Raksha Utpadan Ratnas to the rescue

DEFENCE DEALS AND THE PRIVATE SECTOR-II

Indian Army soldiers, who use outdated night-vision devices to maintain a year-round vigil on the Line of Control (LoC), should be pleased with the defence ministry's recent decision (reported in Business Standard yesterday) to subsidise research and development by select private manufacturers.

The defence public sector utility Bharat Electronics Ltd has proved its inability to mobilise R&D to upgrade the night vision devices it supplies to the Army.

But now, private sector companies nominated as Raksha Utpadan Ratnas (RuRs) can draw upon a corpus of Rs 100 crore from the defence ministry's capital budget to fund specific R&D projects, like upgrading night vision devices.

But the ministry's unwillingness to empower private companies to supply high-grade night vision devices indicates that the new R&D policy still runs up against old practices and habits.

The night vision devices story is complex, but illustrates the contradictions in the defence ministry's procurement, manufacture and R&D policies.

It began with the Jammu & Kashmir insurgency in the early 1990s, with the Army urgently demanding lightweight night vision binoculars and night vision goggles to staunch the flood of militants across the LoC (Night vision binoculars are heavier and more expensive than night vision goggles because the former magnifies images).

The Army also demanded passive night sights (PNS) that would be fitted onto its INSAS and AK-47 rifles, allowing them to shoot accurately in darkness.

With the private sector excluded from defence until 2001, BEL and the ordnance factories formed a joint venture called BELOP, purchased night vision devices technology from Delft, a Dutch defence major, and churned out thousands of second generation (Gen-2) NVDs that quickly became outdated.

The defence R&D and production establishment (the DRDO, 40 ordinance factories and 8 Defence PSUs) have always touted transfer of technology (ToT) as the first step to indigenous development. But without any R&D by BELOP to improve their NVDs beyond Delft's Gen-2 technology, the militants soon had a qualitative edge in NVDs.

But the MoD asked BEL no hard questions about R&D. Instead, encouraged by BEL, the MoD launched a new initiative in 2005 to procure state-of-the-art NVDs, which had by then improved from Gen-2 to SuperGen and HyperGen.

But then, private companies were competing with BEL in defence manufacture, offering not just production but R&D and product improvement as well.

Intent on shutting out competition, BEL marched into the MoD with a 1996 letter (issued before the private sector was allowed into defence production) that stipulated BEL would produce all NVDs for the military.

The Secretary (Defence Production), KP Singh, told Business Standard that he turned down BEL's demand. "I told BEL that we have opened defence manufacture to the private sector, so we can no longer pass such an order. If technology has to be passed on to the private sector, then it will be."

But while turning down BEL's demand for monopoly over NVD production, the MoD effectively gifted BEL with the NVD contract. Violating its own Defence Procurement Policy of 2006 (DPP-2006), the MoD allowed BEL to preside over the selection procedure.

On December 12, 2006, BEL issued a request for proposal (RFP) to defence manufacturers worldwide, asking them to submit tenders for 30,634 NVDs. (Business Standard is in the possession of this document).

BEL's miserable record with Gen-2 NVDs, and its inability to improve them with in-house R&D was overlooked. Instead of competing with other companies to supply NVDs for the military, BEL was handed the ownership of the NVD project.

Colonel HS Shankar, who was the Chairman of BELOP from 1997-2003, admits that BELOP made no effort to improve its NVDs but blames that on BEL's disinterest in funding R&D.

Now heading a private company that is bidding to supply NVDs, he points out that absorbing technology and improving it with in-house R&D would be an important goal of private companies.

But Singh points to BEL's record in giving it preference over its competitors, stating, "BEL already has the technology to manufacture Gen-2 NVDs. So getting them third generation technology is a natural progression. BEL will produce the II tubes after importing the technology."

On January 22, 2007, at a meeting in BEL, private vendors bidding to supply NVDs to the Army vehemently protested BEL being given the project. (The minutes of that meeting, issued by BEL, are in the possession of Business Standard).

This month, a CII delegation raised the issue with the secretary of defence production, who turned it down, ruling that BEL would play the lead role.

While MoD policies slowly evolve towards bringing the private sector into defence, the old co-exists uneasily with the new.

Laying down a policy that empowers the private sector on paper is easy; the difficulty lies in actually breaking decades-old patterns of patronising the labs and production units of the Department of Defence Production.