to make this publication increasingly relevant to you, and we will appreciate your comments and suggestions.
K. Ganesh Raj Partner and Leader
Contents
Introduction
Small arms manufacturing in private sector
Realigning DPP to create an eco-system with futuristic outlook
Request for Information (April–June 2015)
Request for Proposal (April–June 2015)
List of Industrial Licenses (ILs) filed for March – April 2015
New projects/investments/contracts
JVs and alliances
Country level deals and initiatives
Industry buzz
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The manufacture and possession of arms and ammunition is regulated under a licensing system, established by the Arms Acts (1959) and Arms Rules (1962), and is under the Government domain. These regulations cover all aspects of lawful possession, manufacture, sale, transfer, transport, export, import of arms and ammunition, and provide penal provisions for violation of these acts. The Central Government legislations and State Governments have a specified role in their implementation. These provisions seek to classify fire arms and other prohibitive weapons so as to ensure that military “patterns” are not available to civilians, and weapons for self-defence can be possessed only under duly issued licenses. All small arms produced/manufactured in India are uniquely marked, and private firms authorized to manufacture firearms are required to maintain a gun manufacturing register, which records information including serial numbers and date, month and year of manufacture. These legislations and various executive instructions from the Central and State Governments have evolved a good mechanism for effective control and regulation.
The manufacturing of small arms for armed forces/para-military forces/police, are confined to the Department of Defence Production viz Ordnance Factories (OFs). Even after liberalization of the Indian economy and removal of licensing regime for major industries, the manufacture of small arms and light weapons and ammunition thereof has not been allowed in the private sector. The private sector is primarily engaged in the manufacture of single/double-barrel and air rifles/pistols. In the past, the MHA had promulgated a draft Arms and Ammunition Manufacturing Policy, which allows the DIPP to issue a license to the private industry for
Likely holding of various types of serviceable small arms by the armed forces: Rifles - .8 Mn ; Carbines/pistol/LMG - .3 Mn A similar ratio of 75:25 is expected in the Para military forces/police forces.
Source: Data gathered by EY from sources accessed between 1 and 15th June 2015
Small arms manufacturing in private sector
the manufacture of arms and ammunition to be “primarily supplied to the Central Paramilitary Forces, Defence and State Governments on a tendering basis.” Though some of the industries had applied and received an Industrial License for small arms and ammunition, eventually the case did not progress as the MHA was unable to issue the licenses.
The technology involved in the manufacturing of small arms is neither critical nor difficult to acquire. However, the government is yet to allow private players to strategize and lead the manufacture of small arms, in spite of the Indian private industry’s willingness to invest in defence indigenization. This has resulted in a situation where the military is dependent on foreign suppliers for most of its requirements, especially in areas of critical technologies, and the nation has to spend foreign exchange on small arms import.
A draft Arms Act-2015 has been formulated and has been put in the open domain for comments from all sections of stakeholders, wherein the private industries will be allowed to manufacture and proof-test arms and ammunition of all kind, including the ones being used by military. It has been indicated that this act is likely to be promulgated in the next three months.
Existing Inventory: small armsThe major users of small arms are the three defence services, para-military forces and the state law enforcement agencies. The Indian inventories are estimated to contain around 3 million small arms.
Concerned org. Army Navy Air force Paramilitary State police
No. of personals 1,100,000 70,000* incl ICG
130,000 850,000 1,600,000
Estimated small arms
1,100,000 32000 52,000 800,000 1,200,000
Small arms market by end-users
Armed forces Law enforcement Civilians
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The Army is currently using the DRDO-designed and OFB-built INSAS 5.56 mm rifle, introduced into service in the mid-1990s, which is long due for replacement. Most of the other small arms and ammunition held by the defence services are of foreign design, and manufactured under license in India but efforts are on to progressively design and manufacture equipment indigenously. The emerging nature of warfare requires a more efficient small arms system in the battlefield for improved performance, i.e., with optical sights, accessory rails, dual magazine clips, self-luminous reflex sight for the Under Barrel Grenade Launcher ( UBGL) and single-eye night vision with head band.
YearTarget Accepted
OFB supply value
% Of slippage
2009-10 4,280 2,746 36
2010-11 5,140 3,688 28
2011-12 5,630 3,720 34
2012-13 5,870 3,677 37
(Source: Extracted from CAG Report on Ammunition 19 of 2015)
Small armsAverage annual production capacity
Remarks
5.56mm INSAS/ 7.62mm SLR rifle
60,000-70,000 5.56mm INSAS in service since 90s
7.62 LMG/MMG 2,000 ---
Pistol/revolver 25,000-30,000 All (9mm, .32” and .22” caliber
Sporting rifles 12,000-15,000 ---
(Source: compiled by Q-Tech Synergy and EY from sources accessed between 1 and 15th June 2015)
Year Number of items Shortfall demand vs delivered %
Shortfall target fixed vs achieved %Demand A Target Set
Target achieved
Target missed
2009-10 605 434 300 134 50.50 30.88
2010-11 1016 639 416 223 60.0 34.90
2011-12 982 547 195 352 80.15 64.35
(Source: CAG Report No, 24 of 2011-12)
Indigenous production: arms and ammunition
The manufacturing of small arms and ammunition for armed forces/para-military forces/police is confined to the Department of Defence Production viz. Ordnance Factories (OFs). DRDO is responsible for the design and development of all major defence equipment, leading to the production of weapon systems and equipment. According to Report No. 24 of the Comptroller and Auditor General of India, Ordnance Factories have been lagging behind in their production program for ammunition and weapons. These figures though, reflect the overall position; however, it can be inferred that the targets have not been achieved, even with respect to the production of arms and ammunition.
Annual production OFB Small arms production capacity
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It is evident from above data that the OFB has not been meeting the requirement of defence services, and that private sector participation is needed to augment the capacity.
ImportIn view of the gap in design, development and production capability the Arms import on the average has been about INR33 billion (US$500 million) per year as shown below:-
Source: SIPRI data
India’s arms import
1200
In $
Mill
ion
20002001
20022003
20042005
20062007
20082009
20102011
20122013
2014
800
400
1000
600
200
0
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Name Type Origin Remarks
Glock 17 Semi-automatic pistol Austria Standard issue special forces (SF) pistol
Beretta 92 Semi-automatic pistol Italy ---
SIG Sauer P226 Semi-automatic pistol Germany Germany\Switzerland
Micro-Uzi Sub-machine gun Israel For use by SF
Heckler & Koch MP5 Sub-machine gun Germany MP5A3, A5, SD3 and SD6 models in service
Heckler & Koch Sub-machine gun MP5K Germany Shortened version of the MP5 used by SF
AKM Assault rifle Soviet Union AKM fixed stock and AKMS under-folding stock variants used
Arsenal Co. AR Assault rifle AK-47 Bulgaria Police and paramilitary forces; used in some quantities by Army as well.
MPi-KM Assault rifle MPi-KM-72 and MPi-KMS-72
East Germany Both Bakelite and wooden lower hand guard variants used
Pistol Mitralieră model 1990 Assault rifle Romania Romanian version of the AKM. Palmswell lower hand guard versions in use
AK-103 Assault rifle Russia ---
Vz. 58 Assault rifle Czechoslovakia Vz. 58 P fixed stock and Vz. 58 V side-folding stock variants used
IMI Tavor TAR-21 Assault rifle Israel 3070 purchased for the SF
M4A1 Carbine Carbine US Bought under FMS. For use by Army and SF
Dragunov SVD59 Sniper rifle Soviet Union Standard sniper rifle
IMI Galil 7.62 Sniper rifle Israel For use by Army and SF
Mauser SP66 Sniper rifle Germany Standard bolt-action sniper rifle
Denel NTW-20 Anti-material rifle South Africa Bought in small numbers
Gepard GM6 Lynx Anti-material rifle Hungary For use by the Indian Army and SF
PKM General purpose machine gun
Soviet Union Co-axial weapons in Russian produced for T-90S Bheeshma, T-72M Ajeya and BMP-2S Sarath. Also used by SF
Browning M2 Heavy machine gun US ---
NSV Heavy machine gun Soviet Union ---
KPV Heavy machine gun Soviet Union ---
Source: Compiled by Q-Tech Synergy and EY from sources accessed between 1 and 15th June 2015
Main imported: small arms
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In view of the gap in design, development and production capability, some of the major imports given in the table are in the pipeline.
