BAE systems’ 155mm towed howitzer, M777, manufactured by the USA, on display during the Defexpo India 2014 bin New Delhi. (Express file photo by Oinam Anand) BAE systems’ 155mm towed howitzer, M777, manufactured by the USA, on display during the Defexpo India 2014 bin New Delhi. (Express file photo by Oinam Anand)

The recommendations of a Defence Ministry task force, set up to identify Indian private companies as strategic partners for development of critical military platforms such as aircraft, warships and armoured fighting vehicles, are likely to be contentious.

The Aatre task force, expected to submit its report this week, has proposed weightages and assets criteria which allow only a few Indian private defence manufacturers to qualify for strategic partnerships. The financial criteria finalised by the task force will shut out a large number of other manufacturers.

By entering into a strategic partnership with chosen 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.

Headed by the former chief of DRDO, V K Aatre, this task force 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.

“We are on course to submit the report to the defence ministry in the next few days. It is up to the defence ministry when and how it releases our recommendations,” V K Aatre told The Indian Express.

According to sources, the Aatre task force has recommended that there should be 15 strategic partners selected for defence manufacturing.

The Dhirendra Singh committee had identified six areas for strategic partnership — aircraft, warships, submarines, armoured fighting vehicles, complex weapons that rely on guidance system, C4ISTR and critical materials — but the Aatre task force has further divided these six areas into 15 sub-segments. Each sub-segment will have one strategic partner from Defence PSUs and private businesses.

It has 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.

The most contentious among these is the financial criteria, where 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 Rs 750 crore during the last three years while the corresponding figure for a unlisted company is Rs 250-500 crore. The annual turnover during the last three years for a listed company has been recommended at Rs 4,000 crore for a listed company and Rs 1,000 crore 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 hoping to become a strategic partner.

Among other conditions recommended by the task force, a listed company should have an “A” CRISIL rating, capital assets of Rs 2,000 crore 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.

The task force has also suggested that no cross-holding should be permitted between strategic partners and the original equipment manufacturer should not be allowed to hold any FDI in the Indian strategic partner company.

Sources said the task force has also recommended that the management of the company, i.e., board members, CEO, Director etc., 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 sources say 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.

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