Flip-Flop By Ministry Of Defence Delays Acquisition Of Crucial Ammunition For Army

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While the Ministry of Defence is still undecided about keeping out the inefficient public sector undertakings (PSUs) from manufacturing vital ammunition, the Indian Army continues to wait for it.


Inexplicable flip-flop by the Ministry of Defence (MoD) over a decision to keep out inefficient public sector undertakings from participating in fresh tenders to manufacture vital ammunition for the Indian Army, has dismayed private players in the fray.

Eight Requests for Proposal (RFI) were issued in November last year for the manufacture of different kinds of ammunition needed urgently by the Indian Army. The contracts, once finalised would run into at least USD 5 billion worth of orders over the next decade.

In fact, the MoD had in 2015 recognised the need to augment capacity for ammunition manufacture in private sector since the Indian DPSUs and the Ordnance Factory Board (OFB) were unable to meet the perpetual critical shortages faced by the Army. Pre-bid meetings were accordingly held with prospective private players in late 2016. In these meetings, PSUs—Bharat Electronics Ltd (BEL), Electronic Corporation of India Ltd (ECIL) and OFB — were not invited as the MOD had decided to build additional capacities in the private sector only.

Subsequently, Director General Ordnance Services (DGOS), published RFPs in March this year for procurement of eight types of critical Ammunition Stores inviting offers from the private sector only. The intended participation of Indian private industry in this segment was aimed at harnessing the capabilities of the private sector to accelerate the process of indigenisation of strategic ammunitions to meet the requirements of Armed Forces.

The MoD had good reasons not to allow DPSU participation. According to figures available with those who have the responsibility to deal with ammunition availability, BEL and ECIL, entrusted with manufacturing the crucial electronic fuses meant for 105 and 130 mm guns, will take five and six years respectively to complete the existing orders given to them, because of their own track record, dating back to many years, of manufacturing just about 50,000 fuses per month.

The Army cannot wait so long. Therefore the decision to invite the private sector participation in what is considered a strategic sector was taken. The idea was to create additional capacity in the country (in the private sector) even as DPSUs continued to manufacture part of the requirement.

Accordingly, sources say as part of the RFP process, the pre-bid meeting was held at Sena Bhavan on 8 May 2017 in which DPSUs were not allowed to participate as the response was invited only from the private sector. In fact, representatives of some PSUs who happened to be in the room were barred from attending the pre-bid discussion.

Then suddenly, in early June following vigorous lobbying by representatives of ECIL and BEL, the Department of Defence Production (DDP) apparently reversed the earlier decision not to allow DPSUs to participate in the eight RFPs under discussion.

The fear among private sector players now is that the level playing field that was being offered by the MoD by keeping the DPSUs out is being abandoned. The reason is simple: DPSUs already have the rights to technology sourced from abroad–and purchased earlier. They can, therefore, quote a price much lower than the private manufacturers who are still in talks with some of their foreign partners for the Transfer of Technology (ToT). “In the event, this RFP is extended for bidding to DPSUs, PSUs and OFB… (it will) result in a further additional price advantage to the DPSUs, PSUs and OFB due to the ability to cross-subsidize across two different orders,” one of the associations said in a letter to the government.

While the DPSUs can theoretically supply crucial ammunition at a lower price, they are certainly not in a position to meet the timelines prescribed by the Army. In any case, the Army is not taking away the orders from the DPSUs; the private players would only add to indigenous capacity.

As other private sector competitors said in a communication to the government: “We learn that the PSUs are being allowed to participate in the bidding which would definitely be a retrograde step…allowing the entry of PSUs will be the repeat of the PSUs dependent model which has repeatedly failed miserably over all those years.”

Almost all of them have sought reversal of the MoD decision and have even approached the Prime Minister’s office (PMO) to intervene in the matter.

While the government’s final decision is awaited, there is clearly an internal tussle on within the MoD, given that the final extension for participation in the eight crucial ammunition tenders is yet to be published by the ministry.

Meanwhile, the Army continues to wait for the crucial ammunition.


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