Item Category Quantity Worth Source/competitors
CQB carbine
Indian Army
Buy and make
Tender issued:
Status: trials are over
44,618 carbines along with 33.6 million rounds of ammunition
INR 22-27.50 billion
(US$400-500 million)
IWI Israel
Italy’s Beretta
USA’s Colt
Sig Sauer
ToT and to license-build some 380000 - 400000 carbines. OFB is the production agency.
Light-weight assault rifles for Para-SF
Buy
RFI Issued: Jan 11
10,730 INR 3.85 billion
(US$70 million)
FN Herstal
Beretta
IMI
IWI
Heckler & Koch STK
7.62 mm light machine gun for Army
Buy
RFI Issued: Jan 10
TOEC underway
Qty: 4,400 Over INR 5.30 billion
(US$96 million)
Israel Weapon Industries (IWI)
Arsenal Bulgaria
12.7 X 99 mm /.50 heavy machine gun for Indian Army
Buy
RFI issued: Mar 10
Unspecified ---- Rosoboronexport (Degtyarev Kord 12.7 mm HMG)
General Dynamics (M806 HMG)
Browning M2E50
Source: Compiled by Q-Tech Synergy and EY from sources accessed between 1 and 15th June 2015
8 | Eye on Defence
Capability GapThe capability gap comprises four counts — Vintage design, design capability, production capability and heterogeneous inventory.
Our small arms holding is a mixed bag in terms of design, in the absence of own design/development capability. The inventory of small arms clearly reflects our inability to develop an indigenous next generation successor of small arms. This puts enormous pressure on logistics.
The OFB/DPSUs do not have the technology for delivering the next generation of small arms, and do not have the capability to produce the huge quantities required for replacement or making up the deficiencies. Despite an in-house requirement and assured orders, the design and production agencies have not been able to meet the forces’ huge requirement, which has resulted in India spending billions of dollars on small arms import.
Small arms have a life of about 20 years, depending on their uses and how well they are maintained. Taking the
overall requirement of small arms for the military and paramilitary forces to be less than three million and the life of the weapon as 20 years, as explained above, we need a production capability of approximately .015 million per year for the replacement cycle to ensure that the military is always equipped with the latest technology small arms.
With an annual production capacity of around .1 million small arms of all types against the required quantity for replacement, our existing production capacity is inadequate. The ordnance factories will be unable to meet even the annual replacement requirement of the military, not counting the requirements of the para military forces. With the existing production capacity of OFs, it will require more than three decades to produce the state of the art weapon and the required quantities to meet the modern day challenges.
Capital projects planned of land systems (2012-2027)
Resources projections (In INR billion)
Artillery 360
Missiles and missile systems 950
Tanks and tanks upgrade 1400
Arms for infantry 220
Helicopters 60
UAVs 60
Communication systems 750
Miscellaneous gear 1000
Raising of mountain strike corps (MSC)
700
Total 5,500
Tanks and Tanks Upgradel 25%
Missiles and Missile Systems 17%Miscellaneous Gear
18%
Communication System 14%
Artillery 7%Raising of mountain strike corps (MSC) 13%
Arms for Infantry 4%UAVs 1%
Helicopters 1%
Land systems breakdown 2012-2027
Source: Compiled by Q-Tech Synergy and EY from sources accessed between 1 and 15th June 2015
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Market opportunityThe Indian army plans on equipping its 362 infantry battalions, over 100 counter insurgency units and special forces with a modular, multi-caliber suite of small arms through imports and local licensed manufacture in one of the world’s largest such contracts, worth INR385-440 billion (US$7-8 billion). The army is on the lookout for better and state-of-the-art weapons for its Infantry to replace/augment its existing holdings.
The Futuristic Infantry Soldier System (F-INSAS) program is designed to equip Indian infantry soldiers with the most modern weaponry and equipment, including an advanced lightweight rifle, GPS receiver, helmet-mounted night-vision devices and handheld computers with instant access to information on the battlefield.
The program, which will be implemented in phases, is spread over the Twelfth, Thirteenth and Fourteenth five-year plans (2012-27). About 10 infantry battalions (each with 800-1,000 soldiers) are likely to be equipped by 2010-2015 for F-INSAS user trials. In the first phase, to be completed shortly, the infantry soldiers will be equipped with modular weapon systems that will have multi-functions. Though the plan was to implement F-INSAS across all the 362 infantry battalions by 2020, it has suffered some delays. The first phase then envisaged a cost of over INR275 billion ($5.5 billion). Just the mega project for new assault rifles, with interchangeable 5.56 mm and 7.62 mm barrels and holographic reflex sights to replace the 5.56 mm INSAS rifles being used, could alone run over INR220 billion (US$4.4 billion).
In addition to this, other smaller procurements have been on from MHA and specialized forces.
The paramilitary and police personnel will require around two Million small arms, worth over INR135 billion (US$3 billion) in the next 5-10 years. In due course, the forces are expected to employ the same weaponry as the army.
Issues and concernsQuality and cost: The INSAS AR project took nearly 15 years to bear fruit, and experts claimed that it was also not in consonance with modern engineering production techniques and was expensive, besides serious defects such as frequent breakdown of moving metal parts and cracks in its composite material and plastic magazines, due to bulging barrels. Priced at around INR18,000 each, it is expensive as compared to the imported ones.
Standardizing the inventory: We also need to standardize
our small arms caliber and ammunition to reduce the overall logistics. The defence and para military forces already have a very heterogeneous inventory, and since the 2008 Mumbai terror attacks, due to generous modernization budgets, Indian security agencies are relying less on domestic production of arms and more on modernization through imports. The products from different manufacturers have nothing in common in terms of ammunition, spares and training for performing similar security roles, thus making the Indian small arms inventory “a bowl of assorted weaponry.” Manufacturing small quantity of ammunition for the assorted inventory may not be cost effective and hence, will have to be imported. We need to have inter-operability (similar caliber and ammunition) of weapons across the defence and paramilitary forces.
Security concerns: Small arms also play a role in contributing to terrorism, insurgency, violations of human rights, drug trafficking, etc., through direct use or the threat of use. There are 95 firms licensed by the MHA, Government of India for the manufacture of guns (single barrel/double barrel) and 25 firms manufacturing cartridges (either blank or live cartridges or both) up to the quota permitted in their licenses. This stems from security concerns of pilferage vis-à-vis the manufacture of these systems, as well as the competition which OFB may face, should viable and sustained private sector participation take place. Indian security concerns relating to small arms and ammunition primarily stems from the growth of the illicit small arms, which are as follows:
• Illicit manufacture of country-made hand guns in large numbers at small scale industrial manufacturing facilities spread throughout the country
• Losses of arms and ammunition from government stocks
• Thefts from stocks of de-commissioned weapons and from inventories of seized weapons
• Weak inventory surveillance and reporting mechanism, not being mandatorily investigated
• Illicit smuggling of arms and ammunition across India’s international borders, with the major ingress routes being Jammu and Kashmir, the Maharashtra coastline and the North-East states bordering Myanmar and Bangladesh
Recently, an extensive security manual has been prepared by the Government in consultation with all the stake holders. The licensing authority must ensure that the security
10 | Eye on Defence
conditions discussed in this manual are fully complied with, before granting a license for the commencement of commercial production of firearms and ammunition. With the provisions being imposed on private industries, they too will ensure that no illicit manufacturing and proliferation takes place, and the industries will have to ensure the security concerns for their own reputation.
