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LUH Acquisition Programme: Which Way is it Headed?

Mr Amit Cowshish is a former Financial Advisor (Acquisition), Ministry of Defence and former Distinguished Fellow, Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Click here for Detailed Profile
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  • December 15, 2014

    Although the Russian President is reported to have offered help in manufacturing the Light Utility Helicopter (LUH) in India, none of the 20-odd documents signed last week pertain to this project. There is also no specific mention of this project in the joint statement issued on 11 December 2014. As of now, therefore, it is, at best, only an idea that jells very well with the larger vision of Make-in-India.

    It may be recalled that in August 2014 the Defence Acquisition Council (DAC) had decided to scrap the tender for 197 LUH, in which the European Eurocopter and the Russian Kamov were the principal competitors. The DAC also decided to give a chance to the Indian industry to make the helicopter in India both for the armed forces as well as for export.

    According to the Defence Procurement Procedure (DPP), there are five ways in which capital purchases could be made. The ‘Buy (Global)’ option is ruled out as this is meant for outright purchase of equipment from abroad. Indian companies could also bid in a ‘Buy (Global)’ tender, if they are in a position to offer the equipment. But there is no Indian company that makes the required helicopter.

    The ‘Buy and Make’ option is also ruled out as under this option the request for proposal (RFP) goes out to the foreign vendors for outright purchase of a certain quantity of the equipment, followed by manufacture of the remaining quantity in India by a production agency nominated by the Ministry of Defence (MoD). Adopting this route could be seen as a betrayal of the promise that the project would be undertaken by an Indian company.

    In any case, considering that there are several foreign manufacturers who could provide the kind of platform India is looking for, it is difficult to imagine how pre-selection of a particular platform could be justified, especially if one also takes into account the MoD’s discomfort with single-vendor procurements.

    The ‘Make’ procedure gives primacy to Indian companies but it is meant for indigenous research, design and development of the prototype of ‘high technology complex systems’. Such projects entail a long gestation period. Obviously, LUH acquisition cannot be categorised as a ‘Make’ project. Even if it is so categorised, the lead will have to be taken by Indian companies. They are the ones who will decide who to tie up with.

    Of the remaining two options, ‘Buy (Indian)’ also gets ruled out as it is meant for outright purchase of the required equipment (which must also have at least 30 per cent indigenous content) from an Indian company. There is no Indian company which makes what the armed forces need.

    This leaves us with only one option: ‘Buy and Make (Indian)’. Under this option, the RFP is issued to Indian companies, who can tie up with foreign manufacturers to make the equipment/weapon system/platform as per the specifications laid down by the MoD.  

    Selecting the Indian companies to whom the RFP could be issued will be a challenge. The state-owned Hindustan Aeronautics Limited (HAL) would be a hot-favourite but what about entities in the private sector? There are probably no internal guidelines for short-listing private companies for this purpose. Even if such guidelines were to exist, or are now evolved by the MoD, the process could be challenged by an entity that does not get short listed.

    One possible way out could be to issue the RFP to all those who respond to the call for expression of interest (EoI). But apparently the MoD had reservations about adopting this route in the Avro- replacement programme, which is why it was categorised as ‘Buy and Make’, leaving it to the foreign manufacturers to decide which Indian entity they would like to tie up with. This saved the MoD the trouble of nominating an Indian production agency.

    The recently cancelled tender for LUH had two competitors. While HAL could be prevailed upon to tie up with the manufacturers of the Kamov helicopter, it is difficult to envisage how private companies – and there would be quite a few of them if the RFP is issued to all those who respond to EoI – could be persuaded to do the same, as long as the specifications permit other platforms to be offered by the bidders in collaboration with other foreign manufacturers.

    Pre-qualification of a single platform has its own perils. The basic trainer aircraft is a case in point. For all practical purposes, the RFP required the bidders to bid for manufacture of a pre-selected aircraft. There are unconfirmed reports of Indian companies facing difficulties in working out an arrangement with the manufacturers of the aircraft.

    Under ‘Buy and Make (Indian)’, which is how the programme is most likely to be categorised, the initiative for tying up with the manufacturer will have to be taken by the Indian companies to whom the RFP is issued. Having cleared the trials earlier, the Russian helicopter would be an automatic choice for Indian companies. But it may not be the only choice as Eurocopter had also cleared the field trials. It is possible that new competitors may join the fray after the fresh round of tendering, more so if changes are made in the qualitative requirements (QRs). There would indeed be a strong case for revisiting the QRs to ensure wider participation in the acquisition programme.

    It is, therefore, difficult to visualise how the Russian offer to make LUH in India could be actualised. The obvious scenario in which the choice could be restricted to Kamov helicopters is if the government decides to undertake this project based on an inter-governmental agreement or sign the contract for making it in India based on strategic considerations, both of which basically imply procurement (and, by implication, manufacture in India) on a single-vendor basis. The Defence Procurement Procedure allows this.1 The question, however, is whether a case can be made out for adopting this route.

    Clarity of thought on this issue will also help in dealing with similar offers made by the United States. Some other countries might also follow suit. Adopting this route, especially the hardly-ever used procedure for procurement on strategic considerations, would compress the time that is otherwise needed to equip the armed forces with the equipment, weapon systems and platform they require.

    Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India

    • 1. See paragraphs 71 to 73 of the Defence Procurement Procedure 2013