Wednesday, May 29, 2024

State-owned BEL Secures Three Defense Contracts Without Competition, Prompting Private Sector Fairness Concerns

By Staff Correspondent

State-owned defence company Bharat Electronics Limited (BEL) has secured three defence contracts from India’s Defence Ministry without competition with other vendors, worth 67 billion rupees (around $814 million). This move has decreased private defence contractors’ business share to just 15%. In one of the contracts signed on March 24th, the ministry awarded BEL around 30 billion rupees for the Himshakti integrated electronic warfare system developed by the government’s Defence Research and Development Organisation (DRDO), which assists the Army in mountainous regions. While private defence contractor Tata Power SED had won a $115.37 million contract for two similar systems in a multivendor competition, the ministry has ordered two Himshakti systems from BEL on a single-vendor basis.

BEL also received two other contracts from the ministry on March 23rd for locally made Arudhra ground-based, medium-power radars and DR-118 radar warning receivers, worth around 28 billion rupees and 9.5 billion rupees, respectively. The Arudhra systems are the first indigenous multifunction, rotating active phased array radars with digital beam-forming technology, replacing Thales’ legacy TRS-2215 and PSM-33 radars. Most subassemblies and parts will be sourced from domestic manufacturers, contributing to the local economy and providing employment opportunities. BEL says the Arudhra enhances the Indian Air Force’s (IAF) surveillance capabilities.

The DR-118 is an improved version of its predecessor and is now integrated with the Su-30MKI fighters, which previously employed analogue technology. According to independent defence analyst and retired IAF officer Daljit Singh, this is seen as a positive development toward self-reliance. The Ministry of Defence (MoD) states these contracts will strengthen India’s defence capabilities and bolster the local industry’s position.

While private defence firms have supplied the Indian military with various defence equipment and systems, such as guns, rocket systems, ships, underwater platforms, sonars, drones, vehicles, radar systems, electro-optical systems, naval weapon systems, bridging systems, integrated platform management systems, and air defence missiles and launchers, they primarily serve as suppliers to state-run defence companies. According to defence analyst Major General VK Madhok, “this is due to the government prioritising Defence Public Sector Undertakings (PSUs), hindering the private sector’s contribution to overall defence production.”

Defence and aerospace industry experts suggest that the Indian government adopt more nuanced strategies to boost the private sector’s involvement in defence production. Former chief of acquisitions for the Ministry of Defence (MoD), Vivek Rae, suggested that the ministry reserve some competitions for contract awards solely for the private sector. Similarly, the Chief Executive Officer (CEO) of a small private defence enterprise agreed and called for the government to look beyond state-run companies while deciding on the production order.

Jayant Damodar Patil, a Member of the Executive committee of Management Larsen & Toubro, and Advisor Defence and Smart Technologies to CEO and MD Larsen & Toubro called for new economic models and processes to benefit India’s defence export market. He also stated that the government needs to make fair and quick decisions on contract awards and avoid bureaucratic red tape to lessen the cost of acquisition. However, with the government prioritising state-run defence companies and its own DRDO, the private sector’s contribution to defence production suffers.

Creating the embargo lists is complicated as the MoD wants to focus on items that might be needed going forward but can also be locally produced. To establish a level playing field, experts suggest that orders on a nomination basis to state-run companies should be stopped completely, especially where the private sector has the infrastructure and capability to compete. Additionally, the Central Vigilance Commission (CVC) released a memo in April 2021, calling for more transparency in how contracts are awarded, particularly when they are done on a nomination basis.

The commission has stated that if an award is based on a nomination process, the details of the contract and justification for the decision must be made public. According to Ashok Baweja, who leads a defence unit at Quest Global Engineering and previously chaired Hindustan Aeronautics Limited (HAL), the arms embargoes have presented opportunities for private and public defence sectors. However, he noted that India’s private sector lacks government funding and manufacturing support for prototype development in defence projects that align with realistic technical parameters and involve timely orders.

Notwithstanding the difficulties, private companies have leveraged their relationships with foreign businesses to gain access to technologies such as gyros, gimbals, image intensifiers, sensors, and metallurgy techniques. In recent years, the private sector has expanded its expertise in designing and developing defence electronics, software, and artificial intelligence.

Satya Prakash Shukla, who heads the Society of Indian Defence Manufacturers (SIDM) and the defence, aerospace, and agriculture units at Mahindra Group, remarked that the embargo lists have been well received by India’s defence industry. However, determining which items to prioritise for local production while considering future needs is complex. Experts suggest that orders based on nominations to state-run companies should be halted entirely to ensure a level playing field, particularly when the private sector possesses the infrastructure and capability to compete.


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