Manufacture of Ammunition by Private Sector: A Case of Policy Flip Flop

The recent decision of the Government to cancel tender for ammunition worth billions of dollars that were to be placed on the private sector is definitely not in sync with the Government’s claims of creating a domestic ecosystem but also has dampened the hopes of the private sector industry.  An attitudinal change and handholding by Government to private sector is the need of the hour if India wants to reduce imports dependence.

Over the last few years, the Government has been aiming at achieving substantive self-reliance in the design, development and production of weapon systems/technologies required for defence. While, also claiming at creating conducive conditions for the private industry to play an active role in the defence sector through its ‘Make in India’ initiative, enhancing the potential of these in indigenisation and broadening the defence Research & Development (R&D) base in the country. However, the recent decision of the Government to cancel orders for ammunition worth billions of dollars that were to be placed on the private sector is definitely not in sync with the Government’s claims of creating a domestic ecosystem but also has dampened the hopes of the private sector industry. Resultantly, the country will have to continue its dependence upon imports of ammunition especially that of critical and specialized ammunition to meet its requirements. Noteworthy, India has been importing various types of ammunition in the last few years to the tune of average about Rs. 1000 Crores each year.

Present Scenario

Till date, only state-owned Ordnance Factory Board (OFB) has been permitted to manufacture and supplying of ammunition for the Defence Services but these entities are alone unable to meet the needs of the Armed Forces. This can be substantiated with the fact that in 2018, India resorted to emergency import of ammunition worth Rs 20000 Crores to meet the immediate requirement of the Armed Forces. Moreover, the Forces have also been disgruntled with the ammunition quantity and quality related issues as reflected in the various Comptroller and Auditor General (CAG) reports in the past.

Till date, only OFB has been the sole manufacturer and supplier of ammunition to the Defence Services but these alone are unable to meet the needs of the Armed Forces. While, on the other hand the private sector are only permitted to participate in manufacturing parts of ammunition and certain categories of explosives.

Two CAG reports of 2015 and 2017 highlights the fact that only ten percent of the 170 types of ammunition required by the three defence services meet the War Wastage Reserve (WWR) requirement, which mandates stockpiling ammunition for 40 days of intense war. Even going by a diluted requirement called the Minimum Acceptable Risk Level (MARL) – which mandates just half the WWR stockpile – three quarters (125 types) of the 170 types of ammunition were in short supply. Further, to be seen that most of the major sub systems of the ammunition developed by the DRDO have run in initial teething troubles and still being imported.

On the other hand the private sector which seems to have or can develop capability has been denied of participation in the manufacture of ammunition. They are only permitted to participate in manufacturing parts of ammunition such as the shell, fuse, adopters, tail units etc. Further, certain categories of explosives like flares, Bicat Strep, Gren-90 etc. are presently being manufactured by the private Industries.

Thus, as of now, the monopoly currently stays with OFBs, whose lack of capacity restricted the demand of the services, gradually leading to deficiencies over the years. They have consistently failed to supply the targeted quantity, with shortfalls ranging up to 73 percent of the total types of ammunition. The basic reason of the failure is the fact that the industry has not taken any concrete action to acquire technology in this regard till now. Resultantly, there has been huge shortfall in the required amount of ammunition with the Armed Forces especially the Indian Army.

Ammunition Tender to Private Sector: The Saga

To address the shortfall coupled with reducing the imports dependence of ammunition, the Government decided to procure all ammunition requirements from domestic private sources. And, subsequently in March 2017 issued Requests for Proposals (RFPs)/tenders worth about $2 Billion to Indian private industry for manufacturing eight types of ammunition (needed urgently by the Indian Army) out of the 82 types the Army requires. The eight RFP for manufacturing of under mentioned ammunition was issued by the Ministry of Defence (MoD) under the 'Make in India' initiative is mentioned in the Table:-

Though, this issuance of tender bought much enough respite to the private sector that have been starving for some big defence orders with their role till date being restricted to supplying of ammunition parts. The inexplicable flip-flop by the Ministry of Defence (MoD) in withdrawing the RFP for 125 mm FSAPDS and allowing the public sector undertakings to participate in tenders to manufacture vital ammunition for the Indian Army dismayed private players in the fray. This, yet again highlighted the favouritism of Government towards these entities.

Despite this, still, several Indian private sector companies bid for the tender for manufacturing of ammunition including of Kalyani Group, Reliance Defence and Engineering Limited, and Godrej & Boyce. Several small and medium-sized private sector companies include Micron Instruments, Premier Explosives Limited, Solar Industries India Limited, Himachal Futuristic Communications Limited and Continental Defence Solutions Private Limited etc.

