Eye on Defence

Dear readers,

The import of combat/armored platforms constituted around 12% of total imports of defence equipment that India procured from other countries in the last 15 years (1999-2014). It is worth approximately INR292 billion (US$4.87 billion) and mainly imported from Russia/Soviet Union. As the Indian land forces expand their scope of operations and profile, there is a steep increase in the requirement of armored and specialty vehicles across the board. The focal point of the Indian Army’s modernization plan revolves around the acquisition of new

and advanced combat/armored platforms. It is expected that the Army will be spending approximately INR 6,000 billion (US$100 billion) over the next 15 years or so on various weaponries/systems. While significant interest has been generated around the land systems program, the private sector has mostly adopted a wait and watch policy in setting up facilities. Now with the slew of procurement programs including the FICV, FRCV etc., and upgrade program including BMP upgrade, there is a host of opportunities for the private sector in manufacturing and services. The current publication explores various ongoing projects in the land systems domain and tries to outline a timeline for these. It also gives a perspective of private sector capabilities and opportunities.

The revision of the Defence Procurement Procedures (DPP) is a biannual exercise resulting from stakeholder discussions, industry feedback and experiential learning. The Government had set up a 10-member committee to review DPP-13 in its endeavor to enhance transparency and ease of procedures within defence procurement. This is in-line with the Government’s efforts to facilitate its “Make in India” initiative for the defence and aerospace industry. The committee, in September, released a comprehensive report on the current state of the Indian defence industry and the recommendations to shape the procurement policy. In the current issue of the Eye on Defence we have included, the key issues highlighted in this report and their implications on the overall policy environment and “Make in India” campaign in the context of the defence industry.

Among the regular sections, we have industrial license applicants, RFIs/RFPs released, new projects and investments, joint ventures 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 in this regard.

K. Ganesh Raj Partner and LeaderAerospace and Defence practice

Combat vehicles: creating indigenous capabilities

Expert committee recommendations: impact assessment

Request for Information

Request for Proposals

List of Industrial Licenses (ILs) filed

New projects/investments/contracts

JVs and alliances

Country level deals and initiatives

Industry buzz

Contents

September 2015

2 | Eye on Defence

The combat/armored fighting vehicles (AFVs) are the front line of our defence and play an important role in any war scenario, particularly, the main battle tank (MBTs) and infantry combat vehicles (ICVs) being the highly survivable and lethal combat vehicle, play as a game-changer in conflict situations worldwide. The mechanized forces comprise armored regiments (AFVs) and mechanized infantry battalions (ICVs) with a role to cause “shock & awe” effect on the enemy and to overrun the intended objectives with overwhelming fire power, armor protection and blistering mobility. In the absence of strong indigenous design, development and manufacturing base we have been dependent on foreign procurements, compromising our own strategic doctrines. The import of combat/armored platforms constituted around 12% of the total imports of defence equipment that India procured from abroad in the last 15 years (1999–2014), worth approximately INR292 billion (US$4.87 billion) mainly from Russia/Soviet Union. The inventory and age profile of combat platforms — MBTs, ICVs and other specialized vehicles have a high average age leading to capability gap. The table and figure depicts the shelf life of the major combat/armored platforms with the Indian Army.

Air 66%

Air Defence Systems 2%

Armoured Vehicle 12%

Artillery 1%Missile 9%

Others 8%Ships 2%

Indian Imports of Major Platforms 1994-2014 (in percentage)

Source: Sipri and Compiled by Q-Tech

Combat vehicles: Creating indigenous capabilities

Inventory and age profile of AFV

No of platforms (approx.)

Variants Age Profile Remarks

0–10 10–20 20+

Tanks (3240)

T-90S 600 700 --- 1100+ Tanks are above 30 years

Arjun 124 --- ---

T-72/ T-72M1

--- 600 1220

ICVs (2200)

BMP-2 200 1300 700 600+ ICVs are above 30 years

Source: Sipri and Compiled by Q-Tech

The average design life of most of the major combat/armored vessels is 25–30 years. However, around 35% of the combat platforms are above 20+ years. Out of the inventory of approximately 3,240+ tanks, consisting primarily of T-72 battle tanks and T-90 tanks, around 1,100 tanks are obsolete or near obsolescence. On the other hand ICVs, the BMP-I have already been phased out and out of the inventory of approx. 2,200 ICVs around 600+ are already obsolete or near obsolescence and require urgent replacement or upgrade. Considering their shelf life, these needs to be replaced in the next five to ten years. By 2020, the total requirement of AFVs & ICVs will be approximately 4,200 and 2,800 respectively, if all mechanized units are kitted to its full authorization.

Planned acquisitions

As the Indian land forces expand their scope of operations and profile, there is a steep increase in the requirement for armored and specialty vehicles across the board. Vehicles for the Army and paramilitary forces cover the entire gamut of offensive, patrolling, intelligence gathering, battlefield reconnaissance and weapon deployment missions. Some of the major programs are:

Future Ready Combat Vehicle (FRCV): The Indian Army issued an RFI on 8 June 2015 for design of an “FRCV,”’ which is planned to enter service in the Indian Army by 2030. The aim is to identify and seek willingness of established tank designers, design bureaus and agencies

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from India and abroad to participate in a design competition. The design agency and developing agency can be separate entities. The best design will be chosen and given to the nominated development agency for prototype production. The selected prototype will be given to the production agency or agencies for bulk production. The Army wants FRCV to be developed on a modular concept with a high degree of flexibility in a manner that as a tank platform, it can address varying requirements of different terrain configurations. In August 2015, the Indian Army stated that it is planning to incorporate DRDO as a technological partner in the proposed FRCV project for expert inputs.

The cost of each FRCV is expected to be around INR330 million (US$5.5 million) indicating a market of more than INR720 billion (US$12 billion) for 2,000 units.

The challenge the project may face is how to integrate various technologies onto a common platform. All of the systems capabilities firepower, survivability, mobility and vetronics are competing for space and weight. An AFV has size and weight limits as it needs to maneuver in certain terrain or to meet certain transport requirements.

Timeline: The FRCV will be a design and development project, to be executed in three major stages — design stage, prototype development stage and production stage. According to the probable timeline, the contract is likely to be inked by 2026–27 and the induction may begin by 2028 onwards, if no further delay is imposed.

Expected timeline of the project

EOI 2015

Design2016-18

Prototype Dev. Stage2019-21

Trial & Evalution2022-25

Production Stage2028 onwards

Contract2026-27

Future Infantry Combat Vehicle (FICV): The Ministry of Defence (MoD) has also issued an Expression of Interest (EoI) recently, asking for proposals to build a FICV under the “Make” category, with estimated cost of INR500 billion. The EoIs have been issued to Mahindra, Bharat Forge, Larsen & Toubro (L&T), Punj Lloyd, Tata Power, Tata Motors, Pipavav Defence, Rolta India, Titagarh Wagons and the Ordnance Factory Board (OFB). They have been given 90 days to respond to the EoI with detailed proposals, which will involve forming consortia with Indian and foreign vendors and proposing the design of an FICV that is likely to best suit the army’s requirements. Most likely two vendors will be shortlisted, and they will then evolve and submit a detailed project report (DPR), comprising a detailed technical and financial proposal. Even if 50% indigenization is achieved it

still opens an INR300–360 billion (US$5–6 billion) market over 15–20 years for the Indian industry.

The better design will be chosen by an “Integrated Project Management Team” (IPMT), comprising experts from various defence ministry departments. In their responses to the EoI, the companies will spell out details of technology tie-ups, which will bid for the contract. These companies are free to select foreign partners for design, technology and funding.

The EoI issued under Defence Procurement Procedure of 2008 (DPP-2008) talks about selection of the development agencies (DA) on the basis of “proven excellence with capability to contribute due to their technical, managerial and financial strengths.” The vendor responses will be

4 | Eye on Defence

graded into four categories, each having a certain weightage — commercial assessment, technical capability assessment, critical technology assessment and technical specification assessment.

This is the second time the FICV project has been launched under the ”Make” category of the DPP-2008. Previously, an EoI issued in 2010 to four vendors (L&T, Tata, Mahindra and OFB) evoked responses, but was cancelled in 2012 because the MoD could not decide on the parameters for short-listing the two winning vendors. With the ministry taking three years to re-issue the EoI, the FICV project has lost five years already. The army has to procure at least 2,600 such vehicles.