Way aheadThe technology involved in the manufacturing of small arms is not complex. The Government’s intent to allow private players to play a strategic role in manufacture of small arms will play a major role in defence indigenization, given they have a level playing field and competitive environment.
Public-private partnership has to be promoted by the Government to promote indigenization, to create the much needed defence industrial base and generate economic spin-offs. Of course, the necessary security and regulatory provisions can be insisted upon. Despite the concern, the effort to ramp up domestic small arms production is a step in the right direction to make the armed forces more self-reliant, for equipment is critical for a country seeking to play a larger strategic role.
References• “Recent Audit Reports”, CAG website, http://www.
saiindia.gov.in/english/index.html, accessed on 2 June 2015
• SIPRI Arms Transfer Database”, SIPRI website, http://www.sipri.org/databases/armstransfers, accessed between 1 to 10 June 2015
• “Small arms of the Indian State”, Indian-ava website, http://www.india-ava.org/fileadmin/docs/pubs/IAVA-IB4-small-arms-of-indian-state.pdf, accessed on 1 June 2015
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Realigning DPP to create an eco-system with futuristic outlookThere have been several revisions to the DPP from 2002 to 2013, based on the experience gained and the feedback from the users and the industry, and yet the procurement process continues to be cumbersome and prone to delay. The ongoing dialogue could go a long way in building enhanced confidence and trust in the MoD’s procurement procedures. The MoD has undertaken consultations in the past also, as the current “Make” procedures were based on recommendations of an inter-disciplinary group. However, a decade on, only a couple of projects under the “Make” category have been conceived so far. The MoD is reported to be in the process of reviewing the DPP yet again. While this is a welcome step, past experience shows that the effort remains largely confined to the micro issues at the cost of several macro issues that are also important from the point of view of expediting the procurement process. The Government has recently set up a 10 member committee to review DPP 2013. Headed by a former home secretary to the Government of India, Dhirendra Singh, it has experts drawn from different fields. Another IAS officer, Satish B. Agnihotri, who retired in February this year as Secretary, Coordination in the Cabinet Secretariat, had been a former Director General, Acquisition, in the Defence Ministry not very long ago. Air Marshal S. Sukumar, who retired a couple of months ago, was known as a specialist in procurement and acquisition throughout his long career in the Indian Air Force. Similarly, Lt Gen AV Subramaniam, an EME officer, recently retired as Director General, Weapons and Equipment from the Army HQ and has extensive knowledge about the obstacles in quick procurement and acquisition and so does former naval officer, Rear Adm. Pritam Lal, who too specialised in this segment at the Naval HQ.
An ex DRDO Scientist, Pralhada, retired Colonel KV Kuber, who has worked extensively with the Micro, Small and Medium Enterprises (MSMEs) over the past decade and Sujit Hardas, Deputy Director General of the CII’s Defence wing, make up the non-government component of the committee.
The committee has been asked to submit its recommendations within a fixed time frame. The terms of reference given to the committee are:
• Evolve a policy framework to facilitate “Make in India” in defence manufacturing and align the policy evolved with DPP 2013.
• To suggest the requisite amendments to DPP 2013, in order to remove the bottlenecks in the procurement process and rationalize various aspects of defence procurements.
While the report and Government acceptance on renewal of policy framework to facilitate “Make in India” in the defence sector is eagerly awaited, the expectations from the industry segment are to rationalize the procurement procedures and remove the bottlenecks for long term association.
The indigenous capability gap in the given geo-political scenario due to the continuing dependence on imports is a concern, and would mean a certain vulnerability to the technology denial regimes, and a variety of coercion that could render the imported hardware unserviceable. We need to ramp up the defence industrial capabilities in order to meet the security challenges, and to enhance operational preparedness, strategic autonomy and self-reliance. The objective of quest for self-reliance in defence preparedness is a source of strategic and economic edge. The industry being a vital stakeholder, as well as a key enabler in this national security paradigm, needs to play a greater role in capacity building to meet the challenges to our security.
India, with its own huge domestic requirements, availability of skilled work force, opportunities to export, and an environment where the industry leaders appear eager to collaborate, faces the challenge to create an eco-system conducive to strengthening the indigenous capabilities in design and development, manufacture, and the subsequent up-gradation of the equipment.
The policy and procedures should have a futuristic outlook with commensurate resource allocation. Defence procurement needs to be fully insulated from competitive pressures, by removing the inevitable distortion of competition by nomination. A need is felt to bring structural changes in MoD and appoint an independent nodal officer to look after the capability development irrespective of the public/private sector. The following measures are suggested to be adopted in the revised DPP to incentivize the growth of a domestic defence industry:
Categorization The DPP now mandates a preferred order of categorization and the next set of DPP reforms could therefore, focus on improved information-sharing protocols between the MoD and the Indian industry. Presently, five ways of categorization exist and four of them are similar to “Make in India.” However, we need to decide whether to focus on all four or one of them. It is suggested that the number of categories be reduced to only three for ease of doing business and these should be on the following lines:
• Make in India
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• Made in India
• Buy global
Make in India This will be applicable for all acquisitions presently covered under the “Buy Indian” and “Buy and Make Indian” initiatives, beside any other initiative that will cause manufacturing to happen in India, wherein a demonstrated capability already exists or can be created with ease by the industry; and furthermore, where the necessary industry can co-associate DRDO in the bid process. Also, the industry can take benefit of the technologies developed by DRDO, in similar programs or offshoot programs. This is to be achieved by facilitation of industries of other countries to set up shop in India, manufacture goods and sell within and outside the country. This will also include the operational necessity to procure the equipment in an expeditious manner, while a certain quantum of demonstrated capability is available in the country. The minimum specified indigenous content should be 50%, which could include design, raw material, manufacturing and other disciplines of production. This will incentivize MSMEs by encouraging/mandating the prime contractors to outsource at least 20% of the platform under development/production through them. To support the manufacturing sector, incentives for higher indigenous content must be provided.
Made in India This will replace the category of “Make,” and is capable of building our home grown industry to innovate and develop niche technology in core areas. Manufacturing and supply chain will be fully realized in India. Industries must be involved in the process from EOI/RFI stage onwards, till mass production. This will have more flexibility in terms of engagement at the supply chain level. Industry should have the first right of refusal for taking up “Made in India” projects.
Buy globalThis will subsume the present “Buy global” and “Buy and make global” with ToT. This should be on an Inter-Government route. Only those programs that cannot be procured through the “Make in India” or “Made in India” will be procured through this route.
Indigenous content The Government should also think of giving special weightage for indigenous design with local manufacturing content, instead of simply stating indigenous content. In a
“Buy global” procurement scenario, if an Indian company with indigenous design and with at least 75% indigenous content, clears the trials successfully but is not L1, the order should be split 50:50 with L1.
Procurement under No Cost Full Commitment (NCFC)Presently, most procurements by the MoD are on a “No Cost No commitment” (NCNC) basis, wherein it is not necessary that the procurement process will culminate in a contract/supply order. Some of the MoD procurement from the Indian industry should be carried out on an NCFC basis.
FDI: 49% v. 51% The FDI has been increased from 26% to 49%. However, there is a serious debate whether it should be 49% or 51%. With 26% FDI in defence till Budget 2014, the inflow has been abysmally low to the point of irrelevance. With 49 %, it is unlikely to be tangibly different, given that the disincentives associated with 26 % cap on FDI remain largely unaltered.
