Proposal by Aatre Task Force rules out MSMEs: Defence Experts

The ‘strategic partnership model’, recommended by the Defence Ministry’s Aatre task force, does not visualise MSMEs playing the leading role in the development of strategic platforms, systems or material, said an expert who is also a former Financial Advisor (Acquisition), Ministry of Defence.

The recommendation of Aatre task force, set up to identify Indian private companies as strategic partners for development of critical military platforms, has proposed weightages and assets criteria which allow only a few Indian private defence manufacturers to qualify for strategic partnerships. The move, according to the experts, will hit the aspiring MSMEs badly.

Gp Captain Sanjiv Aggarwal, Senior Advisor- Aerospace & Defence, opined that, "It is becoming apparently clear from the recent briefings given by the Defence Minister that the government has by & large accepted the Dhirender singh committee’s report and that Aatre committee report , which is due this week, has also accepted Mutatis Muutandis the main issues and has only amplified these issues by suggesting the methodology for its implementation.”

“If the financial criteria finalised by the task force is implemented, the MSMEs will automatically get ruled out as potential strategic partners on account of the financial criteria,” Amit Cowshish, a Distinguished Fellow with the Institute for Defence Studies and Analysis (IDSA) told KNN.

“The Dhirender Singh has broadly classified the selection process through seven fundamental parameters. These parameters have been carved out based on the premise that only big companies will be able to meet the exacting requirements of defence production,” Gp Captain Aggarwal said adding that “instead of finding ways and means to make India more competitive the report has found an easy way out by creating once forgotten track of having parallel PSU’s in a new avatar RUR’s.”

By entering into a strategic partnership with chosen Indian private firms, the government will give them a firm commitment and do away with the system of awarding contracts to lowest bidder for these military platforms.

According to a media report, the Aatre task force has recommended formation of two committees to evaluate the private companies for strategic partnership: an evaluation committee and an on-site committee.

The evaluation committee will evaluate a private company on three criteria, each with different weightages: 50 per cent on technical criteria, 30 per cent on financial criteria and 20 per cent on platform specific criteria. The most contentious among these is the financial criteria, where the task force has recommended that the foreign holding for listed companies should be less than 5 per cent, while no foreign holding should be allowed in an unlisted company.

To qualify for strategic partnership, a listed company should have annual assets worth at least Rs 750 crore during the last three years while the corresponding figure for a unlisted company is Rs 250-500 crore.

The annual turnover during the last three years for a listed company has been recommended at Rs 4,000 crore for a listed company and Rs 1,000 crore for an unlisted company.

“An entity will not be a micro, small or medium enterprise if it has annual assets worth at least Rs 750 crore during the past three years (or even Rs 250 crore if it is an unlisted company), as is being recommended by the committee (going by the report),” said Cowshish.

“In a nutshell, as I see it, the report, as published in one of the leading daily’s, does not seem to offer anything to the MSMEs to cheer about,” he added.

Meanwhile, Gp Captain Aggarwal said, “The basic tenet of any expenditure by the government is governed by the principle of paying fair price which can be achieved only through a fair competition. The private companies so far have been fighting for a level playing field vis a vis PSU’s but instead of addressing these issues the committee has resorted to creating monopolistic practices or by advising to award contract to private companies and select OEM’s through nomination process.”

“The other misconception of the committee is in their thinking that smaller companies will not be able to execute big projects. Taking this as the gospel truth the committee has laid down selection process by which all small companies gets eliminated automatically,” he said adding that imagining that theses competencies may not be possessed by a smaller company is a fallacy" (