Emerging Grouping: FICV is restricted to domestic companies as DA to develop and build the FICV under ”Make in India” initiative, although collaboration with overseas companies will be needed in several areas. The likely strategic/sub system technology partners for FICV development will be required in the technology domain of engine, final drive, transmission, tracks, gun and ammunition, ATGM, fire control system, sighting systems, battle field management system, identification of friend and foe, communication, ergonomics and protection system etc.

It is mandatory for the DA to take an undertaking, from the proposed suppliers of critical technology sub-systems of the

FICV, for transfer of technology (ToT), manufacturing rights, unhindered supply, full usage/exploitation, and upgrade in technology and export permission to the DA concerned and the MoD. However, with the current restrictive conditions in the EoI citing DPP-2008, OFB and a couple of older players in the defence sector are likely to qualify. The likely DAs from the private sector could be TATA Motors, L&T and M&M, which have already done substantial spade work in tieing up during previous EoI. The other likely partner will be Bharat Forge, which has a tie-up with Israeli electronics firm, Rafael, which would supply the FICVs missile, night vision and sighting systems and active protection systems. The remaining companies are likely to participate as part of the consortium.

The point of concern among defence companies is MoD’s decision to vest intellectual property rights (IPR) with themselves. The fact that mere reissuance of the EoI has taken such a long time, there is some apprehension whether subsequent stages will adhere to the anticipated schedule. The fact that neither DRDO nor the production agency has any experience in designing the infantry combat vehicle, to put this program at a time when the existing inventory will need replacement 10 years down the line, is somewhat ambitious.

Timeline: According to the probable timeline planned in 2009 for the induction of FICV, the contract was to be inked by 2019–20 so that induction could begin by 2022–23 to have a replacement for the flogged BMP II (over 40 years), which was inducted in early eighties. However, this project has been delayed by more than six years, and the contract now is likely to be inked by 2025–26 and the induction may begin by 2027 onward, if no further delay is imposed. This delay will be crucial for the Army, since the BMPII is likely to have become obsolete by then.

EOI 2015

DPR2016-18

D&D2020-22

Trial 2023-24

LSP 2027 onwards

Contract2025-26

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Upgrade of BMP ICVs: Recently, a new RFI has been issued to two Indian companies for the upgrade of approximately 1, 500 (+363 new) BMP-2s, to enhance their offensive capabilities on three counts at an estimated cost of approximately INR127 billion (US$2.1 billion):

Armament upgrade costing more than INR 63.5 billion (US$1.1 billion) with following capabilities:

• Two twin-missile launchers on each side• IInd generation plus anti-tank guided missiles (ATGMs)• 30-mm automatic grenade launchers

• The thermal-imaging fire-control systems are expected to increase the accuracy of weapon systems and panoramic sights for the commanders to be able to look in all directions. So far 950 BMPs have already been fitted with thermal-imaging modules, which will now be equipped

with advanced “TISK” systems that integrate ATGMs, auto-canons and PKT machine guns to ensure they can be fired accurately at night.

• 1,780 Thermal Imaging (TI)-cum-day sights at a cost of approximately INR1 billion (US$18.81 million) have been approved for integration.

• The power pack will also be upgraded to 380 HP at a cost of approximately INR 47billion (US$ 780 million). Currently, it has Russian-origin UTD-20 engines, which provide 285 HP. It is the original engine of the BMP-1 ICV, whereas the BMP-2 is heavier by 1,000 kg than the BMP-1. A more powerful engine is required to make the BMP-2 more efficient in cross-country mobility, floatation and gradient negotiating, apart from providing it the ability to take more add-on systems and weapons. The army is looking for a power pack with a minimum 380hp.

Timeline: According to the probable timeline the upgrade schedule should take around seven to eight years for completion. Moreover, it is anticipated that the phasing out of the BMP-2s will begin by 2025.

Up GradationBMP 2

RFP2015-16

Trial & Contract2018-20

Completed2021-22onwards

Phasing Out2025 onwards

Expected timeline of the project

Engineering and specialized/support vehicles

The Indian Army is equipped with a variety of specialized vehicles, both indigenous and acquired ex-import. The Government of India (GoI) has initiated efforts to modernize the current fleet with several Indian programs in this category such as light strike vehicles (LSV), light armored multi-purpose vehicle (LAM), light specialist vehicles (LSV), light bullet proof vehicles (LBPVs), vehicle-based mine scattering system (VBMSS), all-terrain vehicles (ATV),

wheeled APC WZT-3 armored recovery vehicle (ARV). The growing Naxalite attacks on security personnel in the interiors of the country have necessitated the use of such protective vehicles even during peace time thereby, opening up a large market for such vehicles. The Indian private players looking to introduce better technology in order to capture the market will offer potential tie-ups. It is estimated that there is requirement of 300–400 mine-protected vehicles annually by various security agencies including police and paramilitary forces.

6 | Eye on Defence

The summary of various on-going and future AFVs programs of the Indian Army is listed out in the table.

Platform Variants Qty Cost Remarks

Tanks T-90S 235 INR60 billion

To be produced by Indian under license from Russia by 2020

FRCV 2,000 INR 720 billion

Induction to commence from 2030 onwards.

Arjun Tank 118 INR66 billion

Under production

ICVs FICV 2,600 INR500 billion

Mahindra, Bharat Forge, Larsen & Toubro, Punj Lloyd, Tata Power, Tata Motors, Pipavav Defence, Rolta India, Titagarh Wagons, and OFB.

Induction to commence from 2027 onwards.

Overhaul of BMP – II 1,000 approx.

INR 127 billion

Heavy Vehicle Factory, OF Medak, BEML, CVRDE, TATA, L&T, Mahindra Defence

Special Vehicles/Engineering Combat Vehicles

Light Support Vehicles:

• Light Strike Vehicles• Light Armored Multi-Purpose

Vehicle• Light Specialist Vehicles• Light Bullet Proof Vehicles• All-Terrain Vehicles• Wheeled• APC

3,000 INR15 billion

Indian Companies: Tata Motors, Force Motors, Ashok Leyland, Mahindra, Punj Lloyd, Alpha, Bharat Forge, L&T, Shri Lakshmi Defence, Pipavav Offshore and Defence, DRDO, BEML

Foreign Companies for Technology: BAE Systems, General Dynamics, Rosoboronexport, Krauss-MaffeiWegmann, Ukrainexport, Bumar

Vehicle Based Mine Scattering System (VBMSS)

More than 120

--- ---

Source: EY analysis and compilation from public sources

combat/armored platforms accounting of 25% of the total land systems is the major segment that is bound to see substantial growth in coming years due to the current depleting and aging fleet. The Indian Army is anticipated to spend on combat/armored/tanks and upgrades, which is likely to cost around INR1,527 billion (US$25.45 billion) during this period.

Market and resource projection

The focal point of the Indian Army’s modernization plan revolves around the acquisition of new and advanced combat/armored platforms. It is expected that the Army will be spending approximately INR6,000 billion (US$100 billion) over the next 15 years or so on various weaponries/systems. Among all the land systems submarkets, the

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Land Systems Breakdown (2012-2027)

Tanks & Tanks Upgrade 25%

Missiles & Missile Systems 17%

Communication Systems 14%

Raising of Mountain Strike Corps 13%

Artillery 7%Arms for Infantry 4%

Helicopters 1%

UAVs 1% Miscellaneous Gear 18%

Source: Compiled by Q-tech Synergy

Capital projects planned of land systems (2012–2027)

Resources projections (in INR billion)

Artillery 360

Missiles and missile systems 950

Arms for Infantry 220

Combat/ Armored platforms and upgrades

1,400

Aerospace platforms, helicopters, UAVs 120

Communication systems 750

Miscellaneous gear 1,000

Raising of mountain strike corps (MSC) 700

Total 5,500

Private sector participation

Till date there has been no private sector company participating in the manufacturing of the tanks/armored vehicles. Recent initiative under the “Make in India” category the EoIs for two major programs, namely, the FRCV and FICV, are expected to be game changers for private industries. Moreover, the LSVs program under the

buy-make (Indian) category has already been approved for 3,000 LSVs at a cost of INR16 billion (US$272 million) for the Army.