It is time we consider raising FDI limits to 51% and above in certain segments of defence technologies. The so-called provision to approve higher investment depending on the nature of technology to be transferred has never been approved for the private sector, especially given the unwillingness of existing suppliers to share key technologies without majority holding. One way of circumventing this difficulty would be to open up the sector for foreign investment.
Promoting defence exportBesides technology-linked FDI, the government must strive for scale economies, encouraging domestic players — public and private — to invest in capacities with an eye not just on India’s defence forces as clients, but also those of foreign countries. Defence equipment production is capital intensive and tying down suppliers to a single customer’s whims may not really result in adequate investment.
Restructuring defence production and acquisitionIn the whole process of defence production and acquisition, there are too many decision-makers. The offsets are the responsibility of DDP, which is more concerned with the production in the Government sector and not interested in creating capability. DRDO has its own turf to defend. The Government needs to decide who will have the lead role in the final decision in creating capability.
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Sharing the vision and plan The modernization vision and plan for defence equipment needs to be shared with the industry as stake holders, to provide them a macro vision. A realistic requirement generation process must necessarily be driven and dominated by a “demand-pull” approach rather than by a “technology-push” approach. Building capability is team work. To this end, consultation with the industry on Long Term Intigrated Perspective Plan (LTIPP)/ Annual Acquisition Plan (AAP) would go a long way, besides regular and mutually beneficial brain-storming sessions with the industry by the MOD and Services HQ. Adopt multi-year procurements for mature programs from the sources with demonstrated capability.
Private sector This point has been put forward in every forum by the private industries to provide competitive and parity in all Government facets. DPSUs and OFs have to be treated at par with private industries, and be made free from the Government’s policy constraints, if any. We need to identify capable Indian industries as national champions in each sector of defence manufacturing, which in turn will be overall integrators with similar facilities as the DPSU, on the lines of the Kelkar Committee recommendations. These champions will be dedicated developmental partners in defence products design, production and maintenance with their own supply chain.
Timelines Timelines have been defined in the present DPP for a project to fructify; however, these have not been adhered to even in a single case. This has to be stipulated for strict adherence and personnel responsible must be made accountable.
Creation of technology fundDeveloping defence technology is a costly affair and that too without commitment. Hence, a technology fund needs to be created by the Government to assist select private industries in defence R&D.
Offset The new draft offset policy 2015 proposes an outcome-based approach, and also seeks offsets for specific technologies, identified areas of manufacturing and skill development. Some of the suggestions of the private sector and for an OEM are as under:-
Offset applicability : The new draft offset policy meant only for “Buy global” category, should be extended to the “Buy and make” category also, where industry imports material from an OEM and makes in India, based on the transfer of technology, provided they value add at least 51% to the value of asset procured. It will keep the door open for an increase in the offset content, based on the requirement of defence forces at the time of requirement.
TOEC: The details of Indian Offset Partner (IOP)-wise work share, specific products and supporting documents indicating eligibility of IOPs should be asked at a later stage, once the L1 has been selected. The offset offers should also be asked from downselect with suitable checks and balances.
Obligations spread and timeframe: The MoD may prescribe a fixed quantum of offset discharges with the passage of period of performance, to ensure even distribution of work share in the offset period.
Discharge: Tier-1 suppliers should be allowed to discharge offset obligations on behalf of the foreign OEM for all offset contracts currently under execution, and they should be permitted to discharge offset beyond the extent of their work share. Permit tier-2 and IPR owner of subsystems to discharge offset, but not necessarily proportion to their share.
Group companies should be permitted to execute offset obligations on behalf of the contracting company. The objective once again is to enable OEMs in every possible way, to perform and deliver on offset commitments in a robust fashion, as opposed to restricting their ability to perform.
Value addition: A market-based approach to the Indian value addition requirement would be to incentivize higher levels of indigenous content, which in turn would incentivize sourcing of higher complexity work packages, thus increasing aerospace manufacturing volumes, and creating the conditions for raw material (fully imported) suppliers to invest in facilities in India.
ToT Related Issues: ToT should be made directly to the Indian industry/selected IOP rather than only to DRDO, who may then disperse the technology to unidentified industry participants, as it may create licensing rights issues and unacceptable commercial risk for the OEMs. Practically, OEMs do not possess all IPRs for platform-related
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technologies, as many of such vest with their Tier suppliers. ToT in select areas be made mandatory as offsets.
Creation of manufacturing capabilities: The Government should recognize the investment in JV or manufacturing facility of the domestic partner as an additional avenue to discharge the offset. Identify the parts/components/sub-components/sub-systems, etc., to be manufactured in India along with maintenance technology to be transferred to the Indian entity.
Skill development: The present policy puts skill development as an objective of the offset policy, but industry sources point out that skill development should be the outcome, rather than the objective. Recurring training costs should be creditable if funded by the vendor for associated party. Success criterions for the amount of training deliverable should also be considered.
Offset contract amendment: Any request of change of the IOP and offset component, etc., should be made automatic if the work package/IOP is pre-approved.
Buyer Nominated Equipment (BNE) under offsets: The MoD should approve acceptance of offset credit claims of OEM for sourcing BNE.
Services still held in abeyance: The MoD office memo dated 23 May 2013, holding services in abeyance until further orders, needs to be withdrawn with partial modifications.
Retrospective applicability: The offset obligations are governed by the DPP version, under which the RFP has been issued. The offset process has been refined over a period of time and the current policy need to be made applicable to ongoing cases retrospectively.
ConclusionIt is hoped that the new DPP, which the Defence Minister has promised would be out at the earliest and would tackle all these aspects. It is only through simplification, simultaneity and micro- management of disparate activities and unambiguous enunciation of the procedure that problems of retraction and delay can be surmounted. The MoD needs to focus on how to make it speedy and conclusive. None of this, however, will work unless the MoD encourages development of expertise in contract negotiation, as a part of a larger organizational restructuring of the capital acquisition mechanism.
The DPP needs to reflect the political thrust toward enhancing domestic procurement and boosting purchase of equipment from indigenously designed and developed sources. A sound defence industrial base still seems to be a distant reality. DPP provisions need to synchronize procurement and acquisition to be in tune with technology and cost effectiveness. LCC and up-gradation should be the central issue for all procurement, and preferably, it should be a long-term contract under capital acquisition.
