02-28-2010, 11:04 PM
[size="6"]Fighting for Greater Access[/size]
NEW DELHI - India's private defense companies claim they still face an uneven playing field relative to state-owned firms and achieve few major contract wins despite government efforts to increase their access to military competitions.
Private defense companies were allowed to enter the defense sector only in 2001, and their presence is growing at a much slower rate than anticipated. The private sector includes a half-dozen major defense companies and hundreds of medium to small firms.
Collectively, they have a market share of less then $800 million, compared with about $4.5 billion controlled by state-owned companies, said a senior executive of the Confederation of Indian Industries, a lobbying agency for India's private-sector industries.
India's private defense companies are represented by industrial houses that include the Tata Group, automobile majors Mahindra & Mahindra Groups, Ashok Leyland, Larsen & Toubro and Kirloskar Brothers.
A senior Indian Defence Ministry official said efforts are being made to encourage India's private-sector defense companies. The Defence Procurement Procedures (DPP), enacted in 2002 and reviewed on a periodic basis in consultation with industry, are intended to strengthen participation of the private sector. A new policy review will be announced by September, officials said.
India needs to build indigenous manufacturing capabilities and reduce its 70 percent foreign reliance on defense equipment, the official said. For this reason, India's state and private-sector defense companies have to improve cooperation.
"Without a greater partnership between the state-owned and private-sector defense companies, India is unlikely to reach a target of producing 70 percent of its weapon requirement here," added the official.
However, Indian private defense sector officials say they are being squeezed out of the market by the state-owned companies that are favored by the government, said a senior official of Mumbai-based Larsen & Toubro.
Participation procedures are cumbersome, and some have not been clearly defined since private companies were allowed to bid on military contracts, the executive said.
"The government at one level seems quite vocal and committed to more private-sector participation in defense production. However, in reality, the actions of the government have not lived up to this commitment," said Rajesh Narayan, the founder of India's first venture capital firm on defense, the India Rizing Fund.
"The reasons could be historical hangover of being 'comfortable' with the public sector and a jaundiced perception of the intent and commitment of the private sector," he said.
"Since the government also is in charge of running the public-sector units and is responsible for their functioning, growth and profitability, there is conflict of interest built into the decision-making system that is biased against the private sector," he said.
RESTRICTIVE CATEGORY
One longstanding complaint by the private companies is that only state-owned companies can procure weapons and equipment under a category called Buy Indian, one of three categories through which weapons are purchased.
In DPP-2009, a new category called "'Buy and Make (Indian)" was introduced under which requests for proposals also will be issued to domestic companies to buy and transfer technology. This is intended to promote partnerships between Indian and overseas defense companies, said the Defence Ministry official.
A senior executive from Tata Group, India's leading domestic defense sector company, said that despite the new policy, the Indian bureaucracy has been delaying participation by the private sector and wants to quickly push through cases that were earlier categorized in favor of state-owned firms.
"If the original categorization of 'Buy' from state-owned defense companies is continued, ignoring the multivendor capability that exists in the country, then it will amount to channelizing imports from a particular foreign vendor, without competitive bidding," the executive said.
Prior to DPP-2009, Indian weaponry and equipment were purchased under three categories.
Under the "Buy-Indian" category, an Indian defense company, in the state or private sector, is assigned the contract provided there is at least 30 percent indigenous content in the procurement process.
Under the "Buy-Global" category, overseas defense companies are given the contract with a preference for technology transfer.
In the "Make" category, a domestic company is assigned the contract exclusively. The contract is usually for very complex, high-technology systems to be designed, developed and produced indigenously.
A senior executive of another domestic company said defense agents continue to influence procurement.
"Officially, while the government continues to encourage the Indian private sector, it is very clear from within that, corrupt and powerful arms agents working for foreign firms continue to have far bigger say in defense purchases than what is known publicly," the executive said.
"The Indian private sector wouldn't, even if they want to, be able to match the bribing powers of those arms agents. I see that as the biggest stumbling block, and nothing else, including missing industrial capabilities," added the executive.
Cumbersome procurement procedures often delay delivery of essential weapons to defense forces. With nearly 50 percent of India's weapon and equipment, largely from the Soviet era, being obsolete, procurement procedures must be simplified and less bureaucratic, said Mahindra Singh, a retired major general in the Indian Army.
However, under the current political structure, the bureaucrats will continue to dominate and the trend of purchasing weaponry on a government-to-government basis will increase, Singh added.