Seizing the market opportunity, the leading players in this segment, which include Tata Motors, L&T, Mahindra, Ashok Leyland have initiated with the manufacturing/offering variety of AFVCs, MPVs, specialist vehicles, on their own or together with foreign players. For example Tata has collaborated with DRDO and has come out with specialist vehicles such as Tata micro bullet-proof vehicle (MBPV), Tata 12x12 Prahaar missile carrier and Tata LSV quick deployment mobile communication terminal (QDMCT), which have been offered to the Army. Shri Lakshmi Cotsyn Ltd. (SLCL) has launched armored vehicles, which includes “DHRUV – ATC” (Armored troop career) and ”DRONA – MPV” (blast and mine protection vehicle).

However, the issuance of Army’s EoI for FRCV and FICV has raised several questions — Is our industry capable of affecting a turnaround and seeing the program through to completion? Are the production facilities capable of meeting the demands of large-scale deployment? Do they have the resources to sort out teething troubles with new technologies quickly and roll out fixes across the entire fleet? It is tough to be optimistic with the past experience, success will be determined not so much by its design specifications, but more by the industry’s ability to perform and deliver a working product on time and within a limited budget. On the other hand, all design and development projects seem highly optimistic at the initial stage. The FICV project is no different. Whether or not it is technically feasible and cost-effective will depend on the response to the EoI and we must be optimistic, since there is no reason why it should not take off.

Notwithstanding the above, these projects will help India in inching toward the goal of self- reliance, besides giving the user a sense of pride from a ”Make in India” technology. These project will be a huge boost to the Indian defence industry in R&D, manufacture, and in developing Tier-1 and Tier-2 suppliers from the small and medium sector industries and will create an ecosystem of suppliers extending far beyond the winner of the contract. The success of the project will boost the confidence of foreign investors and defence companies in partnering with the Indian industry in keeping with the ”Make in India” vision.

References:• “Army invites proposals for building FRCV tanks”, Economic Times

website, http://economictimes.indiatimes.com/news/defence/army-invites-proposals-for-building-frcv-tanks-drdo-surprised/articleshow/47830259.cms, accessed on 26 June 2015

• “Tender issued in Rs 50,000-cr Future Infantry Combat Vehicle project”, Business-standard website, http://www.business-standard.com/article/economy-policy/after-5-year-delay-tender-issued-in-rs-50-000-cr-future-infantry-combat-vehicle-project-115071601515_1.html, accessed on 16 July 2015

• “Rs 12,700-crore Army fleet upgrade project”, Economic Times website, http://economictimes.indiatimes.com/news/defence/private-sector-cries-foul-over-rs-12700-crore-army-fleet-upgrade-project/articleshow/48979625.cms, accessed on 16 Sep 2015

8 | Eye on Defence

Expert committee recommendations: Impact assessmentA major shift is required in the acquisition procedures, due to the complexities associated with almost every aspect of defence procurement in India, despite several amendments in 2003, 2005, 2006, 2008, 2009, 2011 and 2013. In the past, the MoD had also set up few committees headed by Dr. Kelkar, Mr. Probir Sen Gupta, Mr. Ravindra Gupta and Mr. Vinod Mishra to mention a few. Although the MoD has received several inputs in these past few years, despite their best efforts, the procurement procedure needs to become more dynamic to transform the Indian defence sector.

In the recent past a committee with representatives, mostly former bureaucrats from the MoD, under the Chairmanship of former Home Secretary Shri Dhirendra Singh, who had a tenure as Additional Secretary, Defence Production earlier was mandated to give recommendations on the two terms of references, mainly facilitating “Make in India” as well as removing bottlenecks and simplifying procurement. The report was presented to the MoD on 23 July 2015. The generic recommendation which stand out is for recognizing defence procurement as “strategic” and different from routine government purchases. The report emphasizes that the special nature of defence procurement needs to be undertaken separately and not as a routine government procurement, as the General Financial Regulations (GFR), is for routine purchases, whereas defence acquisitions are far more complex. The other important recommendations are as follows:

Facilitating ‘Make in India’

Sharing Technology Perspective Capability Roadmap (TPCR) and road map with Indian industry: Publication of TPCR with its content made specific with respect to the nature of systems will be required during the next 15 years. Schemes amenable for “Make” procedure will be shared with the industry. The details of other schemes to be included in 5 years Services Capital Acquisition Plan (SCAP) will be shared with the industry.

In addition to laying down the Defence Production Policy, the MoD should also promulgate a 10-year road map for the Indian defence industry, with measurable targets both in terms of revenue as percentage of defence capital expenditure as well as in terms of indigenous content value.

Strategic Partnership Model (SPM): There is need to nominate private defence companies as “strategic partners”, to manage complex projects at par with defence public sector undertakings (DPSUs) and ordnance factories (OFs). SPM needs to be created on a long-term basis for creating capacity in the private sector, over and above the capacity and infrastructure that exists in public sector units (PSUs). A Task Force has been constituted to lay down the criteria in detail for selection of strategic partners in the following six segments:

• Aircraft — fighter, transport and helicopters and their major systems

• Warships of stated displacements and submarines and their major systems

• Armored fighting vehicles and their major systems/weapons

• Complex weapons, which rely on guidance systems, to achieve precision hits, which may include anti-ship, air defence, air-to-air, air-to-surface, anti-submarine, land attack

• Command, Control, Communication and Computers, Intelligence, Surveillance, Target acquisition and Reconnaissance (C4ISTR)

• Critical material (titanium alloys, aluminum alloys, carbon composites, nickel/cobalt alloys etc.)

The task force will interact with representatives from the industry, armed forces, MoD, banking sector, credit rating agency, specialized consultancy etc., and will submit

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detailed criteria at the earliest for incorporation into the new defence procurement policy being planned by the Ministry. The criteria to qualify as strategic partners are likely to be critical for the future of major private players venturing into defence manufacturing.

Identifying and selecting private sector firms as “strategic partners,” to play central roles in developing “complex and strategic systems” within the country is an important facet. However, it will be interesting to see how this committee adds value, as the Kelkar Committee had already proposed in 2005-06 to empower large private sector companies as “Raksha Udyog Ratnas” (RURs), or “industry champions,” and the same was also incorporated in DPP 2008 at Para 22, though later shelved apparently due to resistance from DPSU and OFs trade unions. We already have this report, which in detail gives out the rules for nominating strategic partners. Moreover, surprisingly even before the committee meeting, the bogey of emerging conglomerate monopolies of the private sector strategic partners are being talked are indicative that the new Committee recommendations may meet the same fate as Kelkar Committee recommendation on RUR, resultantly continuance of public sector monopoly and import.

Scope of “Make” category: It also articulates a clear strategy to promote indigenous defence industry and proposes that “Make in India” (should) not become “assemble in India” with no IPR or design controls and thereby, perpetuating our dependence on the foreign supplier. The scope under the “Make” category needs to be broad based and progressive increase in indigenous contents with the following sub-categories:

• Make (large projects) with DPSU/private industry as the lead developer with support from the DRDO

• Make (large projects) with DRDO as the lead developer with support from the industry as co-producer

• Make (components and sub-systems or spares) by the industry

• Make (components and sub-systems) by the DPSU/OFB

• Make (components, sub-systems or spares) by the service workshops/repair depot

Indigenous content (IC): There is a need to create adequate mechanism in defence production so that such provisions of IC as outlined in DPP can be effectively assessed, monitored as well as enforced. Minimum IC threshold for “Buy (Indian)” and “Buy & Make (Indian)” categories should be revised to 40% and 60%, respectively. For “Make” category, minimum IC for prototype stage should also be revised to 40%. The Categorisation Committee, will be empowered to give specific recommendations for reduced or increased IC threshold for the total contract value.

ToT: The provisions for ToT to strategic partners in the specific segments as mentioned at para 4.15.05 need to be made in DPP, after promulgation of relevant policy guidelines.

