The Author is Former Director General of Information Systems and A Special Forces Veteran, Indian Army

On the day Defence Minister Rajnath Singh was attending Russia’s Victory Parade at Red Square in Moscow on June 24, Indian media broke the news that the joint Indo-Russia Rifles Private Limited (IRRPL) between the Indian Ordnance Factory Board (OFB) and Russian Rosoboronexport and Kalashnikov company has run into pricing problems. The Ministry of Defence (MoD) was reportedly forced to appoint a costing committee earlier this month due to the “unreasonable and unacceptable” price quoted by the IRRPL to make 6.71 lakh AK-203 rifles. The five-member costing committee, set up by the MoD on June 11 by invoking a special clause of the Defence Procurement Procedure (DPP), has been asked to fix a “reasonable price” for manufacturing the basic version of the 7.62x39 mm calibre AK-203 rifle.

Media quoting an unnamed source says the Defence Acquisitions Council (DAC) headed by the Defence Minister had granted “acceptance of necessity” (AoN) to procure the 6,71,427 AK-203 rifles at an estimated price of Rs 4,358 crore way back in January 2019. “But the JV first sought repeated extensions to submit its techno-commercial bid and then when it did in February this year, it quoted a price much higher than the benchmark price.” Moreover, in a bid to reduce the price of the rifles at the JV’s request, the MoD had approved the incorporation of a price variation clause as well acceptance of corporate guarantee or indemnity bond in lieu of bank guarantees. Separate quotes for the initial 1.2 lakh assault rifles and the rest 5.5 lakh rifles to be made indigenously were also sought. The committee, which has to submit its report in two months, will also determine the manufacturing cost of the AK-203 rifle after 100 per cent indigenisation. It will also take into consideration the 2019 prices at which the OFB has manufactured the INSAS and Trichy assault rifles. It may be recalled that on March 3, 2019, Prime Minister Narendra Modi had laid the foundation stone for the AK-203 rifle manufacturing unit in Amethi; IRRPL plant at OFB Korwa in Amethi. The then Defence Minister had read out a note from Russian President Vladimir Putin, which said, "The new joint venture will manufacture world famous Kalashnikov assault rifles of the newest 200 series and eventually will reach full localisation of production. Thus, the Indian defence-industrial sector will have the opportunity to fulfill the needs of national security agencies in this category of small arms, resting upon advanced Russian technologies."

The Army had appointed Major General Sanjeev Sengar as the Chief Executive Officer (CEO) of the project. The IRRPL was to manufacture AK-203 assault rifles for the Armed Forces and the Central Armed Police Forces (CAPF) as well. These assault rifles with folding butts can be fitted with 40mm under-barrel grenade launcher or a bayonet. It also has a mounting rail for optical, collimator or night sights, while the muzzle brake provides for cyclic fire accuracy and further reduces muzzle climb and burst recoil. The present delay in provisioning the AK-203 assault rifles on account of price fixation to the soldiers when China has mobilised along the entire length of the LAC and has made multiple intrusions in Eastern Ladakh is criminal. Obviously there is no accountability and concern for the soldier by those responsible for such delay. News reports related to this pricing hitch have quoted an un-named MoD source in saying that Defence Minister Rajnath Singh discussed pending issues in the rifle project during his ongoing visit to Russia, where he met Russian Deputy Prime Minister Yury Borisov and Defence Minister General Sergei Shoigu on June 23. But surely they were not discussing pricing of the AK-203 - earlier new reports had said the Defence Minister discussed expediting production of the Kamov helicopters and the AK-203 rifles. Also the delay is being pointed at the IRRPL while the real culprit is the OFB, holding majority shares of the JV. In fact, the whole thing appears to have been configured between the Department of Defence Production (DoPD) under MoD and the OFB. The DoPD is equally culpable.

When DAC granted AoN to procure the 6,71,427 AK-203 rifles at estimated price of Rs 4,358 crore in January 2019, why did MoD grant repeated extensions to IRRPL for submitting the techno-commercial bid, finally taking 13 months to do so? What sort of control does the DoPD have over OFB? It is well known that Kalashnikov was keen to undertake the AK-203 project with the Adani Group but the government being apprehensive because of the Rafale controversy, found excuse that this being a government-to-government venture, Kalashnikov could only tie up with a government-owned entity. Supposing Kalashnikov had established the AK-203 JV with Adani Group or another indigenous private company, could that JV afford to take 13 months to submit techno-commercial bid and would it not have calculated in advance while establishing the JV what would be the estimated price of the rifle when produced and what would be acceptable to Government of India – are these not the basics of business and marketing? But why would OFB fear any pressures with DoPD’s hand above it? Looking back over the decades, a JV between the Original Equipment Manufacturer (OEM) with an Indian company in the private sector is better guarantee for quality and timely supply, latter also because of the lackadaisical working culture and command and control in OFB factories.

So far the OFB with all its ordnance factories has not been able produce a single state-of-the-art small arms category weapon to date. Percentage share of OFB in the IRRPL JV being more than Kalashnikov, quality and timed delivery will be controlled by the OFB, which doesn't inspire much confidence with the type of hiccups already occurring. As for the price, numerous reports by the Comptroller and Auditor General (CAG) have pointed among other observations that OFB products are overpriced. Apparently, the Armed Forces have to simply lump it.