In the news, by the Defense ministry after having a special meeting on Tuesday (Sept 07, 2020) declared the cancellation of 2 Major Defense deals amounting to about 3 to 4 Billion Dollars( Since contracts were in the negotiating phase and the final price was not decided, it cannot be said exactly) The deals included the Fast Track Deal between India and UAE company Caracal for the supply of CQC(Close Quater carbines) in a number of 93895 units and the other deal of K-30 Biho Air Defense systems between India and South Korean company Hanwa System to supply 104 Systems for same.
The Carbine deal amounted to almost 3500 crores (Almost 477 Million USD in today’s Exchange rate) and the Air defense system was around 2.5 Billion USD.
Let’s look back a little before looking at reasons to cancel the deals
The Carbine Deal:
For the Caracal Deal with UAE based firm Caracal to supply Carbine C-816(Also called “Sultan” a 5.56*45mm NATO Carbine) in 95895 units took place under the Fast Track Procurement procedure in 2018. The deal was to supply all these carbines in a single year.
The Speculations of the deal were found, when as it is said that the Caracal group was not in the list of companies to which tenders were to be issued in 2018 and entered with the deal with the recommendation of Acquisition Wing. This emerged as the Lowest Bidder in the deal after that. (We all know that India follows the L1 bidding System).
The deal was struck from 2018 itself as officially the deal was not signed by the MoD even though it has been 2 years. Here it says the delays faced in the acquisition by government. Had it been done, the delivery could have been completed. In recent days it was also found the Caracal has sent the letter to the Indian Ministry regarding the clarification and confirmation of the order and within days the deal was canceled.
Reasons for Cancellation:-
- Due to the delay, the army itself recommended to move to the next step for negotiations or to completely shut the deal
- Speculations and rumors are also there that had the deal been signed Caracal couldn’t have completed the order on time
- The deal was direct purchase with no offsets and this would have just sent the cash out of India without benefiting internal companies
- Indigenous Options were now available in the amount of time and then it could have given a boost to private Indian companies and a step forward to “Aatmanirbhar Bharat”.
As per the latest defense update on September 21st, 2020, just less than 15 days of scrapping the UAE firm Caracal has decided to make this rifle in India. According to sources, the CEO of Caracal has confirmed that already identified the required land, facility, and local partners and are ready to commence the production as soon the order gets confirmed.
He also added “Having agreed to fast track the supply, and with the formalities still under discussion, we would like to reiterate our commitment to our bid and to the ‘Make in India’ initiative. With strong bilateral ties between our two nations, and with India being a key market for CARACAL, we remain on standby to supply the product to the customer upon instruction,” and said that Caracal has gone under rigorous selection process.
The firm issued the statement on Monday that “Over 20 percent of the components fitted on the CAR 816 are already Made in India, with CARACAL now making a commitment to fully manufacture the rifles in-country, in alignment with the ‘Make in India’ initiative. The initiative will also see CARACAL oversee technology transfer,”.
The Air Defence System Deal:
For the K-30 BIHO Air defense systems, it has always been in the news. The reasons are several, first is that the deal came out as procurement of Global Tender in 2013 where the army wanted a gun and missiles system which could be mounted on High Mobility Vehicles.
Along with that, they should be able to engage ariel targets with 350 Rounds per second and missiles with a range of 5kms, Fire control radar, day and night camera functionality with Built-in simulators, along with operation up to 50 km and constant 8 hours without refueling.
Also, the army is said to have needed about 5 Regiments in total 104 Systems, with guns missile systems coming with 4928 missiles and 172260 rounds of ammunition. Along with this, the full transfer of maintenance technology was to be given to OFB by the selected company
With the above capabilities, out of 5 responding to RFP only 3 systems made it into trails, South Korean Hanwha Defence Systems –Hybrid Biho system, and two Russian companies: Almaz Ante’s upgraded Tunguska system, and KBP Tula’s Pantsir system.
Here, Both of the Russian Systems failed in the technical evaluation where they were unable to perform the mobility trails as per requirement by the army, it failed the gradability test completely. Due to which, even though having an added advantage of 3-D radar with high capabilities to detect small objects, it was not able to get through.
The Hanwha Defence Biho was green flagged. As it cleared the trail requirements. The army selected the Biho and wanted to go further for its acquisition.
But the Russian were unable to face the defeat of its systems, as they have always won contracts, especially on ground-based systems for the Indian Army. Due to which they sent a formal letter to the defense ministry to reevaluate the systems as they said that they were unfairly thrown out. They also complained about it to Internal Monitoring in Ministry, to look at it. And it is said that a change was to be given but thinking it the other way for giving re-trails would set the trend and be a catalyst for the delay in procurements.
The last option was to go to retrials or to move forward with negotiations. Recently again Russians urged in 2020 for it and complained about it. And MoD was to take a call on it, as of now the MoD has totally scrapped the deal.
Reasons For Cancellation
- A huge delay in acquisition (for more than 7 years)
- The amount was very high(more than 2.5 Billion USD) and full ToT was not available
- The speculation that The Hanwha Defence Biho didn’t have the fire control radar(As per RFP) and a good ability to track ariel targets like the Russian system
- The reevaluation would throw more delays in procurement and spoil level play in the acquisition
- With current FDI and Private Participation, it could have been easily Indegenised.
Along with this, there are also some added possible reasons for canceling both deals which should also be kept in mind. If we look at the bigger picture
- With the Aatma Nirbhar Bharat and Make in India a boost can be given to private entities of India as per said by the MoD
- 101 Negative Import List would be expanded as the ministry said by the end of year another Negative import List
- The Caracal gun deal was a way to bring UAE closer and with ADS could have hampered the relations with any other country
- The lack of funds by the government, we all know that the Indian Government is suffering from lots of issues, The build-up at LAC triggering urgent purchases and increase in Supply chain operations and armament cost, The cash crunch due to GDP fall, COVID-19 Spending, etc. all of this might have made government helpless and cancel the deals.
In the end, the future will tell whether the canceling of the deal will help in promoting Make in India, or again we will go for emergency purchases, but in thing is easily visible for sure is the avoidable DELAY in defense procurement by every Government.