Eligibility criteria for selection of PA (from among the private Indian industry) to receive ToT in case of “Buy & Make” category schemes and Indian entity to receive ToT for maintenance in case of “Buy(Global)” category schemes need to be devised and promulgated. Existing technical arrangements, if any, of the foreign OEMs with the Indian industry be taken cognizance of, while selecting an Indian entity to receive ToT for maintenance in “Buy (Global)” category schemes. Provisions for keeping the option of negotiating ToT at a date after signing of main contract may be reviewed. In case such provisions have not been made use of, since their incorporation in DPP, these may even be removed.

Incentive to private Industry including MSMEs: The Defence Production Policy may be reviewed to facilitate and

10 | Eye on Defence

incentivize private industry including MSMEs to move toward “Make in India”. Likewise, modifications will be required in other policies such as Skill Development and Export Policy. Following initiatives are recommended:

• MoD is likely to have regular and structured interactions with the industry.

• The Indian private industries have highlighted various factors that impact their competitiveness as compared to DPSUs, foreign OEMs and other sectors. There is, therefore, a need to review such related policies to provide a level playing field and encourage their participation.

• Companies, which have industrial license for a product, must be issued RFP for the same.

• Government facilities for R&D, Qualification Testing and Proof Firing Ranges should be shared with the private industry and MSMEs.

• A single window system for clearance of project proposals in the defence sector to meet “Buy (Indian)” and “Buy and Make (Indian)” regulatory and compliance requirements for commencement of business operations should be created.

• A part of the proposed Technology Development Fund (TDF) may be reserved for funding development projects and limited production from the MSME sector. Whenever, MSME is granted TDF, 30% advance is extended. Based on the success of such funding, the portfolio may be increased in subsequent years. The Defence industry, particularly for the MSME, should be brought under priority sector lending norms.

• An independent body should be created to ensure expeditious single window clearance for defence exports.

• Deemed export for offset contracts in “Buy (Global)” cases benefits can be considered with preference for direct purchases from the Indian Industry.

• A defence manufacturing sector skill council is set up with the support of the government and industry. Defence internship programs should be launched.

• MoD should suggest to the Ministry of MSME setting a few tool rooms around defence clusters exclusively aligned to the needs of the defence sector.

• Skill development should be clearly allowed for defence offsets for all current and future offset contracts.

• The Committee fully supports the proposal to grant ERV protection to Indian vendors.

• Trial infrastructure should be made available to the industry for any equipment developed by them on their own initiative, based on capability requirements projected through LTIPP or TPCR on payment basis.

• A suitable process should be instituted to maintain an up-to-date “Competency Map” of the Indian industry.

Shipyards: The committee recommends that the four shipyards within the MoD fold be merged into one corporate entity, retaining yard facilities in their current geographical locations but working under one single management.

Removing bottlenecks and simplifying procurement

Services qualitative requirements (SQRs): Minor deviations, typographical errors or minor omissions that do not materially alter the character of RFP should be approved by the DPB.

Categories for capital acquisitions: Attributes of categories for capital acquisitions should be defined and these should be incorporated in the DPP.

Acceptance of necessity (AoN):

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• Period of validity of AoN for “Buy (Indian),” “Buy & Make” and “Buy (Global)” categories should be reduced to six months from the existing one year.

• The authorities, which are empowered to approve issue of RFP may also be delegated the authority to accord extension of validity period of AoN for a further eight weeks, provided that conditions of original decision and categorization will not be changed.

• A registry of the Indian defence industry needs to be published annually by the DDP.

Technical evaluation:

• In a single vendor situation, post technical evaluation by TEC, retraction of RFP may be resorted to as an exception rather than a rule.

• Existing authorities for acceptance of TEC report may be reviewed. It should be carried out entirely at SHQs

Field evaluation trials and staff evaluation:

• Scope of field trials should be optimized to cover all “essential” operational parameters.

• Emphasis on environmental tests, maintainability trials, EMI/EMC trials etc., needs to be weighed against certification.

• Trial methodology given in the RFP should be comprehensive and unambiguous.

• In case of “multiple vendor single equipment” situation in “Buy & Make (Indian)” cases only one joint trial should be carried out.

• Approval of staff evaluation report may be done entirely in service headquarters.

Technical oversight:

• Defence Secretary or DPB may be brought under the purview of TOC.

• The charter of TOC should be enhanced to review and bring out the status of complaints, if any.

Contract negotiations:

• CNC may be constituted on acceptance of the Staff Evaluation Report, with the caveat that opening of commercial bids and negotiations with the vendor would not be done till acceptance of TOC Report.

• In a multi-vendor situation, at CNC stage, benchmarking

and price negotiation with the L1 vendor should not be required.

• Services of experts/consultants could be utilized for benchmarking.

Bid evaluation criteria:

• “L1” method of bid evaluation, as is prevalent now, may be continued with.

• “L1-T1”concept should be taken up, on experimental basis, for some specific cases in which the number of parameters to be weighted are manageable (say five or less) and their effect clearly quantifiable.

Single vendor situations:

• The DPP provisions regarding “ab-initio” single vendor situations should, in addition to DPSUs, also cover equipment/systems produced by Indian private industry under “Make,” “Buy and Make (Indian)” or “Buy and Make” categories and those being produced under ToT from DRDO.

• A provision to consider a single vendor situation at bid submission stage needs to be made where there may not be scope for review of SQRs or other vendors may have abstained from submitting their bids due to own inabilities.

• Single vendor situation at technical evaluation stage in all categories of acquisition should be included under the scope of para 70 of DPP2013. “Single vendor, multiple bids” and “multiple vendors, single product” are likely to emerge in “Buy & Make (Indian)”or “Buy & Make” category cases be also included.

Offset guidelines: It has recommended to fine-tune the present policy to make it more easily implementable and suggested measures for improvements in the future policy and addressing certain procedural concerns. There is need to leverage offsets into indigenization strategy, once Indian defence vendors start functioning more actively, “directed offsets” should be used to obtain critical technologies from foreign vendors.

The recommendations on existing offset contracts and those in pipeline (Under DPP 2013) are given in para 4.18.07 and recommendations on the proposed offset policy are given in para 4.18.10. Currently, the defence offset procurement is projected to be around INR1,800 billion (US$30 billion) and Indian defence imports could be INR560-600 billion (US$8-10 billion) in the next 5 to 10 years.

Innovative funding mechanism: A suggestion was made

12 | Eye on Defence

that could indirectly increase FDI flow through a SEBI-registered, privately managed venture capital (VC) fund. Foreign OEMs with offsets obligations, who have contracts with MoD, could subscribe to such a fund. Thereafter, the fund, in consultations with foreign OEMs, invests in to production units, which are expected to be mostly MSMEs. That investment should lead to actual output of defence products. The formula for meeting defence offsets obligations under this dispensation should be 50% for VC investment in production units and 50% on actual output of defence products. The administrative and legal aspects of such provisions may be examined by the MoD, in consultation with other concerned ministries.

Guidelines for putting on hold, suspension and debarment of entities: The premise that misdeeds of an entity or its employees should not be visited on the equipment/system or platform is concurred. Amendments suggested are:

• Other contracts involving such entity shall continue till a decision to the contrary is taken by the government on a case to case basis.

• In case there are only two bidders, one being suspended/debarred entity, the procurement will be progressed according to provisions of DPP without this being treated as a single vendor at TEC stage.

Agents/marketing intermediaries: There should be uniformity in the text of the relevant clauses pertaining to agents/marketing Intermediaries throughout the DPP and thus the text of all these sections are made uniform, harmonious and not prone to differing interpretations.

Integrity Pact (IP): Industry has drawn attention to the unworkable sweeping ambit of Clause (ix) of Para 10 of the IP Committee agrees that such a clause is unworkable and recommends that this clause be discontinued.

Standard Contract Document: The Committee has taken note of the suggestions of stakeholders for modifications to the standard contract document for removal of uncertainty. It is recommended that these issues may be examined further by MoD.

Payment Terms for Indian vendors under capital acquisition, Category ‘Buy (Global)’: All expenses connected with the establishment of Letter of Credit (LoC) in India should be borne by the buyer and the seller in equal proportion. The submissions of the industry regarding royalty/fee on technical services and income tax incidence

on foreign supplier in G-2-G contracts to be examined by MoD to remove existing uncertainty in tax regime.

