‘Strategic Partners’ in Defence Production

After a delay of 14 months, the Cabinet Committee on Security cleared the “broad contours” of the government’s policy approach on strategic partners for collaboration between Indian and foreign companies for joint military production. Like its predecessor, the Congress-led government which granted “Raksha Udyog Ratna” status to 12 private sector companies for preferential treatment in military procurement, the Bharatiya Janata Party (BJP)-led government too was to provide a list of “Strategic Private Partners” (SPPs) two years back. When the Defence Procurement Policy (DPP) was announced in Goa on 28 March 2016, it was without Chapter 7 which was to deal with “Strategic Partners.” This was because of differences over the criteria for selecting private corporate business houses. The pattern of piecemeal announcements continues under the Narendra Modi-led government and so does the recourse to partial steps. For instance, the most critical part, namely, the regulatory regime for strategic partners and joint ventures remains conspicuously absent. Also missing was the penalty provision in the event of delay or default for such joint ventures.¹

Four segments have been identified for strategic partners—submarines, fighter jets, helicopters, and armoured vehicles and tanks. Defence Public Sector Undertakings (DPSUs) are barred from bidding for fighter jets and helicopters. Moreover, it remains to be seen if they will be selected for bidding for submarines and armoured vehicles and tanks, given the ideological bias against the public sector. From a shortlist of six strategic partners applying for each segment, one strategic partner will be selected for each segment and two or more Original Equipment Manufacturers (OEMs) identified for each segment. Companies must have a turnover of at least ₹4,000 crore over the last three fiscal years, capital assets of at least ₹2,000 crore, demonstrable manufacturing and technical expertise, and the infrastructure and ability to absorb technology from the foreign partner. Foreign OEMs will be selected on the basis of the “range, depth and scope” of the technology they are willing to transfer. Indian industry partners will “tie-up” with OEMs to “seek technology transfer and manufacturing know how to set up domestic infrastructure and supply chains.”² Of course, there are companies such as Bharat Forge, Larsen & Toubro, Tata Power, Mahindra and a few others who have been suppliers to the military and have acquired a degree of in-house expertise. But compared to the OEM behemoths, they remain marginal players, and are less qualified than DPSUs in every respect where in-house expertise in military production is concerned.