Ministry row latest blow to India's defence modernisation

Reuters

* India looking to develop domestic defence industry

* Minister says public sector firms ought to be involved

* Defence Ministry to look into complaint

By Anurag Kotoky

NEW DELHI, Oct 9 (Reuters) - A plan to attract privateIndian firms to help build military aircraft could be delayedafter a cabinet minister said the proposal was unfair tostate-run companies.

India has emerged as the world's biggest arms importer as ittries to update archaic weapons systems to keep up withneighbours China and Pakistan in a $100 billion modernisationdrive.

The government wants to encourage private Indian companiesto partner with foreign suppliers to reduce its reliance inimports and help develop a domestic defence industry that has sofar been beholden to underperforming public sector companies.

In May, the Defence Ministry launched a tender to buy andbuild 56 military transport planes to replace an ageing fleet ofAvro jets at an estimated cost of 119 billion Indian rupees($1.9 billion.) The ministry said the deal must be struckbetween a foreign supplier and an Indian private firm.

However, Heavy Industries Minister Praful Patel said onWednesday that the public sector utilities (PSUs) already makingproducts for the armed forces should have been given a chance totake part in the bidding process.

"All I am saying is, our companies, the PSUs, areextraordinary companies which have great capabilities and theyhave time-tested proven abilities and they have been doing thisjob for years and years," Patel told a television station afterwriting a letter to the defence minister.

"There is no reason why an Indian PSU should have anexclusion in the contract," Patel said.

The Defence Ministry said it would now look into Patel'scomplaint, potentially delaying the tender process. Many ofIndia's foreign arms purchases run into long delays because ofaccusations of corruption and complicated bureaucracy.

BLUE CHIP

Despite Patel's confidence in India's state-run defencemanufacturers, their track record is patchy. HindustanAeronautics Ltd (HAL), the country's main defence aeronauticssupplier, has been developing a light combat aircraft since theearly 1980s with no success so far.

India's $15 billion deal with France's Dassault Aviation to buy 126 Rafale fighter jets is yet to be finalised,partly because the French company doubted HAL, its mandatorypartner, had the technological capability to manufacture such asophisticated fighter jet.

The Indian air force told the Defence Ministry in July itdid not want to buy a trainer plane under development by HAL,preferring a cheaper and more efficient imported plane.

Air Force chief N.A.K. Browne said on Friday HAL's attemptto build a trainer jet was "extravagant". He said the company'sprototype was not powerful enough, according to a report by newsagency the Press Trust of India published on the Economic Timeswebsite.

HAL also made the engines in India's collection of MiGfighter jets, commonly known as flying coffins because of theirappalling crash record. More than half the MiG fleet of 872aircraft has been lost to crashes that killed 171 pilots,Defence Minister A.K. Antony told parliament last year.

HAL has said it significantly contributes to the armedforces with locally made products, and is revamping itscapabilities and capacities as part of a modernisation drive.

Many blue chip Indian companies, including billionaireMukesh Ambani's Reliance Industries, Larsen & ToubroLtd (L&T) and Mahindra and Mahindra havebeen gearing up to take part in India's push to build a localarms industry.

The tender to replace the Avro fleet was sent to fiveforeign companies, including Boeing, Lockheed Martin and EADS CASA.

The government expected deliveries to start within a year offinalising the contract, Antony told parliament this year.

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