Recently, the MoD has amended its procurement rules to allow exchange rate variation (ERV) for all rupee contracts that have an import content for Indian companies participating in the “Buy Indian” and “Buy and Make Indian” route.

Procedure for “Make” category: The following features be incorporated in the draft “Make” procedure prepared by DDP:

• Eligibility criteria, for participation at EoI stage, may be reviewed. Its linkage to D&E cost, rather than total cost of scheme at AoN stage, may be considered. Minimum net worth equivalent to 40% of estimated D&E cost and credit rating equivalent to CRISIL/ICRA — “B++” should be considered adequate for most of the schemes. A provision to consider higher net worth and/or credit rating may be provided based on outcome of feasibility study or assessment of Integrated Project Management Team (IPMT) at the time of seeking AoN.

• The requirement of minimum 40% indigenous content, on cost basis, as defined in Appendix-F of Chapter I of DPP 2013, may be stipulated. Reduced or increased threshold could be considered by SCAPCHC/DPB/DAC for each scheme.

• List of “Make” projects as drawn from LTIPP, AoN for which is to be taken up during the next 2-3 years (envisaged fructification of scheme during next 5-8 years) should be shared with the industry. There should be a separate three-year roll on plan for “Make” schemes. This should be reviewed each year and updated.

• Process flow charts for category of schemes in Part B and Part C can also be included in the procedure, as has been done in the case of schemes in Part A (i.e. Appendix-J) to bring in improved clarity.

• The industry participating in “Make” schemes of MoD may be given tax incentives by way of categorizing their contribution (i.e. 20% of the development cost of the scheme) as being qualified for treatment as R&D expenditure.

• Furthermore, 300% weighted tax deduction of such development cost in defence schemes should be considered against 200% given by Department of Science & Technology.

13Eye on Defence |

Procedure for Defence shipbuilding:

• The procedure for regular capacity assessment of Indian shipyards by IHQ MoD (N) should be streamlined and promulgated.

• Timelines for shipbuilding cases should also be drawn up and included in Chapter III of DPP.

• Model contract documents for shipbuilding, both for Section ‘A’ as well as Section ‘B’ cases may be drawn up and promulgated as guideline document for clarity as well as consistency. The issue of “Builders Risk Insurance” of platforms under construction in private shipyards should also be considered for inclusion in the ship-building contracts.

• “Strategic partners” should be involved fully during the evaluation/selection of the design and subsequent negotiations for design consultancy or ToT.

• Suitable provisions need to be made in the contract to cater for cost escalations attributable to items sourced from OFB.

Way forward

The expert committee’s recommendations are in the open domain for feedback from the public. The committee has tried to iron out some lacunae in the current DPP as well as included some of the industries’ demands. These recommendations will be further deliberated upon by

almost every concerned department of the MoD and based on consensus, will be added to the new DPP, which is likely to take time. It is encouraging to note that the MoD has already begun work on proceeding with the ‘Strategic Partner’ model in addition to a few more incremental changes.

It is expected that the ongoing initiative of the MoD in defence procurement and acquisition policy is likely to bring more synergy among the various departments of the Ministry. This is expected to make the entire system more efficient and thereby, resolve several existing issues and make impact on the defence manufacturing sector. We all look forward to the change; and hope that this time some progress is made on the ground.

As on date most of the Indian private industries business is confined to component or sub-system supplies though lately, a few of them are awarded low-to-medium technology projects such as rocket launchers, military transport aircraft, warships construction, TCS, BMS, FICV etc., but the fact is they have very limited defence industrial experience. There is a need to create a capacity to absorb technology in the private sector due to their agility, innovation and modern management practices. One will, therefore, have to create an avenue for selection and nurturing of a strategic partner on a long-term basis. Our defence industries need to become part of global defence industry, focusing on quality, competitiveness and innovation, failing which it will only be a peripheral player.

14 | Eye on Defence

Assessment on key recommendations based on the report

Procurement Stages Impact on OEMs

Services Qualitative Requirements (SQRs) — deviations/error/ omissions

• More flexibility and Better clarity on expectations of user

• Opens the door for user to accept and implement feedback from the competitors and reduces the chances of ‘Single Vendor’ situations being developed.

Acceptance of Necessity (AoN) – time period, categorization process

• With defined timelines, better planning for OEMs leading to faster acquisitions

• Large strategic programs have a clear window to access the G2G route.

Solicitation of Offers (Request for Information) — Indian domestic market assessment

• More projects will be primed by Indian companies

• The OEM will have to move towards tying up with the right domestic partners

• The OEM will have to ensure their capabilities and product lines are adequately known to the domestic industry so as to have partnership options

Solicitation of offers (indigenous content) — norms regarding indigenous content

• Greater chance for Indian SME’s to participate in domestic programs

• Potentially more investments in developing domestic supply chains

• OEMs compelled to look at manufacturing sub-systems in India through ToT.

Technical evaluation — single vendor situation, bid timelines

• Save time and implicit costs on retendering

• May display the functionalities of their equipment that makes it unique

Technical oversight — addressing complaints

• Formal process driven redressal mechanism

• Quicker resolution, as no need to approach the highest governing body

• Better control over the process

Commercial Negotiations — rules regarding L1

• The OEMs may present equipment as is used in their home country without reducing functionality

• Upfront declaration of requirements with the force thus saving surprises later during project execution

• Efficient pricing and better discovery

15Eye on Defence |

Request for Information (July-September 2015)

Date of Issue RFI Details Response Date Issued By Remarks

10 September 2015 Aluminised Fire Proximity Suit; Quantity: 1000+

5 October 2015 Directorate of NBCD For IN

4 September 2015 Light Weight Man Portable High Frequency sets

3 October 2015 DTE Of Plans For IAF

1 September 2015 Mine Counter Measure Vessels (MCMV)

29 September 2015 Goa Shipyard Limited (GSL)

Issued By GSL

28 August 2015 Development of Handheld CAM Simulator

17 September 2015 DRDO Issued By DRDO

25 August 2015 VHF Radio Sets for Pechora Fleet 5 October 2015 DTE of plans For IAF

18 August 2015 Air Defence Gun (Successor) with Ammunition

13 September 2015 DG of Army Air Defence

For IA

12 August 2015 Mini UAV 9 September 2015 DG of Infantry -5 For IA

10 August 2015 Night Sight for 84mm RL (TI) 10 September 2015 Infantry Directorate/ INF-8

For IA

16 | Eye on Defence

Request for Proposal (July-September 2015)

Date of Issue RFI Details Response Date Issued By Remarks

11 September 2015 Bullet Proof Jacket; Qty: 3475 Nos.

16 October 2015 Directorate General of Naval Armament

For IN

9 September 2015 Bullet Proof Jacket (Cover With Harness Shoulder Pad); Qty: 2849 Nos.

15 October 2015 Inspector General, BSF For BSF

7 September 2015 X-Band PXI based Portable Radar Target Echo Simulator

13 October 2015 Research Centre Imarat Issued By DRDO

4 September 2015 Tactical Combat Vest; Qty: 550 Nos.

28 September 2015 GSO 1 AAD For IA

1 September 2015 Thermal Imager 6 October 2015 Laser Science & Technology Centre

Issued By DRDO

31 August 2015 Turnkey Project for Real Time Surveillance of Specific Locations Along the West Coast of Andaman and Nicobar Islands

