L&T hopes to bag defence contracts worth ₹40,000 cr

The alacrity with which the government has moved with its defence policies, clearing and finalising the Strategic Partnership Policy and integrating it with the new Defence Procurement Procedure, has come in for huge praise from engineering conglomerate Larsen & Toubro.

With defence contracts worth more than $34 billion hinging on these decisions, Jayant D Patil, Whole-time Director and Senior Executive Vice-President (Defence Business), L&T, says the momentum should not be lost, for getting to initial operational capability will take additional time.

Like other private sector defence majors, L&T has been waiting in the wings for multi-crore defence projects to take off, and is hopeful of bagging some six contracts amounting to ₹40,000 crore. Given the emphasis on indigenous technology, Patil avers balancing technology and declining budgets could be a tough call for certain private defence players who do not have any track record with a defence project. Edited excerpts:

Though there has been a significant shift towards domestic procurement, there is still tremendous scope for improvement in the pace of acquisitions. If one compares a defence shipyard with a private sector, the shipyard relies on 75 per cent import content and despite that the project is delayed. A private company could do it much faster and make it far larger with 75-80 per cent indigenous content. Hence, it was imperative to involve the private sector.

It took longer for the government to make the (SPP) announcement because it was necessary to break through a whole lot of mindsets. The fundamental principle is that the defence industry is procedure-bound. The SPP has now clearly defined a process through which the selection can be done.

It took four rounds of different committees to suggest this. Several committees were appointed to look into it like the Kelkar committee, the Sisodia committee, the Rama Rao committee, the VK Misra committee...The basic principle came out of the Dhirendra Singh committee, which stated that private companies could front-end and manage complex defence projects at par with DPSUs (Defence Public Sector Undertakings) and OFs (Ordnance Factories). The Atre committee actually put the matrix to it, recommending guidelines for selecting domestic private firms for strategic partnership in critical segments like submarines, aircraft and missiles.

Since the matrix was incomplete, or a bit too theoretic from the practioner's perspective, the industry committees were brought in. There were specific recommendations from the industry for each of the platforms.

Personally, in the last 31 years of dealing with this business, I haven't seen such speed. And rightly so. This is obviously something that was sorely needed by the industry. The momentum should now continue in right earnest.

Apart from some large contracts which came L&T's way, there have not been any major programmes that have kicked off under Make in India.

Make in India is the new paradigm for change. Not just for today, but to shift from a situation of large scale imports to actually making in India. All of this will happen right here, since we will move from Make in India to Made in India. This gives a huge strategic advantage, as we will never be dependent on any export control for defence products.

DPSUs are supposed to be independent, and will continue doing what they have been doing. Most of our shipyards actually buy and assemble. We are hull makers and provide some amount of design. One cannot continue to be assemblers. Though we do not have many mature players in the private industry, we can counter this by distributing the commercial weightage of the project between two partners, say 80 per cent and 20 per cent weightage.

From a situation of importing 70 per cent for our defence requirements, we have brought it down to 60-70 per cent during the last three years. If a few more Indian companies are allowed to bring in their expertise in the defence sector, there is a chance imports may drop to 40 per cent.

Big ticket items were stalled and this announcement was sorely required, because it puts the private industry on a different map now. The current RFPs (request for proposal) have all been of the previous regime.

Though some amount of system integration was indeed present in the DPSUs, I won't call it holistic, there was no reason to hold the private sector at bay.