16 | Eye on Defence
Request for information (April – June 2015)
Date of issue RFI detail/equipment Response date Issued by Remarks
5 June 2015 Construction of diving support craft
6 July 2015 The Principal Director of Ship Production
For IN
21 May 2015 Extended range (ER) rocket ammunition for 122 mm Grad BM-21 Multi Barrel
1 July 2015 Arty Dte For IA
8 May 2015 7.62 X 54 mm lead core ball ammunition of Dragunov sniper rifle
22 May 2015 Equipment Management Directorate,
For IA
1 May 2015 Land-based training facility (LBTF) for integrated platform management system (IPMS)
31 May 2015 Directorate of Marine Engineering
For IN
24 April 2015 Light bullet proof vehicle (LBPV)
29 May 2015 DGRR For IA
20 April 2015 War gaming and simulation center
15 Jun 2015 PD ASR For IAF
17 April 2015 Basic pilotless target aircraft (BPTA)
22 May 2015 DG Army
Air Defence
For IA
7 April 2015 Low level light weight radar Mark-II
30 April 2015 DG Army
Air Defence
For IA
17Eye on Defence |
Request for proposal (April – June 2015)
Date of issueRFP detail/equipment
Response date Issued by Remarks
5 June 2015 Nirbhay power cartridge
17 June 2015 ADE*Aeronautical Development Establishment
Issued By DRDO
30 May 2015 Aircraft refueller cartridges. Coalescer cartridge, Qty: 4 and Separator cartridge, Qty: 2
23 June 2015 STN CDR, 22 WING AF For IAF
15 May 2015 FRP single engine speed boat with 4 Stroke OBM, Qty: 43
24 June 2015 Procurement Cell) DG, BSF
For BSF
12 May 2015 IP surveillance system 12 June 2015 Defence Research & Development Laboratory
Issued By DRDO
11 May 2015 Life jacket (34) and life buoys (15)
26 June 2015 Frontier HQ BSF M&C For BSF
6 May 2015 Medium machine gun fire simulator,Qty: 8
9 June 2015 Directorate General, Border Security Force
For BSF
6 May 2015 Gun powder for 155 mm ammunition
15 May 2015 Ordnance Factory, Dehu
Issued By OFB
6 May 2015 Laser goggles and accessories
20 May 2015 Aeronautical Development Establishment
Issued By DRDO
6 May 2015 Medium range chaff rocket (MRCR)
29 May 2015 Ammunition Factory, Kirkee
Issued By OFB
30 April 2015 NBC suit 20 May 2015 Defence Bio-Engineering & Electro Medical Laboratory
Issued By DRDO
28 April 2015 Aerostat radar, Qty: 1 21 May 2015 Directorate of Procurement Foreign Purchase Wing (W)
For IAF
28 April 2015 Metal components of mechatronic fuse
4 June 2015 Terminal Ballistics Research Laboratory
Issued By DRDO
27 April 2015 Deep search metal detector (DSMD), Qty: 03 Nos.
21 May 2015 CRPF, Amrabati, For CRPF
27 April 2015 Integrated plant for manufacture of 9 mm, cartridge case
10 July 2015 Ammunition Factory, Khadki
Issued By OFB
27 April 2015 Half body suit, Qty: 10 11 Jun 2015 NSG Hehram Nagar For NSG
18 | Eye on Defence
Request for proposal (April – June 2015) (cont’d.)
Date of issueRFP detail/equipment
Response date Issued by Remarks
25 April 2015 Integrated plant for manufacture of 5.56 X 45 mm cartridge cases
3 July 2015 Ammunition Factory, Khadki
Issued By OFB
20 April 2015 Bullet proof watch tower
15 May 2015 Security Officer Air Force Station Awantipur
For IAF
17 April 2015 Bullet proof jacket, Qty: 50,000
19 May 2015 Dir OS GSandC – Army For IA
13 April 2015 Fuze holder DPK1-1, FUSE PTS-30-1, junction box, connector
30 April 2015 OFB, Industrial Area Phase I Chandigarh
Issued By OFB
15 April 2015 NI-based test bed with target environment simulator for IMR SAR – sensor
7 May 2015 Defence Research & Development Laboratory
Issued By DRDO
13 April 2015 Integrated communication system Qty: 6
29 May 2015 DG NSG For NSG
13 April 2015 Bullet proof harness with shoulder pad, Qty: 4600
15 May 2015 DIG (PROV) For BSF
10 April 2015 Ballistic helmet Qty: 6478
18 May 2015 GOC-in-C, Northern Command
For IA
8 April 2015 Combustile cartridge, Qty: 800
30 April 2015 Armament Research & Development Establishment
Issued By DRDO
7 April 2015 Wind direction and speed sensors, Qty: 2
28 April 2015 Directorate of Meteorology, Air Headquarters
For IAF
1 April 2015 RF Analyzer hand held (4-6 GHz)
26 May 2015 Joint Director EME(Eqpt)
For IA
19Eye on Defence |
List of Industrial Licenses filed for March – April 2015
Application no. and date
Name of the applicant Item of manufacture
36
30/04/2015
M/S Avantel Ltd. Design, development and manufacture of radio communication systems covering HF,VHF,UHF, etc.
35
27/04/2015
OIS Advanced Technology Pvt. Ltd. VTOL Tactical UAS
34
23/04/2015
NECO Defence System Ltd. Unmanned aerial systems
33
17/04/2015
DCX Cable Assemblies Pvt. Ltd. Submodules for communication antennas
32
16/04/2015
M/S Shan Arm Industries Pvt. Ltd. Ammunition, 10 mm and above, and those not covered under small arms and ammunition
31
10/04/2015
Ideal Industrial Explosives Ltd. Manufacture of S.M.S/S.M.E Explosives.
30
09/04/2015
M/s Tebma Shipyards Ltd. Design and construction of naval warships, naval support ship, submarines, underwater vessels, diving
29
09/04/2015
M/s Vem Technologies Pvt. Ltd. Explosives integration facility
28
09/04/2015
M/s Vem Thechnologies Pvt. Ltd. Unmanned aerial systems
27
06/04/2015
M/S Adani Defence Systems & Technologies Ltd.
Helicopters
26
06/04/2015
M/S Ideal Industrial Explosives Ltd. Manufacturing of SMS/SME explosives
25
27/03/2015
Himachal Futuristic Communications Ltd.
Armored or protective equipment
24
20/03/2015
M/S Aviahelitronics Infosystems Pvt. Ltd.
Rocket motors and warhead part, nozzle and fin assembly, motor tube and obturator
23
12/03/2015
OIS Advanced Technology Ltd. Artillery guns (155 MM X 52 caliber)
22
02/03/2015
M/S Aileni Venkateshwar Reddy Detonators (all types of), detonating fuse, slurry, emulsion, bulk, SME, ANFO, styphnic acid, metal cladding powder, PETN, cast booster
21
02/03/2015
M/S Elcom Innovations Pvt. Ltd. Radar of all types and parts thereof, electronic equipment used for surveillance, intelligence, command and control system
20
02/03/2015
M/S Regenesis Industries Pvt. Ltd. Detonating fuse, PETN, styphnic acid, cast booster, NHN, detonators, slurry, emulsion explosives
20 | Eye on Defence
New projects/investments/contracts
Name of entity Project details Value*
Indian Navy, Larsen & Toubro (L&T) and Pipavav Defence & Offshore Engineering Company
• ► The Government of India (GoI) has selected L&T and Pipavav to build six conventional submarines for the Indian Navy.
• ► The project will come under the “Buy and Make (India)” category, wherein Indian companies will tie-up with foreign players to obtain the required technology.
• ► The potential foreign submarine contenders in the race for the project are French DCNS “Scorpene,” Russia’s Rubin Amur 1650, the German HDW Type 214 and Spain’s Navantia S-80.
INR530 billion
Goa Shipyard Ltd. (GSL)
• ► GSL bagged an order to build 12 Mine Counter-Measure Vessels (MCMVs) for the Indian Navy. It is currently scouting for foreign companies for the technology transfer required to create these high-tech ships.
• ► It is looking for required technology from foreign countries such as Russia, Spain, Sweden, Italy and Korea.
INR320 billion
Indian Navy • ► Indian Navy is planning to procure 100 new-generation naval utility helicopters (NUH) to replace its obsolete fleet of Chetak helicopters.
• ► The possible contenders for the NUH program are AS565 MBe of Airbus, Bell Helicopters-429 and Super Lynx 300 of AgustaWestland.
• ► The selected foreign helicopter manufacturer will collaborate with private Indian players such as Tata Advanced Systems, Bharat Forge, Mahindra Aerospace, Reliance Defence & Aerospace, and L&T to manufacture NUH.
INR120 billion
Indian Air Force (IAF), Airbus and Tata Sons
• ► India’s Defence Ministry approved the purchase of 56 units of Airbus C295 transport planes to replace IAF’s ageing fleet of Avro aircraft.
• ► Airbus will supply the first 16 units of the C295 planes in “flyaway” condition, while it will manufacture and assemble the remaining 40 units in India through partnership with Tata Advanced Systems (TAS).