28 September 2015 Commander in Chief, Andaman and Nicobar Island

For IA

31 August 2015 Fin Stabilized Armor Piercing Discarding Sabot (FSAPDS)

1 October 2015 Armament Research & Development Establishment

Issued By DRDO

28 August 2015 Detonator Percussion N5 MK-II

15 October 2015 Directorate General of Naval Armament

For IN

25 August 2015 Coalescer Cartridge and Septemberrator Cartridge

15 September 2015 7 Wing, Air Force,Air Force Station

For IAF

24 August 2015 Ballistic Protection Goggles; Qty: 30 Nos.

5 September 2015 Station Commander Airmen Training School

For IAF

18 August 2015 Firing Attachment Blank Ammunition for Rifle 5.56mm INSAS

3 September 2015 Rifle Factory Ishapore Issued By OFB

17 August 2015 Small Arms Components 7 September 2015 FTR HQ BSF Jalandhar For BSF

17 August 2015 Boat for Sagar Parikrama 14 September 2015 --- For IN

14 August 2015 Light Weight Bullet Proof Jackets; Qty: 3475 Nos.

12 October 2015 Directorate General of Naval Armament

For IN

14 August 2015 I STAT ABG cartridges 15 September 2015 Defence Institute of Physiology & Allied Sciences

Issued By DRDO

14 August 2015 Small Rotorcraft 25 August 2015 Defence Laboratory Issued By DRDO

17Eye on Defence |

13 August 2015 Round 20mm SAP HEI 6 November 2015 DDG PPO For IA

12 August 2015 NBC Filter FPT-200M 5528 TY and 5531 PC

16 September 2015 Ordnance Factory Medak. Issued By OFB

10 August 2015 GPS Receiver; Qty: 06 Nos. 31 August2015 Senior Logistics Officer - Jamnagar

For IAF

7 August 2015 BAZ Operator Simulator 3 September 2015 AF Station, Makarpura, Vadodara

For IAF

4 August 2015 CFD Simulator (Academic Research Version 16.0)

26 August 2015 Indian Naval Academy Ezhimala For IN

4 August 2015 UWACS MICRO System And Accessories; Qty: 2 Sets

19 August 2015 Naval Physical Oceanographic Laboratory

Issued By DRDO

3 August 2015 Binoculars Terrestrial Telescope; Qty: 08

26 August 2015 Air Force Station Tambaram For IAF

1 August 2015 Through Wall Radars; Qty: 40 (20+20)

27 August 2015 Chairman TPC HQ Northern Comd (EME)

For IA

1 Aug 2015 Night Sight for 5.56 mm Galil Assault Rifle; Qty: 50 Nos.

14 Sep 2015 GOC-in-C, HQ Northern Command

For IA

30 July 2015 Diving Set, Qty 19 Nos. 20 Aug 2015 Coast Guard National Stadium Complex

For ICG

27 July 2015 Battle Field Surveillance Radar (BFSR)

-- Commandant (Ord) HQ DG BSF, Prov Dte (Ord Sec)

For BSF

24 July 2015 Data Link Signal Simulator 21 Aug 2015 Research Centre Imarat Issued By DRDO

21July 2015 Multipurpose Binocular; Qty: 200

31 Aug 2015 Army Commander Special Financial Powers

For IA

21 July 2015 Night Vision Device (Thermal)

-- HQ DG, BSF, Prov Dte For BSF

21 July 2015 Night Vision Weapon Sight (Thermal)

-- HQ DG BSF, Prov Dte For BSF

17 July 2015 Tactical Vest; Qty: 15,000 + 1,115 Nos.

14 Aug 2015 GOC-in-C, Northern Command For IA

17 July 2015 Binocular -- HQ DG BSF, Prov Dte For BSF

17 July 2015 Life Jackets and Life Buoys 12 Aug 2015 DG BSF For BSF

15 July 15 Supply of S Band Air Surveillance 3D Radar at INS Baaz, Port Blair

14 Aug 2015 Material organization For IN

18 | Eye on Defence

10 July 2015 Micro Unmanned Aerial Vehicle; Qty: 11 Nos.

19 Aug 2015 DG BSF For BSF

9 July 2015 Life Rafts 20 Men Capacity on Two Bid System

17 Aug 2015 Controlerate of procurement material organization

For IN

8 July 2015 Coalescar and Separator Cartridge Type M For Aircraft Refuellers

16 July 2015 7 Wing, Air Force - Air Force Station

For IAF

7 July 2015 TGET Based Fuze 6 Aug 2015 ARDE Issued By DRDO

6 July 2015 Radar Simulator Scanner Test Set-Up

31 July 2015 Research Centre Imarat Issued By DRDO

4 July 2015 4 KL Aircraft Refueller Fully Built; Qty: 20

13 Aug 2015 ACAS (Procurement) For IAF

19Eye on Defence |

List of Industrial Licenses (ILs) filed for (July–August 2015)

Application no. and date Name of the applicant Item of manufacture

81 31/08/2015

M/s Vem Technologies Pvt. Ltd. Airplanes

80 31/08/2015

M/s IDL Explosives Limited Bulk non explosives emulsion matrix

79 31/08/2015

M/s IDL Explosives Limited Bulk non explosives emulsion matrix

78 31/08/2015

M/s IDL Explosives Ltd. Detonators

77 27/08/2015

M/s Micronel Global Engineers Pvt. Ltd. General engineering works, aero systems parts, items of aircraft, helicopter, UAV and services

76 19/08/2015

M/s Gulf Oil Corporation Limited Ammunition and allied items for defence use including safing and arming devices and fuses

75 19/08/2015

M/s Gulf Oil Corporation Limited Penta Erythritol Nitrate(PETN)

74 19/08/2015

M/s Vem Technologies Pvt. Ltd. Helicopters

73 19/08/2015

M/s Marine Electricals (I) Pvt. Ltd. Electronic equipment used for ECM,ECCM, surveillance CMS, command and control systems, integrated bridges etc.

72 07/08/2015

M/s Hyderabad Precision MFGCO. Pvt. Ltd.

Parts and accessories of arms and ammunition and allied items of defence equipment; parts and accessories

71 04/08/2015

M/s Aviohelitronics InfosystemsPvt. Ltd. Development and manufacture of data link

70 30/07/2015

M/s ALDST Limited Tanks and other armored fighting vehicles

69 30/07/2015

M/s AADST Limited Defence aircraft helicopters, unmanned aerial vehicles, space, craft and parts thereof

68 30/07/2015

M/s Adani Defence Systems & Technologies Ltd.

Warships of all kinds

67 30/07/2015

M/s ALDST Limited Arms and ammunition and allied items of defence equipment, part and accessories thereof

66 30/07/2015

M/s Vem Technologies Pvt. Ltd. Artillery guns

65 27/07/2015

M/s Continental Defence Solutions Pvt. Ltd.

Manufacture of weapon and ammunition, armored vehicle upgrade

64 21/07/2015

WW Defsys Pvt. Ltd. Armored and image processing equipment

20 | Eye on Defence

63 02/07/2015

M/S NN Detonators Pvt. Ltd. Slurry, emulsion explosive, detonators, detonating fuse, PETN, pentalite booster

62 02/07/2015

M/S BF Premier Energy Systems Pvt. Ltd. Ammunition of 30mm and above calibre including BMCS, for manufacturing and integration of all type of missiles and rockets, to manufacture mines, bombs and torpedoes of all type

61 02/07/2015

M/S Ananth Technologies Ltd. Night vision sights

21Eye on Defence |

New projects/investments/contracts

Name of entity Project details Value*

Defence Acquisition Council (DAC)

• ►DAC has approved the purchase of eight indigenous Chetak helicopters, nine tugs, four large survey vessels, electronic warfare systems and upgrade of weapon and sensor suit for the Indian Navy.

• It has also cleared the purchase of seven squadrons of Akash short range surface-to-air missiles for the Indian Air Force (IAF).

• Furthermore, it has cleared the purchase of 428 new anti-aircraft gun, electronic warfare system, 14,000 units of multi-spectrum camouflage net and 120 Anti-Tank Trawls for the Indian Army.

INR450 billion

► IAF • IAF plans to acquire three Boeing C-17 transport aircraft. The proposal is yet to be cleared by the DAC.

INR81 billion

IAF and Kazan Helicopters (Russia)

• ► The IAF will purchase 48 Mi-17 military helicopters to be deployed to patrol Indian borders with difficult-terrain areas.

INR70 billion

DAC and Boeing • ► DAC cleared the proposal to purchase four Boeing P81 aircraft for the Indian Navy.

• The P81 aircraft is based on the Boeing 737 airframe and is equipped with foreign and indigenous sensors for maritime reconnaissance, anti-submarine operations and electronic intelligence missions.

INR43.8 billion

IAF and Israel Aerospace Industries (IAI)

• ► IAF will purchase 10 missile drones from IAI to improve cross border military strike capabilities.

