Despite announcements almost every month, not one big project has taken off. With just about a year left, Modi govt unlikely to have much to showcase in 2019.
It is time to call a spade a spade. For the defence sector, which was supposed to be a cornerstone of the initiative, the Make in India story is over. In fact, it ended even before it began — not a single major project took off despite the best of efforts, or claims, in the last three years.
The Narendra Modi government’s biggest initiative — to involve the private sector in mega defence projects as ‘strategic partners’ — has gone through so many rounds of expectations, amendments and interpretations that its very concept is now on shaky grounds.
It can safely be said that in this tenure, and given the pace at which things are moving, the NDA government is unlikely to sign off on any of the mega plans it had to award contracts to the private sector for manufacturing fighter jets, submarines and tanks.
The aim was to initiate the process of creating India’s very own Boeings and Lockheed Martins to compete in a global market. But as things stand, Indian companies that invested in the defence sector are on the verge of bankruptcy, with some even facing insolvency litigation.
The problem is that there is just not enough time left. For the strategic partnership plan – involving multibillion dollar Make in India projects – the meagre one year and change that this government has will leave things hanging midway, if they take off at all.
Selecting an Indian private company for a mega project is a long process. From inviting bidders to starting financial evaluations, assessing technical capabilities and then getting involved in lengthy conversations on pricing and delivery, the process is not only long, but is fraught with the many perils of working in the defence sector – rigging, lobbying and heartburn.
The fastest that India has perhaps selected a major military system in recent years was the emergency purchase of basic trainers for the Air Force. With the HPT-32 aircraft grounded due to safety issues, the IAF pressured the UPA government into an emergency purchase at breakneck speed in 2009. It still took three years from issuing tenders to signing.
For the strategic partnership plan – set to face teething troubles due to its unique, untested model – even tenders to start a selection are yet to be approved. It is a different story of course that the super-fast basic trainer deal – eventually won by Swiss company Pilatus in 2012 – is currently facing a CBI inquiry on allegations of undue favours by the Air Force in the selection process; an inquiry that has incidentally raised alarms in the bureaucracy as well as the Air Force top brass.
A careful bureaucracy is unlikely to push through projects without due process, well aware of recent scams and scandals such as the AgustaWestland VVIP helicopter case that put a former IAF chief behind bars. Therefore, a mega project taking off – resulting in the actual signing of a contract – is unlikely in the short timeframe left for the government in power.
The AON story
So, what is this buzz about the defence sector that makes it sound so exciting? Announcements about some major project or the other have been made almost every month in the past years, often in the thousands of crores, getting ‘cleared’.
A running joke in the industry is on the big ‘AON scam’. Mind you, this is no corruption scandal involving middlemen and commissions, but an optical illusion that shows that all is well. An AON or ‘Acceptance of Necessity’ is the very first stage of a military procurement.
Simply put, it means that the government agrees in principle that the particular service requires what it is asking for, say a new rifle or a fleet of submarines. It is also a go-ahead to start exploring the process for acquisition. Not all AONs result in tenders being issued, and most lapse several times as the service is unable to move ahead due to technical or financial issues.
Yet, most AONs granted and re-granted by the ministry are celebrated as mini events, heralding a new dawn for Make in India. In a recent answer in Parliament, when asked for achievements on Make in India, the defence ministry again came out with a list of AONs it has ‘accorded’ in the past three years.
The number seems impressive – 148 capital acquisition proposals have been cleared (granted AON) by the government in the past three years, of which 105 proposals worth approximately Rs 2.33 lakh crore have been categorised as Make in India.
The reply also states that the broad timeframe to execute and sign these is between one-and-a-half and two-and-a-half years. However, not a single one of these proposals under Make in India has managed to make it through to full approvals.
As far as private industry is concerned, defence is now a stagnant sector. Companies that took the plunge and hired big in anticipation for orders are now retrenching staff, many of them taken from public sector unit assignments. At least one shipyard is on the verge of getting shut down, while others are incurring unsustainable losses.
It is a sector not for the faint-hearted. And as things stand, the story is over for now and in the hands of the new government that will take power in 2019.
Read Global Pulse for a sampler of the big international stories, and why they matter.