MoD sidelines pvt sector in crucial defence project

Policy turnaround will give BEL Rs 10,000-cr project without tendering



The Ministry of Defence is poised to deliver a disheartening blow to India’s nascent private defence industry. After inviting private companies into the Rs 10,000-crore project for developing the Indian Army’s futuristic Tactical Communications System (TCS), the ministry is abandoning competitive bidding and handing over the project to a defence public sector undertaking, Bharat Electronics Ltd (BEL). The reason cited by the ministry: Secrecy.

Left in the lurch are six private companies — Wipro, Mahindra Defence Systems, Tata Power, L&T, Rolta and HCL — which the defence ministry had vetted in detail before categorising the TCS project as “Make — High Tech”. In this category, the government funds 80 per cent of the R&D cost, while the selected vendor contributes 20 per cent. Also sidelined for the TCS are two non-defence PSUs (DPSUs), ECIL and ITI.

The TCS will be a fully mobile network, which can be transported anywhere during war, even into enemy territory, providing the military with a backbone network on which it can communicate and transfer data. The TCS operates much like a cellular phone network, but with two major differences. While cellular phone transmission towers are fixed onto buildings, the TCS’s exchanges and switches will be installed in high-mobility vehicles, allowing them to be transported and set up anywhere. Second, messages sent out over the TCS cannot be easily intercepted or jammed since they will not remain on a single frequency; instead, transmissions will hop frequencies, dozens of times every second, in a pre-programmed sequence.

It is to maintain the secrecy of this “hopping algorithm”, or the sequence in which the TCS hops frequencies, that BEL is being handed over the project. The defence ministry is citing a new cyber policy formulated by the apex National Technical Research Organisation (NTRO) — a secretive body that functions under the Cabinet Secretariat, overseeing electronic intelligence. The NTRO had mandated that the “hopping algorithm” must remain the exclusive preserve of the government.

The NTRO’s interpretation has been shaped by guidelines issued by Shekhar Dutt, while he was deputy national security advisor. Now the governor of Chhattisgarh, Dutt had earlier served as defence secretary and as secretary of defence production, with close and longstanding links to BEL.

Now, based on that NTRO interpretation, a special defence ministry committee is about to recommend that the TCS procurement be categorised as, “Make — Strategic, Complex and Security Sensitive Systems”. Under the Defence Procurement Policy, this will automatically gift the TCS project to DRDO and BEL.

The six private sector rivals for the TCS project are fighting back against what they consider an unfair proposal. Last Wednesday and Thursday, they huddled with industry bodies, Ficci and CII, formulating their response to the defence ministry. Their argument: If the ministry ignores the private sector’s world-acknowledged competence in software, IT and communications, and continues sidelining them to benefit DPSUs, it will be hard to convince shareholders to continue investing into defence.

“We fully agree with the need for security,” explains a senior executive from one of the TCS contenders, “but secrecy can be fully preserved by reserving the ‘hopping algorithm’ for DRDO and BEL. To safeguard the secrecy of a Rs 20,000-microchip, which contains the ‘hopping algorithm’, the ministry is handing them an entire Rs 10,000 crore project.”

A defence ministry Feasibility Study Group for the TCS has already discussed the issue of secrecy last year. It was decided that top-secret algorithms in the TCS would be developed by the DRDO’s Centre for Artificial Intelligence and Robotics (CAIR), but the private sector could develop the rest of the project.

Indian private companies have played pivotal roles in some of India’s most secret defence projects. Larsen & Toubro, one of the companies being sidelined in the TCS project, built most of India’s nuclear submarine, INS Arihant, and will have a similar role in building successors to the Arihant. Another private company, Tata Power, which built crucial command systems for the Arihant, also designed the core of the top secret Samyukta Electronic Warfare system.

The Kelkar Committee had recommended that such companies, with a track record and potential in defence production, should be designated Raksha Udyog Ratnas (RURs) and treated at par with DPSUs in the award of projects like the TCS. But, in an inexplicable volte-face after preparing a short list of candidate companies, the defence ministry decided against nominating RURs.

If BEL is awarded the TCS project, that windfall will lead to many more. Applying the NTRO’s logic to other command and control projects in the pipeline — such as the Battlefield Management System (BMS); the Operational Data Link (ODL); and the Net-Centric Operations (NCO) system — BEL seems likely to be awarded all of these on a single-vendor basis.

The Ministry of Defence has not responded to an emailed questionnaire from Business Standard on the TCS.

“It is particularly ironic that BEL is expected to safeguard security, when it is well known that BEL systems are built mainly from foreign components,” points out an official from a private company that is bidding for the TCS. “BEL’s Artillery Combat Command and Control System (ACCCS), a system similar to the TCS, has computers and software from Israeli company, Elbit. Whether these have come with malware or switches to render the entire system inoperable will only be known in the future.”

Parliament’s Standing Committee on Defence, too, has raised concerns about such “false indigenization”, where DPSUs have allegedly fronted for foreign companies. The Standing Committee’s report of December 2009 notes that, “a sizeable proportion of procurement takes place through the ordnance factories and DPSUs, which are indigenous sources, but have to depend on imports for manufacturing the finished product.”