INR24 billion

DAC and Larsen and Toubro (L&T)

• ► L&T won a contract from DAC to manufacture 102 short span bridges to be used for movement of armed forces and disaster management.

INR5.3 billion

Aequs Aerospace • ► Aequs Aerospace is setting up an aerospace machining facility at Belgavi, Karnataka, to supply components to Airbus for manufacturing military and commercial aircraft.

INR3 billon

Indian Navy and Raytheon

• ► Raytheon has won a contract to deliver MK 54 Lightweight Torpedo (LWT) kits to the Indian Navy.

• The contract includes manufacture, delivery and MRO services of LWT kits.

• The US Department of Defence (DoD) has approved the contract and all the deliveries are expected to be completed by end of September 2017.

INR 1.8 billion

22 | Eye on Defence

IAF and Textron • ► IAF plans to purchase Textron’s AirLand Scorpion light-attack and intelligence, surveillance, and reconnaissance (ISR) aircraft that can also be used as Intermediate Jet Trainers (IJT).

• Due to delays in delivery by Hindustan Aeronautics Ltd. (HAL), the IAF is in dire need of IJTs.

• The deal is expected to be discussed during the visit of PM Narendra Modi to the US in September 2015.

NA

Defence Research and Development Organisation (DRDO) and L&T

• ►L&T will manufacture a digital version of Lakshya, pilotless target system, for the Indian Army. It will get the required technology from DRDO.

• L&T will be the primary supplier of upgraded digital version of Lakshya and it can also export the system to foreign countries with prior government approval.

NA

Indian Army and LH Aviation

• ► LH Aviation, a French light aircraft manufacturer, will produce 100 low-cost drones for the Indian Army at its manufacturing facility in Bengaluru, which is jointly owned by LH Aviation and Offset Indian Solutions (OIS) group.

NA

*The values of the deals have been converted to Indian Rupees using Oanda currency conversion tool. 1US$ = INR60.

Sources:1. “Government clears defence proposals worth Rs 30,000 crore, to buy four P81 maritime patrol aircraft,” The Economic Times, 15 July 2015, via

Factiva, © 2015 Bennett, Coleman & Co. Ltd. 2. “IAF clears proposal to buy three C 17; Boeing says only one plane left to sell,” The Economic Times, 17 August 2015, via Q-tech Synergy

Newsletter.3. “India Approves $1.1 Billion Helicopter Contract for Additional Russian Mi-17s,” The Diplomat, 4 September 2015, via Factiva.4. Ankit Panda, ”India Will Purchase 4 More US Maritime Surveillance Aircraft,” The Diplomat, 16 July 2015, via Factiva.5. “Government approves $400-million plan to procure armed Heron TP drones from Israel,” The Economic Times, 11 September 2015, via Q-tech

Synergy Newsletter.6. Manu Pubby, “L&T set to bag Rs 530 crore project for army bridges,” The Economic Times, 13 August 2015, via Factiva, © 2015 The Times of

India Group.7. “Aequs Aerospace opens up the largest aerospace machining facility in India,”Aequs Company Website, via Q-tech synergy Newsletter.8. “Raytheon To Provide MK 54 Lightweight Torpedo Kits To Indian Navy,” SyndiGate Media Inc., 2 September 2015, via Factiva.9. “IAF keen on US Scorpion aircraft offer,” The Financial Express, 4 September 2015, via Q-tech Synergy Newsletter.10. “L&T to make Lakshya for India’s military, gets technology from DRDO,” Business Standard, 7 August 2015, via Q-tech Synergy Newsletter.11. “LH Aviation to produce 100 low-cost drones for Indian arm,” French Collection, 3 July 2015, via Factiva, © 2015 All Data Processing Ltd.

23Eye on Defence |

JVs and alliances

Name of the entities Nature of transaction Value

Pipavav Defence and Offshore Engineering Company and JSC Ship Repairing Centre

• ► Pipavav Defence and Russia-based JSC Ship Repairing Centre entered a 51:49 JV for medium refits and life certification of 877 EKM submarines in India.

• JSC will provide complete technical assistance and support, including for the enhancement of infrastructure at the PDOC facilities and training of engineers to the JV.

INR110 billion

Reliance Defence and Aerospace and Komov

• ►Reliance Defence and Russia-based Komov signed a 51:49 JV for manufacturing 200 Komov 226T choppers in India.

• Komov will transfer the required technology to Reliance while more than 50% of the helicopter parts will be manufactured indigenously.

INR60 billion

Astra Microwave Products Ltd. and Rafael Advanced Defence Systems Ltd.

• ► Astral Microwave formed a 51:49 JV with Israel-based Rafael Advanced System to focus on building tactical radio communication systems, electronic warfare systems and signal intelligence systems in India.

INR1.2 billion

DRDO and Bharat Dynamics Limited (BDL)

• ► DRDO and BDL have signed an MoU for joint development of third generation Man-Portable Anti-Tank Guided Missiles (MPATGM) for the Indian Army.

NA

HAL and Bharat Electronics Ltd. (BEL)

• ► HAL and BEL signed an agreement to share their competencies in manufacturing advanced airborne communication systems (avionics) for the armed forces.

NA

HAL and Turbomeca • ► HAL and France-based Turbomeca, has signed an MoU to establish a JV to provide maintenance, repair and overhaul of the Shakti engine and for the Turbomeca TM333 engine installed on HAL’s helicopters.

NA

Mahindra Defence Systems and Airbus Helicopters

• ► Mahindra and Airbus helicopters have signed an in-principle agreement to set up a JV to manufacture helicopters in India for the IAF.

NA

Mahindra Defence and Ultra Electronics

• ► Mahindra Defence System and UK-based Ultra Electronics have signed an MoU to manufacture and supply specialized underwater warfare equipment for the Indian Navy and technologically advanced radios for the Indian Army.

NA

Mahindra Defence and US Telephonics Corp.

• ► US Telephonics has increased its stake to 49% from 26% in its JV Mahindra Telephonics with Mahindra Defence.

• US Telephonics is the first company to increase the stake after the Government raised the FDI limit and is expected to invest INR600 million (US$10 million) in India in the next one year.

NA

24

Reliance Unmanned Systems and Augur Overseas Operation (Singapore)

• ► Reliance Unmanned Systems has entered a 51: 49 JV with Augur Overseas Operation for development, production, sales, modification and life support for different sizes of aerostats and airships for the Indian as well as the global market.

NA

Tata Advanced Systems Ltd. (TASL) and Boeing

• ► Tata Advanced Systems Ltd. and Boeing signed a framework agreement for collaborating in manufacturing defence equipment including unmanned aerial vehicles, in India.

NA

Sources:1. “Pipavav Defence inks pact with Russian firm,” The Hindu, 21 July 2015, via Q-tech Synergy Newsletter.2. “Make in India: Russia ties up with Reliance Defence to manufacture Kamov 226T choppers,” The Economic Times, 28 August 2015, via Q-tech

Synergy Newsletter.3. “Hyderabad’s Astra, Israel’s Rafael tie up for defence communication production,” Live Mint, 24 August 2015, via Q-tech Synergy Newsletter.4. “BDL inks MoU with DRDO for missiles development,” United News of India, 28 August 2015, via Factiva.5. “HAL, BEL to share expertise in avionics,” Indo-Asian News Service, 5 June 2015, via Factiva.6. “HAL, Turbomeca sign MoU for joint venture in India,” Dion Global Solutions Ltd., 18 June 2015, via Factiva.7. P.R. Sanjai, “Mahindra, Airbus Helicopters sign pact for chopper venture,” Live Mint, 3 July 2015, via Factiva, © 2015 HT Media Ltd.8. “Mahindra, Ultra Electronics tie-up for defence play,” The Hindu, 6 July 2015, via Factiva9. “US Telephonics Corporation to hike stake in Mahindra defence JV to 49 per cent,” The Economic Times, 4 September 2015, Q-tech Synergy

Newsletter.10. “Anil Ambani group signs pact with Singapore defence firm,” Deccan Herald, 23 July 2015, via Q-tech Synergy Newsletter.11. “Defence ‘Make in India’ on a roll: Boeing & Tata announce manufacturing partnership including drones,” The Economic Times, 15 July 2015, via

Factiva, © 2015 Bennett, Coleman & Co., Ltd.

