Sitharaman gives Army's delayed future combat vehicle project a push

The MoD is considering pushing the deal through under the Strategic Partnership Policy

The $12-billion project to procure 2,300 Futuristic Infantry Combat Vehicles (FICV) for the Indian Army, which has been held up for over a decade, has received a fresh push from Defence Minister Nirmala Sitharaman, who took charge of the ministry less than a month ago, reported the Hindu Business Line.  

According to the report, apart from the state-owned Ordnance Factory Board (OFB), which has been nominated for the project, Larsen & Toubro (L&T), Tata Motors, Reliance, Mahindra, and Tata Power SED-Titagarh Wagons are also in the race. All these firms had responded to the expression of interest (EoI) in 2015.

The financial daily reported that Sitharaman has sought details of the project and that an informal meeting was held on Tuesday. Further, citing sources, the report said that the matter would come up before the Defence Procurement Board on September 26. The minister, according to the report, may also bring up the project when she meets US Secretary of Defence James Mattis, who will come to India on a two-day visit later in September. On the other hand, Russia, the report added, is also keen on clinching the deal through the OFB.

With some critical technologies related to the project slated to be sourced from foreign firms and global defence majors like General Dynamics, Lockheed Martin, BAE Systems, and Rheinmetall eyeing the deal, the defence ministry, according to an anonymous official cited by the report, is considering pushing the deal through under the Strategic Partnership Policy (SPP). According to the official, the SPP route is viewed as "an easier and cleaner way" by many within the defence industry.

The SPP aims at creating capable defence manufacturers in the private sector, to compete with the DPSUs and Ordnance Factories that have historically dominated defence manufacture in India. The policy requires private firms chosen as strategic partners to enter technology partnerships with nominated global original equipment manufacturers and jointly bid for contracts to build aircraft, helicopters, submarines, and armoured vehicles for the military. 

Back in January 2016, the defence ministry had announced that while the private sector companies would compete to develop the FICV, the OFB would be nominated without competing as a third development agency. (Read more here)

The ministry's EoI, which invited ten companies on July 16, 2015, to submit proposals to develop the FICV under the "Make" procedure, specified that two development agencies would be chosen. However, even as that competitive selection was underway, the OFB was given a free pass.  

A welcome signal?

This development may come as a welcome signal for domestic private defence players, especially those aiming to build and sell land defence systems.  

As reported in January this year, the ministry of defence was back then planning to kill competitive tendering for a Rs 5,000 crore project to upgrade the Army’s 1,500 BMP-2 infantry combat vehicles, in a move that defence expert Ajai Shukla had described as "a negative signal that will resonate discouragingly through India’s private defence industry". Instead, the project was slated to be gifted to the OFB without competition. 

Capable private firms like L&T, Tata Motors, the Mahindras, Reliance Defence, and Alpha Design Technology Ltd, which were entrusted with designing, developing, and manufacturing an FICV for the Army under a "Make in India" contract, were eliminated, without explanation, from the relatively simple task of upgrading the BMP-2 to grant it a lease of life until the FICV enters service.

Back then, private defence firms had decided to fight to remain in the fray. Industry chamber Ficci had written to the MoD requesting permission for industry to present its case at a crucial meeting of the Services Capital Acquisition Plan Categorization Higher Committee, which would rule on who would upgrade the BMP-2.

However, in July this year, defence publication Janes reported that the MoD had approved a Rs 2,400 crore upgrade project for 693 of the Army's BMP-2/2K Sarath infantry combat vehicles.

According to the report, the Defence Acquisition Council, headed by then defence minister Arun Jaitley, awarded the contract to Bharat Electronics Limited and the OFB, in a move that industry sources said contravened the MoD's own defence procurement policies that mandate competitive bidding for the acquisition process.