Cancellation of RFP issued in 2017 to Indian private industry for manufacturing of eight types of ammunition has been a major cause of concern given the fact that some of the private companies have already committed so much time and investment into it.

And now, the Defence Ministry has withdrawn seven of the above mentioned tenders in June 2020, saying bids are non-compliant without sharing specific reasons. This cancellation has been a major cause of concern given the fact that some of the private companies have already committed so much time and investment into it. Rather, banking guarantees alone worth over Rs 300 Crores entailed in the tender had been given by these companies since the bidding process started in 2017 and several of these private sector entities have also signed up technology transfer agreements and had even made payments to foreign partners/collaborators. What seems more appalling is the fact that it took well over three years by the MoD to take a decision for shelving this procurement plan and that too without even going for field trials where these private companies could have demonstrated their ability.

Issuance of new RFI: Drama once again?

And, now the drama once again with the MoD recently in Aug 2020 coming out with a series of Request for Information (RFI) for indigenous manufacturing of ammunition to meet the annual requirement for the next 10 years. The types of ammunition for the Army ranging from rifle-fired grenades, rockets, artillery shells and fuses to be manufactured and their projected annual requirement by MGO is given in the under mentioned Table:

Issues & Concerns

Interestingly, the issuance of this new RFI comes with a rider that interested manufacturers will not receive any financial support for their venture. It has been clearly stated in the RFIs that the Government neither would provide any special concessions nor any funding or investment to facilitate setting up requisite infrastructure by participating firms. The prospective manufacturers will be free to select their technology partners, negotiate and obtain Transfer of Technology (ToT). The technology partners could be indigenous Ordnance Factory Board or Defence Research and Development Organisation or any foreign vendor. However, the Indian Army and Defence Ministry will have no liability in technology transfer agreements between the participating vendor and their technology partners. Also, the RFI proposes that the manufacturer develop the infrastructure and absorb the complete ToT for manufacture of ammunition within two years from signing of contract. It also stipulates that the manufacturer will ensure continuous availability of minimum one year’s stock components during first two years after signing of contract or 100% indigenisation. In case full indigenisation is either not possible or not proposed, from third year the manufacturer will have to hold two year’s stock.

These above mentioned some of the stringent clauses that come along with the RFIs could prove to be a dampener for the private sector. Noteworthy, indigenous production of ammunition requires setting up of new manufacturing and testing facilities that are capital intensive. Notwithstanding without assured sourcing/orders and financial assistance by the MoD, the industry will not find it viable to put in their investments. Also, given the fact that the last tender issued was cancelled wherein many of the private sector companies had moved ahead with respect to tie-up with foreign vendors and also providing huge bank guarantees, this would not be a very exiting proposition for them. Further, given the huge assured ammunition orders that the OFB and DPSUs enjoy, private industry would be worried as it would not be competing on a level playing field.

The development and production of ammunition is capital intensive and faces regulatory hassles like production of explosives and test facilities. These need to be taken care of from Government’s end. Noteworthy, some of the ammunition sub systems which do not have excessive use of high explosives can be very well taken on by private sector such as Fuzes, Propelling Charges etc. Given a chance and hand holding some of the Indian Private sector can deliver the Ammunition, Electronic Fuzes and BMCs etc which are presently being imported. Undeniably, the private sector which does not have much experience in the development of some of the ammunition manufacturing categories will require partnership with OEMs. Several overseas defence companies are interested in forming tie-ups with private Indian companies to provide cutting-edge technology for multiple Indian ammunition programs.  The bottom line is unless the industry is given a chance they can not prove their capabilities.  The case of Electronic Fuze is a classic example of being imported through PSU for last over 15 years and now open completion has generated Indian capabilities.

The Government’s efforts to reduce import dependence and facilitate the development of indigenous capacity with the long-term objective of building capacity within the industry as a robust alternative source of ammunition is only possible, if it takes necessary steps to ease the participating process for private sector. The talks of “Self Reliance”, “Make in India” and being ‘Atmanirbhar’ are completely hypocritical, till the vested interest in MoD who are being “indifferent and insensitive” to promoting our own industry by not even giving a chance to show their capabilities. The same things happening again and again raise major questions about the Sincerity, Commitment, Professionalism and Impartiality of Indian Military & MoD's Bureaucracy.

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