25

Country-level deals and initiatives

Country Nature of transaction Additional details

Australia ► The Indian Minister for External Affairs, Ms. Sushma Swaraj, and the Defence Minister of Australia, Kevin Andrews, held a meeting to discuss the negotiations and early implementation of the bilateral nuclear deal between the two countries.

The two parties also discussed about joint production of defence equipment in India, as part of the Indian Prime Minister’s “Make in India” initiative.

Australia ► India and Australia started their first bilateral naval exercise “AUSINDEX-15” focused on anti-submarine warfare.

NA

Kazakhstan ► India and Kazakhstan signed an MoU to ensure defence cooperation between the two countries including regular visits, consultations, training of military personnel, technical cooperation, joint exercises, special forces exchanges and cooperation in UN peacekeeping operations.

NA

The UK ► IAF and the UK’s Royal Air Force completed a 10-day air and ground exercise, Indradhanush, to enhance mutual operational understanding and to facilitate exchange of ideas between the two Air Forces.

NA

The US ► India and the US signed a ten-year defence framework agreement for joint development and manufacture of defence equipment and technology.

Additionally, both countries agreed to discuss about the design, construction and jet engines of aircraft carriers.

The US ► Officials from the US navy and the Indian Navy held a joint working committee to consider cooperation for aircraft carrier manufacturing during 12–14 August.

The two parties discussed various aspects of aircraft carrier manufacturing, including design, integration, test, evaluation, management and oversight of carrier construction►.

Sources: 1. “India Pushes for Early Implementation of Nuke Deal With Australia,” NDTV.com, 2 September 20152. Jugal R Purohit, “India and Oz to showcase naval might,” Mail Today, 12 September 2015, via Factiva, © Copyright 2015 Living Media India Ltd.3. “Rafale Fighter Jet Deal Takes Big Step Forward,” NDTV.com, 1 September 20154. ”Government approves $400-million plan to procure armed Heron TP drones from Israel,” The Economic Times, 11 September 2015, via Factiva,

© 2015 Bennett & Coleman & Co. Ltd.5. “India, Kazakhstan sign five key agreements,” The Hindu, 8 July 2015, via Factiva6. Craig Hoyle,“Indian Su-30s start joint exercise with RAF Typhoons,” Flight International, 22 July 2015, via Factiva, © Copyright 2015 Reed

Business Information Limited7. “India collaborates with USA for building aircraft carriers,” Dion Global Solutions, 11 August 2015, via Factiva8. “U.S.-India Joint Working Group for Aircraft Carrier Technology Cooperation holds first meeting,” US Embassy, 15 August 2015, via Q-tech

Synergy Newsletter

26 | Eye on Defence

Indian Army plans to roll out new combat vehicle contract to Indian companies

The Indian Army is expected to float a contract to Indian companies for a new combat vehicle project, worth INR1,000 billion. For design and manufacturing of the combat vehicle, leading Indian players such as Tata Power, Tata Motors, Larsen & Toubro, Mahindra, Rolta, Pipavav, Bharat Forge, OFB, Punj Lloyd and Titagarh Wagons are approaching global majors for a strategic partnership or a JV.

(“Indian firms reach out to foreign cos for combat vehicle tie-up,” The Financial Express, 1 September 2015, via Factiva, © 2015 Indian Express Online Media Pvt. Ltd.)

Private players plan to manufacture ammunition for Indian Army

The MoD has approved a proposal to allow private manufacturers to produce special ammunition worth around INR8 billion for the army. Ordnance Factory Board’s (OFB) have failed to supply the sufficient quantity of ammunition to the army, leading to a shortfall of up to 73%. The MoD’s decision came as an attempt to minimize the mismatch of supply-demand. Seven types of ammunition have been identified for procurement from private players including specialized ammunition for tanks and artillery guns, GRAD BM-21 charges and electronic fuses.

(Source: “Defence Ministry to ask pvt players to produce specialist ammunition,” The Indian Express, 3 September 2015, via Q-tech Synergy Newsletter)

INS Vikramaditya plans to undergo maintenance and repair

INS Vikramaditya, India’s largest naval warship, will be refitted in 2016 by Pipavav Defence for approximately INR2 billion. The aircraft carrier will undergo maintenance and repair at Gujrat. Russian state-owned agencies will provide technology support and training to Pipavav for handling the complicated warship and executing the maintenance work.

(Source: “In a first, 44,500-ton aircraft carrier to be refitted in India,” The Economic Times, 13 August 2015, via Q-tech Synergy Newsletter)

Industry buzz

27Eye on Defence |

HAL completes successful trials of LCH

HAL successfully carried out “hot and high” altitude trials of the indigenous light combat helicopter (LCH) at Leh. In “hot and high” conditions, a helicopter operates under 15–27˚C temperatures at extreme altitudes of more than 15,000 feet. In these conditions, oxygen in the air is depleted not just by the altitude, but also by the expansion of air due to high temperatures. The seasonal tests are part of the certification process and “cold” trials were completed in February.

(Source: “HAL completes hot & high altitude trials of LCH at Leh,” SP’s MAI, 4 September 2015, via Factiva, © 2015 SP Guide Publications Pvt. Ltd.)

BARAK-8 slated to undergo trials in October

BARAK-8, the long range surface to air missile (LRSAM) under development by DRDO and Israel Aerospace Industries, will undergo testing in Israel in October 2015. The testing in Israel will be followed by an Indian testing and commencement of commercial production of the missile. The BARAK-8 LRSAM is a missile interceptor and can also be deployed against aircraft and helicopters.

(Source: “Surface-to-air missile to be tested in Israel,” The Hindu, 29 July 2015, via Factiva, © 2015 Kasturi & Sons Ltd.)

MoD sets up task force to select private companies for defence projects

The MoD has set up a task force, led by former DRDO Chief V.K. Aatre, to decide the parameters or selection criteria to select Indian private companies for key defence projects such as aircraft manufacturing, warship production, command and control networks, armored fighting vehicle complex missile system and critical material. Only one or two private players will be selected for each type of project.

(Source: “Defence Ministry sets up task force to select Indian private companies for mega projects,” The Economic Times, 9 September 2015, via Q-tech Synergy Newsletter)

MoD eases export norms for private players

The MoD has eased the regulations for exporting defence equipment. Under new regulations the no objection certificate for defence export will be provided within two to four weeks from the date of application. Moreover, the “ultimate-end user certificate” will not be required for exports, only “immediate-user” certificate will be required. Furthermore, the MoD has removed restrictions on private players for exporting 16 categories of ammunition including warships, tanks, armored vehicles, ammunition, rifles and small arms, bombs and torpedoes. The move is in line with the “Make in India” campaign and is expected to boost India’s military trades.

(Source: “Arms exports to get a boost as Ministry of Defence okays 16 broad categories of products,” The Economic Times, 18 August 2015, via Q-tech Synergy Newsletter)

Large defence orders to boost local manufacturing

The Government of India (GoI) is expected to spend INR7,800 billion (US$130 billion) on defence forces and INR6,600 billion (US$110 billion) on homeland security by 2022. The orders will provide significant opportunity to the private Indian defence manufacturers with the GoI’s increasing focus on indigenization.

(Source: “Govt. places Rs 2 lakh crore Defence order under Make in India,” The Indian Express, 9 September 2015, via Q-tech Synergy Newsletter)

Global A&D giants are likely to set up manufacturing plant in Andhra Pradesh

Global companies such as Airbus, Essel Infra and Srei Infra, have shown interest in setting up large defence and aerospace parks in Andhra Pradesh, which could lead to investments of INR200 billion in the state over the next five years. The State Government has started earmarking land in favor of nodal agency Andhra Pradesh Industrial Infrastructure Corporation (APIIC) for allotment to French aircraft manufacturer Airbus. It hopes to attract both domestic and foreign companies to the southern parts of the state given its proximity to Bengaluru.

(“Andhra Pradesh looks to attract Rs 20,000 crore in defence, aerospace parks,” The Economic Times, 26 August 2015, via Factiva, © 2015 The Times of India Group)

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28 | Eye on Defence

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30 | Eye on Defence

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