Indian Army’s quest for indigenously developing the future infantry combat vehicle (FICV) began in 2007 when Project FICV 2017 was conceived on private-public partnership basis in the defence sector. This was been enabled by Defence Procurement Procedure of 2008 (DPP-2008), which laid down a “Make” procedure for developing “high-tech, complex systems” through Indian industry.

The decision for such partnership was based on the verdict of the Ministry of Defence (MoD) that Defence Research and Development Organisation (DRDO) would focus its research and deveopment effort on projects of strategic value while Indian defence industry would be involved in high technology projects with two specific aims; one to develop required technology base in the defence industrial sector and two, allowing enmeshing of design and development by single agency, in this case private industry who were to be responsible for erecting production facilities locally for their systems, assemblies, and components, in addition to providing any requisite engineering support for integration. Foreign assistance, if required, was envisaged at systems and sub systems level through industry import that would also help further develop indigenous capabilities through technology transfer. Following the above procedure, MoD surveyed private and public industry to zero in on potential contractors. Based on the GSQR, the Expression of Intent (EOI) was eventually sent to Mahindra Defence Systems, Tata’s, L&T and OFB, each of whom had submitted their technical and commercial bids. The Indian Army is presently using the Russian BMP-1 and BMP-2 vehicles, which are slotted for mid-life upgrades. However, in another decade, the Indian Army will need better and advanced vehicles to replace the upgraded BMP-2. Hence, the need to put the FICV project on fast track.

The Indian Army is looking at the production of 3,000 FICVs to replace the upgraded BMPs at a cost of $10 billion. The MoD is considering restarting the FICV project lying in limbo, to include more indigenous defence companies as potential bidders. The project had got bogged down because Russia offered the BMP-3 but was not accepted since indigenous firms had invested heavily in the project. Finally, two developers are to be shortlisted who would be required to produce five prototypes in the laid down time frame for user trials. Attempt by OFB to partner DRDO as a design partner was not accepted under the plea that eventually DRDO will be the agency responsible for technology evaluation and approval and hence could not partner OFB.

Given the lack of design perspective actually implies that OFB will have to tie up with one of the other vendors for design and development if it wants to compete for the project but DRDO believes it will be approached for key technologies and the OFB which manufactures the BMP-II at Medak for production assistance. The EoI reportedly lays down that the FICV will be operated by three crew members, and carryseven additional soldiers with combat loads; it must provide protection from bullets fired by 14.5mm calibre weapons; it must be amphibious, i.e. capable of floating in water; it must be air-transportable, which would imply a maximum weight of 18-20 tonnes; and it must have a grenade launcher, co-axial machine gun, and be capable of firing anti-tank missiles (fire and forget type). MoD will fund 80 per cent of the cost of developing the FICV; the selected contractor will pay just 20 per cent. It has been mandated that the FICV must have an indigenous content of at least 50 per cent.

As per earlier reports, this was not to be a winner-take-all competition since MoD planned to retain two production lines, the winner given 65-70 per cent of the order; the runner-up to build 30-35 per cent of the Indian Army’s requirement of FICVs, provided the latter company agreed to build the winning design at the same cost as the winner. With two assembly lines operating, India’s private defence players expected that the FICV contract will create an eco-system of suppliers extending far beyond the winner of the contract. However, this appears to have undergone a change with the new government. Now reportedly only one developer who tops the prototype trials will be selected to produce the FICV. This makes much more sense vis-à-vis two production lines by two separate developers, considering the issue of spares, supplies, maintenance, repairs etc.

Project FICV is planned to be restarted to include indigenous firms like Bharat Forge, Punj Lloyd, Force Motors and Ashok Leyland. These additional indigenous firms will be included through a fresh “acceptance of necessity”, as approved by the MoD. The foreign firms that are likely to go in for joint ventures (JVs) with Indian partners reportedly include Rosoboronexport (Russia), General Dynamics (USA), Rafael (Israel), Nexter and Thales (France), Krauss-MaffeiWegmann (Germany) and Doosan Group of Republic of Korea. After approval of the ‘acceptance of necessity’ and inclusion of more domestic companies, detailed reports are to be submitted to MoD by end 2014. The two development partners will then be shortlisted to build the prototypes. By the looks of it, selection of the single vendor producer will likely be made by 2018-19 or so. Considering the development and trials needed, induction of the FICV will likely commence only around 2024-25.

In another significant development, the Defence Acquisition Council (DAC) gave the go-ahead for purchase and tendering of military ware for all the three services amounting to Rs. 34,260 crore. This includes Rs. 15,000 crore for the purchase of 56 transport aircraft, Rs. 9,000 crore for five fleet support ships for the Navy, Rs. 7,000 crore for 33 Dhruv ALH for the Navy and Coast Guard, Rs. 2,000 crore and Rs. 360 crore for five patrol vessels and five fast patrol vessels for the Coast Guard, and Rs. 900 crore for search and rescue equipment for the three Services. The 56 transport aircraft are to replace the obsolete Avro planes of the Air Force. Under the tender clause, an original equipment manufacturer of foreign origin should bid for the contract after tying up with an Indian Production Agency, which should be an Indian private sector company. The first 16 planes would be manufactured abroad by the winning foreign vendor, but it has to pledge transfer technology (ToT) to its Indian partner for manufacturing the remaining 40 planes. This signals the end of the monopoly of HAL in the domestic aerospace arena. In the Defence Budget of 2014-15 mounting to Rs. 2.29 lakh crore, Rs. 94,588 crore had been allocated for capital expenditure. With above projects worth Rs. 34,260 crore cleared, that leaves Rs. 60,328 crore for capital expenditure for defence.

As regards production of defence equipment, a list of defence items requiring industrial license under Industries (Development & Regulation) Act, 1951 has been issued by the government vide Press Note No. 3 (2014 Series) dated 26.06.2014. Vide the same press note, it has been decided that the dual use items (having military as well as civilian applications) other than those specifically mentioned in the list would not require industrial license from defence angle. Further, the items which are not part of the list would not require industrial license for defence purposes. Some of the items, like parts/components of equipment, castings, forgings, test equipment etc. which earlier required license from defence angle, would not require industrial license any more. Further, as per the extant foreign direct investment (FDI) Policy, FDI is subject to industrial license under the Industries (Development & Regulation) Act, 1951 and other conditions as specified in the FDI Policy.

However, the FDI Policy is not applicable for manufacture of items not covered under Defence Product List, which do not require Industrial License from defence angle. Under the Defence Production Policy, 2011, Government aims to create conditions conducive for the private industry to take an active role in production of defence equipment, to enhance potential of SMEs in indigenisation and to broaden defence R&D base of the country. So far, 214 Letters of Intent/Industrial Licenses have been issued till June 2014 for manufacture of a wide range of defence items to public/private companies. Further, Defence Procurement Procedure has been amended to accord ‘Buy (Indian)’, ‘Buy & Make (Indian)’ and ‘Make’ categories of capital acquisition higher priority over other categories to encourage indigenous defence production in public and private sector. In the Union Budget 2014-15, it has been announced that the composite cap of foreign exchange is being raised to 49 per cent with full Indian management and control through the FIPB route.