NEW DELHI - India's private defense companies claim they still face an uneven playing field relative to state-owned firms and achieve few major contract wins despite government efforts to increase their access to military competitions.
Private defense companies were allowed to enter the defense sector only in 2001, and their presence is growing at a much slower rate than anticipated. The private sector includes a half-dozen major defense companies and hundreds of medium to small firms.
Collectively, they have a market share of less then $800 million, compared with about $4.5 billion controlled by state-owned companies, said a senior executive of the Confederation of Indian Industries, a lobbying agency for India's private-sector industries.
India's private defense companies are represented by industrial houses that include the Tata Group, automobile majors Mahindra & Mahindra Groups, Ashok Leyland, Larsen & Toubro and Kirloskar Brothers.
A senior Indian Defence Ministry official said efforts are being made to encourage India's private-sector defense companies. The Defence Procurement Procedures (DPP), enacted in 2002 and reviewed on a periodic basis in consultation with industry, are intended to strengthen participation of the private sector. A new policy review will be announced by September, officials said.
India needs to build indigenous manufacturing capabilities and reduce its 70 percent foreign reliance on defense equipment, the official said. For this reason, India's state and private-sector defense companies have to improve cooperation.
"Without a greater partnership between the state-owned and private-sector defense companies, India is unlikely to reach a target of producing 70 percent of its weapon requirement here," added the official.
However, Indian private defense sector officials say they are being squeezed out of the market by the state-owned companies that are favored by the government, said a senior official of Mumbai-based Larsen & Toubro.
Participation procedures are cumbersome, and some have not been clearly defined since private companies were allowed to bid on military contracts, the executive said.
"The government at one level seems quite vocal and committed to more private-sector participation in defense production. However, in reality, the actions of the government have not lived up to this commitment," said Rajesh Narayan, the founder of India's first venture capital firm on defense, the India Rizing Fund.
"The reasons could be historical hangover of being 'comfortable' with the public sector and a jaundiced perception of the intent and commitment of the private sector," he said.
"Since the government also is in charge of running the public-sector units and is responsible for their functioning, growth and profitability, there is conflict of interest built into the decision-making system that is biased against the private sector," he said.
RESTRICTIVE CATEGORY
One longstanding complaint by the private companies is that only state-owned companies can procure weapons and equipment under a category called Buy Indian, one of three categories through which weapons are purchased.
In DPP-2009, a new category called "'Buy and Make (Indian)" was introduced under which requests for proposals also will be issued to domestic companies to buy and transfer technology. This is intended to promote partnerships between Indian and overseas defense companies, said the Defence Ministry official.
A senior executive from Tata Group, India's leading domestic defense sector company, said that despite the new policy, the Indian bureaucracy has been delaying participation by the private sector and wants to quickly push through cases that were earlier categorized in favor of state-owned firms.
"If the original categorization of 'Buy' from state-owned defense companies is continued, ignoring the multivendor capability that exists in the country, then it will amount to channelizing imports from a particular foreign vendor, without competitive bidding," the executive said.
Prior to DPP-2009, Indian weaponry and equipment were purchased under three categories.
Under the "Buy-Indian" category, an Indian defense company, in the state or private sector, is assigned the contract provided there is at least 30 percent indigenous content in the procurement process.
Under the "Buy-Global" category, overseas defense companies are given the contract with a preference for technology transfer.
In the "Make" category, a domestic company is assigned the contract exclusively. The contract is usually for very complex, high-technology systems to be designed, developed and produced indigenously.
A senior executive of another domestic company said defense agents continue to influence procurement.
"Officially, while the government continues to encourage the Indian private sector, it is very clear from within that, corrupt and powerful arms agents working for foreign firms continue to have far bigger say in defense purchases than what is known publicly," the executive said.
"The Indian private sector wouldn't, even if they want to, be able to match the bribing powers of those arms agents. I see that as the biggest stumbling block, and nothing else, including missing industrial capabilities," added the executive.
Cumbersome procurement procedures often delay delivery of essential weapons to defense forces. With nearly 50 percent of India's weapon and equipment, largely from the Soviet era, being obsolete, procurement procedures must be simplified and less bureaucratic, said Mahindra Singh, a retired major general in the Indian Army.
However, under the current political structure, the bureaucrats will continue to dominate and the trend of purchasing weaponry on a government-to-government basis will increase, Singh added.