By Amit Cowshish,
Desperate to arrest the sharply declining strength of its fighter squadrons -currently down to 30 against the sanctioned strength of 42- the Indian Air Force (IAF) is reported to be keen on adopting a proven mode of procurement for acquiring 110 Medium Multi Role Fighter Aircraft (MMRCA), instead of persisting with the complex Strategic Partnership Model (SPM) of acquisition under which no contract has been awarded so far.
In April 2015, Prime Minister Narendra Modi took everyone by surprise while on a visit to Paris by announcing that India would buy 36 Rafale fighter jets from France in a fly-away condition. This ended the deadlocked negotiations with France’s Dassault Aviation for outright purchase of 18 fully formed Rafale MMRCA and production of another 108 in India through technology transfer. But since it was only a stop-gap arrangement, IAF initiated a fresh proposal soon thereafter to buy another 110 MMRCA under the SPM.
Introduced in 2016, SPM aims at making India a manufacturing hub for aircraft, helicopters, submarines, and armoured fighting vehicles. This modelenvisages shortlisting of foreign platforms which meet the armed forces’ operational requirements by the by the Ministry of Defence (MoD) and, in a parallel process, shortlisting of the Indian companies which have the potential to tie up with the manufacturers of the shortlisted platforms and bid for the deal to manufacture the platform in India.
Originally, SPM was intended to create additional manufacturing capacity in the private sector in addition to the capacity that already existed in the public sector, but the idea was abandoned last July when MoD issued the Request for Proposal (RfP) for construction of six conventional diesel-electric submarines (SSKs) under Project 75I (India) to two shortlisted prospective Indian Strategic Partners (SPs). While one of them was the private sector giant Larsen & Toubro (L&T), the other was the state-owned Mazagaon Dock Shipbuilders Limited (MDL).
Unlike the submarine project which has at least reached the RfP stage, the proposal to acquire 110 aircraft has made little progress after the Request for Information (RfI) was issued by MoD to foreign manufacturers some time in 2018 for the purpose of gathering initial information required for adjudging suitability of the available aircraft.
Based on the response to the RfI, Lockheed Martin’s F-21, Boeing’s Super Hornet F/A-18 E/F, Dassault’s Rafale, Saab’s Gripen JAS-39 E/F, Russian MiG-35 and SU-35, and Eurofighter Typhoon emerged as the likely contenders for the deal, but the MoD is yet to shortlist the Indian companies capable of tying up with these foreign manufacturers. The proposal seems to be stuck at this stage as no RfP can be issued unless the Indian companies to whom it could be issued get shortlisted.
In the circumstances, IAF’s discomfort with SPM, if true, is understandable. Shortlisting of Indian private sector companies which can undertake such a big project, estimated to be around $ 20 billion, poses a challenge as none except the state-owned Hindustan Aeronautics Limited (HAL), has any previous experience of manufacturing aircraft. This is in stark contrast to the shipbuilding industry which can boast of a few private sector shipyards with enough experience in the field.
Reports indicate that IAF wants the proposal for acquisition of 110 MMRCA to be categorised as ‘Buy (Global – Manufacture in India)’. Under this category, the contract is awarded by the MoD to the foreign company, selected through the prescribed tendering process, for supplying a certain number of platforms in a fully formed state, if that is what the MoD wants, and manufacturing the remaining number of platforms in India in partnership with an Indian company.
This is a comparatively straightforward process, not least because it allows the foreign companies to choose the Indian companies which they want to tie up with for manufacturing the platform in India. They can also execute the contract through their own subsidiaries. It also saves MoD the trouble of shortlisting Indian companies which, going by experience, is not an easy task.
More to the point, this system has worked. Though it took almost a decade, Airbus Defence and Space S.A. was awarded an approximately USD 3 billion contract last year for acquisition of 56 C-295MW medium transport aircraft. While 16 of these aircraft are to be acquired in a fly-away condition, the remaining 40 will be made in India in collaboration with Tata Advanced Systems Limited, which was selected by Airbus on its own. This was the first instance of its kind but now that a precedent is available, the risk-averse bureaucracy should have no problem in applying this formula to other procurement proposals.
Any notion that the ‘Buy (Global – Manufacture in India)’ contracts restrict MoD’s ability to set the terms for transfer of technology, development of industrial ecosystem in India, indigenisation, maintenance, upgradation, etc., as per the armed forces’ requirement would be misplaced.
The terms which can be set for an SPM contract can also be set for a contract under the ‘Buy (Global – Manufacture in India)’ contract. There is also no reason to believe that while the foreign companies would happily agree to a particular set of terms and conditions in an SPM contract, they would be reluctant to agree to the same terms and conditions if the contract is awarded under the aforesaid category.
What is important for the sellers, as indeed for MoD as the buyer, are the terms and conditions of the contract and not the category or the model under which the contract is awarded. Deciding on the right terms and conditions to be included in the RfP which forms the basis of the contract, and not categorisation of the purchase proposal, is what the MoD needs to focus on.
The matter is as simple as that,but one can trust the civilian and military bureaucracy to complicate the issue and hold protracted internal deliberations over the merits and demerits of opting for ‘Buy (Global – Manufacture in India)’ instead of SPM.
With the Defence Acquisition Council deciding on April 22 that all modernisation requirements of the services are to be indigenously sourced irrespective of the nature of procurement, the odds are stacked against conceding what the IAF wants, for, unlike SPM contracts which are awarded to the Indian companies, ‘Buy (Global – Manufacture in India)’ contracts are awarded to foreign companies. This would make for bad optics against the backdrop of rising fervour for minimising direct contractual dealings with the foreign companies.
(The author is Former Financial Advisor (Acquisition), Ministry of Defence. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited).
