Few Defense Manufacturers In India May Qualify For Strategic Partnership

India's defense ministry task force has proposed weightages and assets criteria that permit only few Indian private defense manufacturers to qualify for strategic partnerships.

The task force, known as Aatre, was set up to identify Indian private companies as strategic partners for development of critical military platforms such as aircraft, warships and armoured fighting vehicles.

The recommendations of Aatre on financial criteria, keeps out most of the manufacturers. By entering into a strategic partnership with selected Indian private firms, the government will give them a firm commitment and do away with the system of awarding contracts to lowest bidder for these military platforms, Indian Express reported today.

The task force, headed by the former DRDO chief V K Aatre, was set up in September by the Defence Ministry as per the recommendations of the Dhirendra Singh committee on changes to the Defence Procurement Procedure (DPP).

The Dhirendra Singh committee suggested that a designated task force should select an Indian strategic partner for the development of a particular platform, and each strategic partner should be restricted to only one platform to allow for development of structured capabilities in the Indian industry.

The Aatre task force has recommended that there should be 15 strategic partners selected for defence manufacturing.

The taks force has also recommended formation of two committees to evaluate the private companies for strategic partnership: an evaluation committee and an on-site committee. The evaluation committee will evaluate a private company on three criteria, each with different weightages: 50 per cent on technical criteria, 30 per cent on financial criteria and 20 per cent on platform specific criteria.

In financial criteria, the task force has recommended that the foreign holding for listed companies should be less than 5 per cent, while no foreign holding should be allowed in an unlisted company. To qualify for strategic partnership, a listed company should have annual assets worth at least $112 million during the last three years while the corresponding figure for an unlisted company is US$37 million-$75 million.

The annual turnover during the last three years for a listed company has been recommended at $600 million and $150 million for an unlisted company.

“A 5 per cent foreign holding for strategic partnership goes contrary to the government’s FDI policy of 49 per cent in defence production. This implies that only transfer of technology will be allowed, which is not very encouraging,” said the vice president of a private Indian defence company which is seeking to become a strategic partner.

Among the conditions is that a listed company should have an “A” CRISIL rating, capital assets of $300 million and a revenue growth of five per cent annually during the last three years. The total outside debt to net worth ratio has been recommended to be capped at 1:1.

Further, the recommendations do not permit cross-holding between strategic partners. Further, the original equipment manufacturer will be disallowed to hold any FDI in the Indian strategic partner company.

The task force has also recommended that the management of the company that is board members such as CEO and Director should be only of Indian citizens. In case of default, the task force has opined that the Intellectual Property Rights of the strategic partner should be taken over by the government, thus enabling the government to be the sole owner of the company.

Defence ministry officials said that while recommendations of the Aatre task force are expected to be a highlight of DPP-2015, the ministry will take a final call on whether to accept its recommendations either fully or partially.

On Saturday, Defence Minister Manohar Parrikar had announced that the new DPP-2015 will be released by his ministry by middle of December.