MoD breaks its own rules to favour its PSU - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Thursday 11 February 2010

MoD breaks its own rules to favour its PSU

The Samyukta EW system, in which the DRDO partnered Tata Power SED to create fully-indigenous Control Centres

(3-article series on: DPSU Dadagiri: hanging onto monopoly)

By Ajai Shukla
Business Standard, 12th Feb 2010

Uncertainty hangs over one of India’s most strategically vital Electronic Warfare (EW) programmes after the Ministry of Defence violated its own procurement rules by handing it over on a plate to Bharat Electronics Limited (BEL).

The Rs 2000 crore project for developing a “Track and Wheel Based EW System” was first offered to several vendors (MoD letter No B/50529/TWBEWS/ SURAJ dated 12th June 08). Three months later, inexplicably, the MoD discarded competitive bidding and categorised the system as “BUY INDIAN BEL”. No such category exists in the MoD’s Defence Procurement Procedures of 2006 and 2008 (DPP-2006; and DPP-2008). The CAG, the CVC and the Ministry of Finance have repeatedly stressed on the need to ensure multi-vendor bidding.

In doing BEL this favour, the MoD overlooked the claims of companies like L&T, Axis, and Tata Power Strategic Electronics Division (SED), the firm that Dr APJ Abdul Kalam, called up IN the late 1990s to help develop the Samyukta, India’s first major EW system. So vital was Tata Power SED to the Samyukta that, at a time when the private sector was not allowed into defence production, a special gazette notification designated the company a “Gazetted Work Centre” for the Samyukta.

Emailed a questionnaire on this violation of rules in favour of BEL, the MoD has not responded.

Electronic Warfare is modern warfare’s crucial fourth dimension. The winner of the physical contest on land, sea and air, is increasingly decided through an unseen battle fought over the electromagnetic spectrum. In this Electronic Warfare (or EW), each side scans the enemy’s radio, radar and data transmissions, taking in his operating frequencies and monitoring his plans. At a key point in battle those frequencies are crippled by powerful electromagnetic surges, leaving the enemy directionless and blind.

For obvious reasons of security, serious militaries all demand indigenous EW systems. In the Samyukta project, Tata Power SED produced an entirely Indian Control Centre, the heart of the system. Rahul Chaudhry, CEO, Tata Power SED, elaborates, “Our engineers wrote a million lines of code for the Samyukta. We also produced the ruggedised control workstations, entirely renouncing any support from foreign entities.”

In contrast to Tata Power SED’s indigenous effort, Business Standard has learned that BEL’s share of the Samyukta, including the crucial radio sub-systems, imported the bulk of its components from vendors that included Thales (France); Rhode & Shwartz (Germany); and Elisra (Israel).

But the Minister of State for Defence Production, MM Pallam Raju, justifies this preferential treatment to BEL, one of its 8 Defence Public Sector Units (DPSUs), the profit of which goes to the MoD. Pallam Raju told Business Standard, “I think that we have a responsibility to the DPSUs since [their] ownership rests with the Government of India… I have observed the capabilities and capacities built up in the DPSUs, and it will be very difficult to replicate them today. So having built up these capabilities and capacities, it is important to utilise these assets in the service of the nation.”

BEL’s windfall in being assured a large order of the “Track and Wheel Based EW System” will allow it to aggressively subsidise several other EW projects that are being tendered, including the Rs 1300-1400 crore “Integrated Electronic Warfare System (IEWS) for Mountain Terrain” and the IEWS for Cross Country and Desert Terrain.

Private industry sources complain that this extraordinary favour to BEL comes even as the military courts the private sector in building defence industrial capability. In July 2005, the Headquarters Integrated Defence Staff (HQ IDS) shared its long term perspective plan --- entitled “Technology Development for Joint War Fighting Capability” --- with private industry, after which several private companies sunk money into developing the identified technologies, including EW technology.

With BEL poised to corner the profit, private companies that sank tens of crores into technology development say they have no option but to market their crucial software codes. Overseas EW integrators are looking for suitable Indian software as a method of discharging their offset obligations. That entails the danger of EW software codes finding their way into commercially available EW systems, available to countries inimical to India.

(Tomorrow: On a short fuze: ECIL’s explosive strategy)


  1. Amazing. Sensitive technology is being imported from foreign sources through PSUs, and indigenous efforts are being strangled.

    You can be 100% sure that the imported technology will be chock-full of trojans, kill-switches, etc, which will mean that Indian war-fighting capacity will be at the mercy of foreign nations.

    Many of our leaders or either totally naive and spineless, or have foreign loyalties enforced through blackmail, bribes, and family relationships.

  2. Mr.Pallam Raju must realize that in the name of making profit for MOD, they are making the Indian nation weak by totally denying Indian armed forces the best equipments and importing them from foreign sources. How come foreign equipment bring any benefit to Indian nation? They can order T-90's after T-90's from abroad but cannot produce Arjun in India. See the stupidity of the MOD here.

  3. If MOD's idea behind buying arms from France is to somehow bribe its way to a permanent UNSC seat, then that's the most f'd up route to take.

  4. Yawn.. Welcome to reality Dear Ajai Shukla. These conflicts are inherent and were just papered over earlier. The system in India is just plain broke. You cannot have the MoD be the Judge, Jury and Executioner all as one.