INR112.2 billion
Indian Army • ► The Indian Army plans to procure six new regiments (108 units) of the indigenous Pinaka Multi-Launcher Rocket System (MLRS), capable of flattening a 3.9 sq km area at a range of 40 km in less than a minute.
• ► Being the primary manufacturers of the mobile artillery system, Tata Power’s Strategic Engineering Division (SED), L&T and state-run Bharat Earth Movers (BEM) may get a major share of the contract.
INR19.5 billion
L&T • ► L&T own a contract from the Ministry of Defence for the design and construction of a floating dock for the Indian Navy (FDN) at its Warship Design Center.
• ► The floating dock will be capable of docking naval ships and submarines during day and night, and is expected to significantly augment support infrastructure of the Navy for docking of warships and submarines for repair and refit.
INR4.7 billion
Indian Navy and Defence Research and Development Organisation (DRDO)
• ► DRDO is developing a short-range surface-to-air missile (SRSAM) for the Indian Navy. The new missile will be canister-based, with a vertically-launched system suitable for naval ships, which can hide in the ship’s dock and escape enemy surveillance radars.
NA
21Eye on Defence |
Name of entity Project details Value*
IAF and DRDO • ► The Defence Acquisition Council (DAC) has cleared DRDO’s project to build two next-generation AWACS (Airborne Warning and Control Systems) to detect incoming aerial threats such as hostile fighters, drones and cruise missiles from 400 km distance.
• ► Initially, eight such aircraft will be inducted under this project, of which the first two will take up to seven years to build, and the remaining six will be ordered when the project is mid-way.
• ► IAF and DRDO will share the cost on an 80:20 basis.
NA
New projects/investments/contracts (cont’d.)
*The values of the deals have been converted to Indian Rupees using the conversion rate1US$ = INR60.
Sources:
1. “L&T, Pipavav shortlisted for Submarine project”, The Financial Express, 12 March 2015, via Q-tech Synergy Newsletter
2. “GSL scouting for foreign partner to build MCMV”, The Economic Times, 21 March 2015, via Q-tech Synergy Newsletter
3. “India set to scout for 100 naval choppers”, The Times Of India, 29 April 2015, via Q-tech Synergy Newsletter
4. Niharika Mandhana ,“India Approves Purchase of 56 Airbus C295 Transport Planes”, Dow Jones Top Global Market Stories, 14 May 2015, via Factiva
5. “Tata Power, L&T to supply mobile artillery system to the Army; contract yet to get defence ministry approval ”, The Economic Times, 1 May 2015, via Q-tech Synergy Newsletter
6. “India developing its own short-range surface-to-air missiles for navy”, DNA, 15 April 2015, via Q-tech Synergy Newsletter
7. “DAC approves to build two AWACS”, The Times Of India, 29 March 2015, via Q-tech Synergy Newsletter
8. “L&T to construct Floating Dock for Indian Navy”, Business Today, 3 June 2015, via Q-tech Synergy Newsletter
22 | Eye on Defence 22Eye on Defence |
Joint ventures and alliances
Name of the entities
Nature of transaction Value
Hindustan Aeronautics Limited (HAL) and Saab Grintek Defence
• ► HAL signed a deal with South Africa based Saab Grintek Defence for integrated self-protection systems on the indigenously developed Dhruv Advanced Light Helicopters.
• ► The integrated self-protection systems (IDAS) will provide timely warnings against radar, laser and infrared guided threats and will automatically deploy appropriate countermeasures.
INR4.8 billion
Hindustan Shipyard Ltd. (HSL), Visakhapatnam and Hyundai Heavy Industries (HHI)
• ► HSL will partner with South Korean major HHI to get high-end technological assistance in warship construction. This will bring down the time-frame for construction of warships from five years to two years.
NA
HAL and BAE Systems
• HAL has signed an MoU with BAE Systems for the up-gradation of Hawk Mk132, development of combat Hawk for Indian and export markets and maintenance solutions for supporting Jaguar and Hawk fleet.
NA
Sources:
1. “India signs 80m-dollar defence deal with South African companies”, BBC Monitoring South Asia, 1 April 2015, via Factiva
2. Shishir Gupta, “Make in India: Korean major Hyundai to build warships in India”, Hindustan Times, 20 May 2015, via Factiva
3. “HAL signs MoU with BAE Systems for Hawk Mk132 upgrade”, The Economic Times website, economictimes.indiatimes.com/news/defence/hal-signs-mou-with-bae-systems-for-hawk-mk132-upgrade/articleshow/47429223.cms, accessed 16 June 2015
23Eye on Defence |
Country-level deals and initiatives
Country Nature of transaction Additional details
France • ► India will purchase 36 Rafale jets from France in ready to fly condition through a government-to-government deal worth about US$4billion.
• ► France has offered India to sell these fighter jets at the price it pays to French defence major Dassault Aviation to equip its own Air Force.
• ► The price per aircraft not only includes its own cost but also that for maintenance, training of pilots and technicians, armaments and spares.
France • ► India and France completed 10-day naval exercise “Varuna” that saw 12 Rafale fighter jets in action off the Goa coast, along with a host of naval assets of both countries.
Israel • ► DRDO is partnering with Israel Aerospace Industries (IAI) to develop an advanced version of the Israeli Barak missile system for an estimated cost of INR90 billion.
• ► The missile system will have a range of 50 kms (31 miles) along with multi-function surveillance and threat-tracking radar components.
• ► Once the system is developed by DRDO-IAI, Hyderabad-based Bharat Dynamics Limited (BDL) will take charge of the mass production of the systems.
Russia • ► Russia is offering to lease a Project 971 Shchuka-B submarine to India for a period of 10 years.
• ► The submarine may be either K-322 Kashalot or any another submarine of the Chakra class.
• ► The submarine will be customized by Russia based Amur shipyards.
• ► The modernization and testing of the submarine, and training of the Indian crew will take three years.
Afghanistan • ► India has delivered three HAL Cheetah helicopters along with allied equipment to Afghanistan as part of the defence cooperation between the two nations.
The US • ► India is expected to sign a US$2.5 billion deal for 22 AH-64E Apache and 15 CH-47F Chinook heavy-lift helicopters during the US Defence Secretary Ashton Carte’s visit.
• ► The Apache deal will be a “hybrid one”, with one contract to be signed with Boeing for the helicopter and the other with the US government for its weapons, radars and electronic warfare suite.
The US • ► India and the US have framed a new agreement on defence cooperation under the Defence Technology and Trade Initiative (DTTI), for co-development and co-production of unique and exceptional technologies of mutual interest.
• ► The framework envisages joint development and manufacture of defence equipment and technology including jet engines, aircraft carrier design and construction.
The US • ► DAC has cleared a deal to procure howitzers from the US through a government-to-government agreement via Foreign Military Sales (FMS) route.
• ► The deal involves acquisition of 145 pieces of M777 ultra-light howitzers worth INR29billion made by BAE Land Systems in the US.
24 | Eye on Defence
Country-level deals and initiatives (cont’d.)
Country Nature of transaction Additional details
Germany • ► German defence minister, Ursula von der Leyen met India Defence minister, Manohar Parrikar as both the ministers called for closer defence ties between two countries.
• ► Cooperation between the armed forces of the two countries, Germany’s collaboration in the “Make in India” initiative in the defence sector and supply of state-of-the-art equipment/technology were some of the prominent issues discussed in the meeting.
• NA
South Korea
• ► India and South Korea signed seven agreements to boost bilateral ties.
• ► The agreements cover a number of areas of mutual interest, including avoidance of double taxation and formalizing consultations between the National Security Councils of the two nations.
