Business Standard, 7th June 07
In a low-key meeting in the Ministry of Defence (MoD) today, the Prabir Sengupta Committee presented its recommendations before Defence Minister AK Antony on which private companies should be granted the title of Raksha Utpadan Ratnas (RuRs) or Champions of Industry.
Set up in May 2006, the Committee examined the applications of 41 Indian companies that applied for RuR status. Some 15 of them, including Mahindra & Mahindra, Tata, and L&T, were called between Dec 2006 and Feb 2007, to make presentations before the Committee. The MoD has kept a lid on how many have been finally recommended for RuR status; sources say the figure is 5-7 companies.
The report will now be considered by the Defence Acquisition Council (DAC), after which the selected companies shall be recognized as RuRs. The status shall continue for a period of five years, after which the Selection Committee and the DAC will have the discretion to give further three-year extensions. Defence Minister AK Antony says DAC approval will be accorded at the earliest. Mr Antony announced, “I hope it will happen by the end of this year.”
Companies selected as RuRs shall be treated equally, for the purpose of defence production, with Defence Public Sector Undertakings (DPSUs) and Ordnance Factories (OFs). The benefits that are linked to RuR status are:
• Eligibility to design, develop and produce major weapons platforms and defence systems.
• They will also be eligible to manufacture weapons and equipment developed by the Defence R&D Organisation (DRDO). Currently all such production is awarded to DPSUs and OFs.
• Eligible to receive technology from foreign defence corporations, and to undertake licensed production of foreign-origin systems.
• Eligible to undertake defence R&D, funded by the MoD, which has already announced that it will fund 80% of the cost of R&D by RuRs into specified defence systems.
• Eligible for duty-free import of equipment for defence R&D and for preparing prototypes of weapons and equipment.
Mahindra & Mahindra’s fully owned defence subsidiary, Mahindra Defence Systems, set up in 2000, is one of the companies that could be nominated an RuR. Brigadier Khutab Hai, Chief Executive, Mahindra Defence Systems says, “This is a very important day for us, provided the MoD actually equates the RuRs with DPSUs. We should be allowed to develop high-tech weapons platforms by benefiting from R&D funding, sharing knowledge with the DRDO, and working with the services headquarters to have a clear idea of their requirements well ahead of time, so that we are clear about what systems we need to develop for them.”
The backlash from the public sector has already begun. Trade unions from OFs and DPSUs have challenged the entry of the private sector into defence production on the grounds that this will take away their jobs. After accepting the Committee report on RuRs, the Defence Minister allayed trade union fears. Mr Antony stated, “we’ll clarify our positions to the trade unions. We want to make it clear that there is no intention to weaken the DPSUs. Even the combined public and private sector does not have the capacity to meet all the defence business that will be generated as a result of the 30% offset on defence imports. So we are bringing in reputed, credible private sector companies to increase our ability. But we will make sure that we do not weaken the DPSUs.”