Award of Raksha Udyog Ratna status to private firms soon; selection committee submits report

New Delhi: A high-level selection committee, appointed to identify Raksha Udyog Ratnas (RURs), submitted its report to defence minister, AK Antony, in New Delhi on 6 June 2007. The committee, headed by Prabir Sengupta, was mandated to examine the ways and means of engaging various industries and companies in the country's defence production.

The head of the committee, Prabir Dengupta is a former secretary, defence production, and also former director, Indian Institute of Foreign Trade.

The committee was set up in May last year to identify Tier-I industries in the country which could be systematically involved in defence production. These industries will be expected to assume the role of system integrators of large weapon systems, and also producers of various weapon platforms required by the defence services.

The names of companies recommended by the committee will be notified only after the Defence Acquisition Council approves its proposals.

The Kelkar Committee
The Kelkar committee, set up by the Government to examine, and recommend, changes in the acquisition procedures of the ministry of defence and also to study ways and means of enabling a greater participation of the private sector in defence production submitted the first part of its report to the Central Government in April 2005.

The thrust of Part I of the committee's report, "Towards strengthening self-reliance in Defence Preparedness," was to take into account the increased capabilities of Indian industry, as well as the growing globalization of the defence industry in general.

As part of its study, the committee focused on the ways to encourage the involvement of the country's best firms in building capabilities in the defence sector, pursuing the offset policy to bring in technology and investment into the sector, exploring synergies between the private sector and the defence public sector undertakings (DPSUs), ordnance factories (OFs) and the Defence Research and Development Organisation (DRDO). Its recommendations were intended to create an environment in the country that would result in a quantum jump in the export of defence equipment and services.

As part of its overall recommendations, the Kelkar committee also recommended the identification of "entry points for the private sector in the acquisition process" of the ministry of defence, as well as the "accreditation and fostering of Raksha Udyog Ratna /Champions," amongst such private entities.

It also asked for the evolution of a "policy framework to promote participation of small and medium enterprises in defence production."

In its report, the Kelkar committee said that it hoped that the "implementation of its recommendations would also result in substantial economic benefits to the country." The committee felt that the measures outlined in the report, if implemented, would lead to a high degree of indigenous production. This, in turn, would result in increased growth in the GDP, greater employment opportunities and substantial savings.

The committee also pointed out that there would be "greater self-reliance in defence production, benefits in terms of R&D, technology spin-offs, higher industrial growth, higher exports, increased competition and more employment opportunities, besides cost savings."

The Sengupta committee
With the submission of the report by the Sengupta committee, at least one portion of the Kelkar committee's overall recommendations has now reached a point of fruition. With the government expected to release the names of the likely RURs sometime this week, if not very soon, an important phase of the overall defence acquisition policy would be in place.

The submission of the report assumes importance in light of the fact that several big-ticket defence acquisitions are awaiting action, in particular, the Indian Air Force's medium range multi-role combat aircraft (MRCA) programme. Movement on such programmes has been held up because of lack of clarity on issues, which the Sengupta committee would have addressed. The MRCA contract, amongst others, is dependent on an offset policy being in place, before it can be expected to move to the next stage.

The other members of the committee were NR Mohanty, former chairman, HAL, SH Khan, ex-chairman-cum-managing director, IDBI and Bakul Dholakia, director, IIM Ahmedabad.

Experts from the three armed forces, the Integrated Defence Staff (IDS), DRDO and finance officials from the ministry of defence as well as from Engineers India Limited assisted the committee.

M/s Engineers India Limited provided technical assistance to the committee.

In the run…
Meanwhile, it is being widely speculated that the committee's report is likely to recommend the names of top private firms, such as Tata Motors, Tata Power, L&T, Godrej & Boyce, Mahindra & Mahindra, Ashok Leyland and Bharat Forge for the newly proposed status of RURs. The award of such a status would enable these firms to avail of all benefits that currently accrue exclusively to state run defence PSU's and organizations.

According to officials from such firms, an RUR status would allow them to manufacture complex weapon systems and high-end defence equipment. It would also allow transfer of technology from foreign players, a facility that so far has been limited only to the defence PSUs.

It is also being speculated that the criteria to be laid down for selection of RURs is likely to be very stringent. It is likely that selected companies will have to be listed entities, for a minimum of 10 years, and should have foreign holding (excluding FII stake) not exceeding 26%. It is also expected that such companies would need to have a recorded turnover of at least Rs1,000 crore in each of the past three years, with a credible track record in engineering, manufacturing and quality assurance, among other criteria.