MoD finalises new blacklisting policy - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Monday 7 November 2016

MoD finalises new blacklisting policy

Clears first procurements under new “Indian designed, developed and manufactured” (IDDM) category

By Ajai Shukla
Business Standard, 8th Nov 16

The ministry of defence (MoD) on Monday cleared a long-promised policy for punishing arms vendors who engaged in corruption in India.

“The MoD’s apex decision-making body, the Defence Acquisition Council (DAC), chaired by Defence Minister Manohar Parrikar, “considered and approved guidelines for the suspension or banning of business dealings with entities [selling defence equipment to India]” revealed defence ministry sources.

The new policy, which was debated at length in the DAC, seeks a way around blanket bans on global defence conglomerates that the National Democratic Alliance (NDA) government believes restricts the government’s options in buying weaponry.

Details of the new policy have not yet been promulgated. Sources said: “Details will be available on the MoD website in a few days”. It is learnt some details are being tweaked after the DAC discussion.

MoD sources say that, while the new policy does away with blanket blacklisting of entire conglomerates, companies found guilty of violating norms, especially an “integrity pact” that forms a part of all defence contracts, can still be banned from doing business in India.

Since Parrikar took over the MoD, he has strongly backed the US-style alternative of imposing tough financial penalties on companies found guilty of wrongdoing, rather than banning them from doing business. It is learned that the new policy has been able to implement this only partially.

The impetus for a new, “liberalised” blacklisting policy is rooted in the banning of Italian multinational, Finmeccanica, in 2013, after Italian investigators arrested and incarcerated the company’s chairman, Guiseppe Orsi, year on charges of bribing Indian officials to facilitate the sale by group company, AgustaWestland, of AW-101 VVIP helicopters to India.

That disrupted several vital procurements with Finmeccanica group companies. These included the purchase of 98 Black Shark heavyweight torpedoes for India’s Scorpene submarines from marine specialist, Whitehead Alenia Sistemi Subacquel (WASS); shipboard radar being fitted on the indigenous aircraft carrier, INS Vikrant, by Selex Electronics Systems (ES); purchase of anti-aircraft guns for warships from Otomelara; and, of course, AgustaWestland itself.

Under the new policy, AgustaWestland would be liable for blacklisting and financial penalties, while the group companies would be evaluated on merit.

In 2014, Parrikar’s predecessor as defence minister, Arun Jaitley, had issued tough interim guidelines for dealing with Finmeccanica group companies. The new policy will come as a relief to Finmeccanica.

The DAC also cleared the first two buys under the new “Indian designed, developed and manufactured” (IDDM) policy that the Defence Procurement Policy, 2016 (DPP-2016) designates as the preferred category for procurement.

Sources said these included “the procurement of 83 Light Combat Aircraft (LCA) from Hindustan Aeronautics Ltd (HAL), at a cost of Rs 50,025 crore, along with simulators and ancillary equipment.”

These will be Tejas Mark 1A fighters, equipped with airborne electronically scanned array (AESA) radar; air-to-air refuelling and improved electronic warfare equipment. They will supplement the 20 Tejas Mark 1 fighters that HAL is currently building.

Sources revealed: “Acceptance of necessity (AoN) was also accorded for the purchase of 15 light combat helicopters (LCH) from HAL for a total indicative cost of Rs 2,911 crore.”

These are the first orders for HAL’s prestigious new attack helicopter. It is learned that ten will go to the air force and five to the army for user evaluations.

AoN was also accorded for the procurement of 464 T-90 tanks from the Ordnance Factory Board for an estimated cost of Rs 13,448 crore. The OFB has a licence from Russia to build and sell 1,000 T-90 tanks for the mechanised forces.

Sources said the DAC also cleared in principle the purchase of 598 mini-UAVs for the army for Rs 1,100 crore in the “Buy Indian” category; and the issuance of tenders for the purchase of six regiments of Pinaka rocket launchers, which have been designed and built in India.

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