JV guidelines for defence PSU approved

With an estimated $ 10 billion to flow back in the Indian defence market through the offset route, the Union Cabinet has approved guidelines for defence public sector units to set up joint venture companies with “fairness and transparency” in selecting the partner.

One of the first beneficiaries of the new policy will be Bangalore-based Bharat Electronics Ltd, whose joint venture with French armament major Thales was put on hold pending the Cabinet approval of the new policy as proposed by the Defence Ministry, sources told Deccan Herald.

As per the guidelines approved by the Cabinet on Thursday, DPSUs will retain the “affirmative rights” for taking key decisions in the JV companies.

Following a controversy in the selection of joint venture (JV) partner by Mumbai-based Mazgaon Dock Ltd, the Defence Ministry temporarily stopped clearing all JV proposals and drafted a guidelines to enhance fairness and transparency in identifying the JV partner, define the scope of the JV, having an exit option for defence PSUs and regular reporting on the functioning of the JV to the ministry.

Last year, India’s largest warship manufacturer Mumbai-based Mazgaon Dock Ltd and Gujarat-based Pipavav Shipyard announced the formation of a 50-50 joint venture for sharing the work on the warship-building contracts received by MDL, whose order book value is close to Rs 1 lakh crore.

But other private shipyards like Larsen and Toubro and ABG Shipyard protested alleging that MDL did not provide a level-playing field.

Another private shipyard, Bharati even refused to acknowledge the announcement and wrote a letter to MDL asking for the deadline for the submission of proposals for the joint venture even after the announcement of the partnership. Once the complaints reached the ministry, the Defence Ministry decided to fully examine the issue and come up with the guidelines. All defence PSUs were asked to put their JV proposals on hold till the new guideline receives Cabinet approval. India has emerged as one of the world's largest military markets where deals worth billions are on the table.

One of the biggest defence deals will be purchase of 126 fighter jets from French company Dassault Aviation at a cost of $ 10 billion. And if the Indian Air Force decides to give a follow on order of 63 more similar fighters, the deal will be close to $ 20 billion.

Other multi-billion dollar deals in the pipeline include purchasing of artillery guns, a large number of medium-lift, heavy-lift and attack helicopters and a six more diesel-electric submarines in addition to six Scorpene submarines, which are being manufactured at MDL.

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