• ► The agreements will upgrade the strategic partnership between the two countries and deepen their cooperation in defence.
Thailand • ► India and Thailand are considering the formation of a joint production and development venture in Thailand for the defence sector.
• ► Though the details of the venture have not yet been finalized, the two parties can start with manufacturing explosives, small systems and defence equipment that the Indian Ordnance Factory Board (OFB) currently manufactures.
Sources:
1. “Indo-French naval exercise ‘Varuna’ begins”, Press Trust Of India, 23 April 2015, via Factiva
2. “France offers 25% discount to India on purchase of 36 Rafale jets”, The Times Of India, 7May 2015, via Factiva, (c) 2015 The Times of India Group
3. “India, Israel rev up defence ties with mega missile deal”, The Times of India, 21 May 2015, via Factiva, © 2015. Bennett, Coleman & Co., Ltd.
4. “Russia ready to lease second submarine to India”, Russia & CIS Business and Financial Newswire, 27 March 2015, via Factiva
5. “India delivers multi-role Cheetah helicopters to Afghanistan”, Pajhwok Afghan News, 24 April 2015, via Factiva
6. “India, US framed new agreement for defense cooperation”, The Economic Times, 13 March 2015, via Q-tech Synergy Newsletter
7. “India, US may sign $2.5 billion deal soon”, The Economic Times, 17April 2015, via Q-tech Synergy Newsletter
8. “Nod to buy 145 howitzers from US”, The Telegraph, 14 May 2015, via Factiva, © 2015. ABP Pvt. Ltd.
9. “Indo- German defense ministers meet next week”, Deccan Herald, 20 May 2015, via Factiva, © The Printers (Mysore) Private Ltd.
10. “India, South Korea ink seven pacts to boost cooperation”, Times Of Oman, 18 May 2015, via Factiva, © 2015 Times Of Oman
11. “India–Thailand likely to form joint venture in defense production”, The Economic Times, 20 March 2015, via Factiva
25Eye on Defence |
26 | Eye on Defence
Industry buzz
India successfully test-fires Astra missileIndia successfully test-fired the Astra missile from Su-30 MKI fighter jet in developmental trials conducted at the Integrated Test Range in Chandipur, Odisha. This is the seventh developmental trial of the Astra missile, which is expected to be inducted by 2016. The missile is technologically more sophisticated than the nuclear capable Agni missile series of strategic ballistic missiles, with a maximum range of 110 km in a head-on chase and 20 km in a tail chase.
(Source: “Astra missile successfully test-fired again”, The Hindu, 22 May 2015, via Factiva)
India test-fires nuclear-capable Dhanush ballistic missileIndia successfully test-fired its nuclear-capable Dhanush ballistic missile which is a surface-to-surface naval variant of India’s indigenously-developed Prithvi missile. It is one of the five missiles developed by DRDO under the Integrated Guided Missile Development Program (IGMDP), with a strike range of 350 km from a naval ship off the Odisha coast. The induction of the missile is already commenced by the Indian armed forces.
(Source: “India successfully test-fires nuclear-capable Dhanush ballistic missile”, The Economic Times, 16 April 2015, via Q-tech Synergy Newsletter)
Indian Army faces ammunition shortage According to the CAG report, the Indian Army is facing ammunition shortage to the extent that the present ammunition reserves will barely last 20 days of intense fighting. To be on the safe side, the army needs to build up their war wastage reserves for 40 days of intense fighting. The report further states that INR35.7 billion worth of ammunition is lying in segregated condition after being involved in accidents, INR16.1 billion worth of ammunition is rejected by the Army due to defects and INR8.1 billion worth of ammunition has been declared unserviceable due to poor quality, while ammunition worth INR21.1 billion is awaiting repairs.
(Source: “Indian Army facing ammunition shortage”, The Hindustan Times, 9 May 2015, via Q-tech Synergy Newsletter)
Dhanush artillery gun successfully clears field trialsDhanush, a 155 mm, 45-calibre artillery gun, has successfully cleared its field trials and is ready for manufacturing. The India’s Ordnance Factory Board (OFB) has built Dhanush from manufacturing blueprints supplied to India by the Swedish company Bofors. OFB will likely
receive an order for building 114 Dhanush guns from the Indian Army, to equip six artillery regiments.
(Source: “Dhanush successfully clears field trials”, Business Standard, 27 April 2015, via Q-tech Synergy Newsletter)
India’s first indigenous aircraft carrier undockedIndia undocked its first indigenously-built aircraft carrier INS Vikrant at the Cochin Shipyard. The ship will undergo a series of fitment and trial processes before it is ready for propulsion and inducted into the Navy. The aircraft carrier is a modified Kiev-class aircraft carrier, which was purchased by India from Russia for the Indian Navy in 2013. The successful completion of the 40,000 ton aircraft carrier puts India in the elite group of four nations capable of designing and constructing aircraft carriers - the US, Russia, the UK and France.
(Source: “India’s first indigenous aircraft carrier INS Vikrant undocked”, The Economic Times, 10 June 2015, via Q-tech Synergy Newsletter)
INS Vikramaditya to get Air Defence System soonThe Indian Navy is planning to install an air defence system on its aircraft carrier INS Vikaramaditya. It will transfer an Israeli Barak missile system from a Godavari-class ship to INS Vikramaditya. The aircraft carrier is a modified Kiev-class aircraft carrier, which was purchased by India from Russia for the Indian Navy in 2013.
(Source: “INS Vikramaditya to get Air Defence System soon”, Zee News, 16 April 2015, via Q-tech Synergy Newsletter)
India launches the first indigenously-built Scorpene submarineAfter years of prolonged delays, India finally launched the first indigenously-built Scorpene submarine. After going through extensive harbor and sea trials, it is expected to be commissioned in September 2016 at MDL, Mumbai. Another five submarines will roll out from MDL at intervals of nine months each after the commissioning of the first submarine. All the six submarines will be indigenously built at MDL, Mumbai through technology transfer from French firm DCNS at the cost of INR235.6 billion.
(Source: “India launches the first indigenously-built Scorpene sub”, The Times of India, 6 April 2015, via Q-tech Synergy Newsletter)
Navy to launch indigenous destroyerIndian Navy is planning to launch a new stealth destroyer INS Visakhapatnam likely to be inducted in 2018. The 7,300 tones INS Visakhapatnam will be the largest destroyer commissioned by the Indian Navy. A major portion (65%) of the ship is indigenously built with total cost of the project
27Eye on Defence |
expected to be around INR296billion.
(Source: “Navy to launch indigenous destroyer”, The Hindu, 16 April 2015, via Q-tech Synergy Newsletter)
India applies for membership of Missile Technology Control RegimeIndia has applied for the membership of Missile Technology Control Regime (MTCR), a West-dominated elite club of 34 countries that controls trade in missile and space technology. India’s space and missile programs will gain from the MTCR membership, since it will get access to world-class technology. The MTCR membership will also allow India to export its own technology to countries that comply with the regime.
(Source: “India applies for membership of Missile Technology Control Regime that controls missile & space tech”, The Economic Times, 11 June 2015, via Q-tech Synergy Newsletter)
MoD to consider Industry suggestions for new DPPTo simplify the DPP, the MoD has formed a committee consisting of MoD officials and industry members representing FICCI, CII and ASSOCHAM, three prominent industry bodies of India. The Government is brainstorming on easing the blanket ban on blacklisted firms and formalizing the engagement of middlemen in procurement. Furthermore, to make the process of defence procurement transparent and easy, the new DPP is likely to accommodate concerns of the indigenous industry players.
