New Delhi delays defence reforms again

[Nafees]

Industrial reform in India, which will see competition for the first time between state-owned and private defence companies, has been further delayed by the Ministry of Defence (MoD), a spokesman said on 18 December.

The MoD was initially scheduled to announce the names of the private firms that had been selected for what is known in India as 'Raksha Udyog Ratnas' (RUR) status in June 2007. Since then, however, the announcement which will confirm the list of private companies to be granted a number of benefits that are currently only given to state-owned companies, or Public Sector Undertakings (PSUs) has been delayed several times.

When an Indian Mod spokesman was asked on 18 December whether the announcement would be further delayed until 2008, he replied: "Yes. The [announcement about the] RUR policy and the list of companies has been delayed further. The MoD is now working on both." The spokesman added that he was "unable to say" when the MoD might be ready to go live with the policy.

According to a leading Indian defence industry analyst, however, the delays have been caused by a number of factors, all of which could lead to the policy being postponed for up to one year. Deba R Mohanty, a senior fellow in security studies at the New Delhi-based Observer Research foundation, said that he believes there are four reasons why the Indian government is not ready to push ahead with the RUR policy.

First, he said, the government is buckling under " tremendous pressure" from defence PSU trade unions not to implement the changes, which they believe will lead to the privatisation of the defence sector; second, large private companies that have not been selected for RUR status are demanding to be included; third, companies on the list are requesting more benefits, such as research and development funding, under the status; and fourth, the government is "over-scrutinizing" the companies' capabilities.

Mohanty added: "I am concerned that this very important policy for India's defence industry future might be delayed for up to one year because of these reasons. We may have a general election in India next year and, if we do, then [the RUR policy] will be delayed even further, maybe up to one year."

The RUR policy and the accompanying legislation will allow an estimated 12 private Indian Companies to design, develop and produce items that have been developed by the Defence Research and Development Organisation (DRDO).

Source: Jane's Defence Weekly

 

[Contrarian]

Another problem that i think is that small companies who are also crucial to many things would not get the RUR status, only the big companies would get it. So then automatically, these small companies get disadvantaged vs the large companies which defeats the purpose of having a level playing field for all, Private and Public. It would squeeze out the smaller companies. Private vs Private competition also has to be taken into account.

 

[Energon]

Although the four reasons listed in the article seem very plausible, IMO the biggest underlying factor here is that people are trying to figure out how to turn the new system into a cash cow as the old one was.

Just the general secrecy of the entire arms trading arena probably makes it one of the most corruption prone industries in the world. So far the Indian one was no different, it was a great way for many a politician, bureaucrat, middleman and arms producer to make a obscene amounts of money. Now with local privatization all of this will change.

It is obvious that local Indian manufacturers (who are notoriously frugal) will not be in a position to offer gargantuan multi-currency kickbacks like their foreign behemoth counterparts for some time to come. If anything, the MoD will have to provide them with a lot of funding in the beginning to start up R&D and production facilities, which means that there are even less funds available for poaching.

I think it's hilarious that the GoI is busy "over scrutinizing" the capabilities of potential contractors when each and every one of their own (capability) is woefully inadequate. Historic trends from other industries also indicate that the Indian private sector can pretty much pw3N any state owned/operated company in a field within a short period once it's liberalized. One need not look further than the industries of: steel, communication, automotive, services, manufacturing, construction, health care, finance, etc etc to notice this trend. The only "capability" the government is really interested in is to assess how fast their age old cash cow will get mowed down and how to set up a system so as to minimize their personal losses.