    The DPSUs should be removed from the MoD and be transferred to the Industry Ministry. Without that, there can be no reform in Indian defense and you can never have a level playing field with the Private Sector or Import and you will have Babu Monkeys and Mantris running the system by fiat and rules of convenience and political considerations.

    All this was discussed in BR thread bare long long ago (some time before you had the run in with the folks there on the Arjun).Good that you have finally got around to writing about it now.

    The issues are well known, the solutions are well known. But who is to bell the cat ?. The MoD meanwhile plays the "rope a dope trick" . Even if the private guys get in and invent something and it is accepted (like some of them did on the MoD road map for reforms.. Suckers, fell for the oldest trick in the babu-monkey book) , the large manufacturing orders and bulk of value will go to the "inhouse' DPSUs , so that the money is kept in house, the DPSUs dont lose market share and the MoD doesn't have to take tough decisions on what to do with a bunch of semi comatose enterprises which need to be kept on life support and are drain on the MoD bugdet.

    Easy solution I think is to make it some body else's problem. Give them off to the Industry Ministry and open procurment (including make and buy) to everyone on a level playing field. Then the DPSUs (now with industry ministry) will either have to swim or sink. I would bet on the latter rather than the former ,I think .

  5. Why dont these private companies drag Pallam Raju and company to court?

  6. Ajai Sir

    Thats exactly what i said yesterday.

    1. We develop software codes for defense systems and then we dont take. Inexplicably favoring DPSUs where for every 100 employees, only 15 work while the rest just come and go and take fat salary.

    2. We shout from the top of the house that the foreign equipment sourced cant work bcoz, the supplier has refused to share the software in full.

    3. We talk of brain drain but when we dont encourage our own guys to do work in India, why and how we expect the brain drain to stop.

    4. As u said with sensitive material developed exclusively by us for use in defense systems in commercial market, wait till we see companies selling them to countries that are hostile towards us.

    5. The day is not far when companies like Elta Israel, will procure them and modify them and sell them back to India.

    6. In the end we lose money, lose expertise, and finally credibility as a nation that discourages people to develop things that r 'By Indian, For Indians'.

  7. One of my friend in Delhi long time before met with AK Antony and Pallam Raju. You know what he said. They look like sharks. They just want to smell money everywhere. One important point to note is that he told me that, when questioned for something AKs answer was always way ahead from the questions. Seems that at that time he was even not aware of many basic things in MOD. There are so many cases in name of Mr Antony in past for scams. Please add this also to him. There is a big bunch of cheaters and greedy people. Its really unfortunate that in our country most important bodies like MOD are based on corruption. And this story will go on many years.

  8. Amazing that you should mention it at this time. EWCI-2010 concluded just yesterday. Among the dignitaries invited for the inauguration was Mr. Ashwani Kumar Datt, CMD, BEL, who was also one of the patrons for the conference. Samyukta was mentioned in his speech, and also mentioned by him was how he met repeatedly with Vice Admiral Dhowan to iron out issues with the Samyukta system. Noteworthy at this point was that Vice Admiral Dhowan didn't look very happy.

  9. It is surprising to see this happening despite of govt's emphasis on privet sector company's partnership in defense sector. Good work. keep it up Ajai.

  10. Is Tata not Indian ?

  11. It is depressing reading such reports. Our defence preparedness is going only one way, Down!

    AK and Raju should be sent back to backwaters where they can sell banana chips and coconut oil. Defence should be left to the people who really understand it.

  12. 3 WORDS,


  13. Ajay,
    Can you please do me a favor?

    BEL imports lots of things from chinese huwai at low cost and installs them (including the crucial encryptors and other communication equipment )for all 3 forces.

    BEL`s way of doing things is one sort of nasty way.It imports the cheap and non-secured products from indias primary foe and makes profit for MOD.

    In short, whole establishment is following the wrong path.
    I can see many gandhis changing hands under the tables behind MODs cover.

    We shouldnt let this happen.We are putting a nation of 1.2 billion at stake.

    MOD should be held accountable for this wrong doings and BEL top core management should be courted for treason. They are traitors.

  14. Ajay,do you have any idea who is the supplier of equipment for IGI airport control systems?

    I smell some thing wrong there.If its a foreign vendor, lets kick the AAI ass.

  15. I dearly hope that tha italian party ruling the roost is thoroughly wrecked in the land of coconuts, and Antony is sent back to rectify it

  16. There are so many cases in name of Mr Antony in past for scams.
    Can you please name a few?
    Just because a minister is not fully in favor of privatization, he should not be painted Greedy.
    Antony's speech or looks are not pretty impressive but that doesn't mean he is not doing his job well.

  17. The private sector folks don't seem to be very bright if their contracts don't stipulate royalty payments for the work used by the DPSUs. They need to get some good lawyers on staff to make sure they get paid for the use of their IP regardless of who builds the systems.

  18. Antony comes from Kerala where his vote bank is the unions. The unionss do not favour privatisation or performance. Hence Antony, due to vote bank politics, is putting his re-election ahead of India's defence needs. I am a bit surprised about Pallamraju though. Even tho in a similar vote bank situation, he is an industrialist and should better understand both the needs of the nation and industry.

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