(Source: MoD to consider Industry suggestions for new DPP, DNA India, 3 June 2015, via Q-tech Synergy newsletter)
GoI extends industrial license validityThe GoI extended the initial validity of industrial licenses to seven years from the earlier three years. The license can be further extended by another three years, giving a decade’s time for companies to start manufacturing. This step was taken keeping in mind the long gestation period of defence contracts.
(Source: “Industrial License validity extended to seven years”, The Economic Times, 30 April 2015, via Q-tech Synergy Newsletter)’
GoI withdraws duty exemptions in defence production for DPSUs To put the Indian private sector and foreign players at par with the public sector players, the GoI has issued a notification to withdraw the excise and customs duty exemptions enjoyed by the Ordnance Factory Board (OFB) and Defence Public Sector Units (DPSUs) in the defence sector. The initiative will attract the foreign OEMs to tie up with private players and on the other hand, it will open up possibilities for smaller Indian private players who can be
sub suppliers and contractors for larger military contracts.
(“India scraps duty exemptions in defence production for public sector to attract foreign companies”, The Economic Times, 2 June 2015, via Q-tech Synergy Newsletter)
Under-utilization of defence budgetIn 2014-15, the Defence Ministry utilized only 87.2% of the revised allocation of INR2.2 trillion, which is the lowest utilization of the defence budget in the past six years. Last year, only INR54 billion were spent for procuring new items, while INR611.5 billion went into paying for previously signed contracts. This year, INR60.7 billion has been allocated for new items while INR713.3 billion will go toward already committed liabilities.
(Source: “Underutilization of defence budget”, The Indian Express, 2 May 2015, via Q-tech Synergy Newsletter)
Delhi and Mumbai to get nuclear missile shieldThe GoI is planning to give nuclear missile shield cover to Delhi and Mumbai. Initially, it will place two long-range missile-tracking radars called Swordfish developed with Israeli assistance in Delhi. When completed, the shield will be able to intercept missiles fired from as far as 5,000 km away. Mumbai will be the next Indian city to get covered by these radars. The government has also cleared a project to approve setting up of a US$1 billion facility in DRDO to manufacture vital seeker systems, which direct missiles in the final phase of targeting.
(Source: “Delhi, Mumbai to get nuclear missile shield”, The Economic Times, 4 April 2015, via Q-tech Synergy Newsletter)
DRDO’s new device to track snipersDRDO has developed a device, the Optical Target Locater (OTL) to identify snipers. The device can detect passive or active optical threats like telescopes, binoculars or the telescopic sight of a sniper rifle. It is a laser-based portable surveillance device which functions on the cat’s eye effect. It releases a laser beam, which scans a designated area and as soon as it hits any optical target, back-scattered energy is released and the target is detected.
(Source: “DRDO’s new device to track snipers”, The Times of India, 14 April 2015, via Q-tech Synergy Newsletter)
Adani group to foray into defence manufacturingThe Adani group has incorporated a new company named Adani Defence Systems and Technologies Ltd (ADST), to enter defence manufacturing in India. ADST will primarily focus on manufacturing helicopters for the GoI. The company’s decision is in line with the “Make in India” initiative to encourage private participation in defence manufacturing.
(Source: “Adani to foray into defence manufacturing”, The Times of India, 19 May 2015, via Factiva)
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28 | Eye on Defence
Why choose Team EY?
Unique Team Experience Offset Structuring Industrial Connects End to End Solutions
• Team member was a part of the team that wrote the Indian Defence Offset policy in 2006.
• Team member founded the DOFA.
• Team member has written a complete book on Offsets with the CII.
• Offset Structuring worth US$ 3.7 Bn executed successfully.
• Total experience of 66 man years in the Armed Forces.
• MoD experience of 14 man years.
• Team has members from the Auto practice-India’s only proven manufacturing competence
• We have offices in Bangalore; Pune Hyderabad & Chennai where these manufacturing and IT capabilities reside
• Industrial License Application
• FIPB approval
• Due-diligence services
• Transaction Advisory for M&A
• Tax Mitigation in offset contracts
• Creation of a compliant Offset Schedule
• Quarterly Offset progress report
Unparalleled Support & Advantage for OEM’s & Indian Companies
29Eye on Defence |
30 | Eye on Defence
Services offering – Tax & Regulatory
Contract negotiation stage
Post contract signing support
Other Compliance
and AdvisoryPre bid stage1 2 3 4
► Review the clauses of RFP in order to highlight the clauses/terms from a tax & regulatory perspective.
► Suggest alternative approaches where necessary
► Advising on tax issues Association of Persons ('AOP') exposure under the consortium model and suggesting adequate safeguards.
► Identification of a suitable business model.
► Formulate appropriate tax positions
► Back End advise on tax and regulatory clauses in the bid negotiation with the objective of optimizing the tax & regulatory implications.
► Responding to queries pertaining to any tax or regulatory issues which may arise during the discussion stage
► Assistance in set up of the agreed upon business model.
► Advise on subcontracting/ local purchase arrangements from tax and commercial perspective
► Formulate appropriate tax positions
► Plan for advance ruling for upfront certainty/ clarity
Serv
ices
Off
erin
gSu
ppor
t at
eve
ry
stag
eContracting Process
► Corporate tax and indirect tax compliance
► Accounting services► Background check
(Fraud investigation) on viability of the chosen Indian Offset Partners (IOP’s)
► Foreign Investment Promotion Board (FIPB) & Industrial License (IL) application and clarifications for IOPs
Impo
rtan
ce ► Develop certainty with respect to impact and incidence of direct and indirect taxes in India
► Establishment of a tax efficient and regulatory compliant structure in India
► Compliance with ever evolving tax and regulatory regime in India
► Upfront identification of tax and regulatory implications under the RFP
Services offering - Defence Offset
Bid Stage Contract negotiation stage
Post contract signing support
Pre bid stage
1 2 3 4
Offset process► Help evolve an
understanding of the offset process and stakeholders
Indian offset partners(IOPs)► Identification of IOPs (M&A
/ JV / Licensed Manufacture / Sourcing)
► Clarification from DIPP/FIPB/MoD regarding their regulatory status
Support services► Industrial Licensing for
IOPs► IOPs financing► Joint venture structuring
Offset Proposal► Identification of methods
of offset discharge► Structuring/vetting of
Technical and commercial offset proposals
► Support in answering the queries of the MoD
Indian offset partners(IOPs)► Structuring contractual
arrangements with IOPs ► Valuation of offset
attributable► Financial & Background
due diligence of IOPs
► Continuous support through on call advisory
► Support in preparation of appropriate responses to MoD queries
► Identification of stand by IOPs in case of removal of existing ones
► Any other support as maybe required.
Serv
ices
off
erin
gSu
ppor
t at
ever
y st
age
Contracting process
► Support in compiling documentation required for offset discharge
► Support in preparation of quarterly / half yearly reports on fulfillment of offset obligations.
Impo
rtan
ce
► To ensure a suitable Technical and commercial offset plan that should find favour with the TOEC and the CNC.
► Support in getting the technical offset proposal approved in time so that it does not obstruct main contract signing
► Continued support for offset execution to avoid penalties and loss of faith with the MoD
► Evolve understanding of offset process amongst the core team for optimal planning
► Identification of eligible and viable IOPs who can sustain through the duration of the offset program
► Planning for submission► Identifying the right
partners and methodologies
► Getting the documents right for submission
► Building the right offset program
► Getting the optimum economic value for offsets
► Documentation of offset execution
Our offices in India
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For more information , please contact:
K. Ganesh RajPartner and LeaderAerospace and Defence PracticeErnst & Young Pvt. Ltd.Tel: + 91 120 671 7110Email: [email protected]
Udit NarulaSenior AssociateCorporate Finance Strategy Aerospace & DefenceErnst & Young Pvt. Ltd.Mob: + 91 9654452626Email: [email protected]