India's increasingly capable private defence firms are pushing for more "Make in India" than BAE Systems Inc has proposed in the forthcoming contract for 145 M777 ultra-light guns for the army.
The defence ministry last week cleared the purchase of these 155-millimetre, 39-calibre howitzers from the US Department of Defense (Pentagon) for a budgeted Rs 2,900 crore, which BAE sources say could eventually be about Rs 4,650 crore.
The US-based BAE is selecting an Indian partner to assemble imported kits into M777 guns. This would be done in an "Assembly, Integration and Testing (AIT) facility", using tools and assembly jigs shipped to India from BAE's now-shuttered assembly line in Hattiesburg, USA.
BAE is talking to several firms, including Larsen & Toubro (L&T); Tata Power (Strategic Engineering Division); Punj Lloyd; the Ordnance Factory Board (OFB); the Kalyani Group, and others.
Chief executive officers (CEOs) from three of these companies tell Business Standard that integrating the gun at an Indian AIT facility would be worth no more than 5 per cent of the contract amount, i.e. about Rs 230 crore.
They say, given Indian industry's capability to manufacture gun barrels, breeches and components, it is tokenism to confine "Make in India" to just an AIT facility. They say the defence ministry - being the world's biggest buyer of artillery guns - should leverage this position to extract more indigenisation from BAE.
"To promote 'Make in India', the M777 gun contract must involve indigenous component manufacture, not just putting it together from imported kits", says Rajinder Bhatia, defence business chief of the Kalyani Group.
To be sure, manufacturing M777 components presents a technology challenge. They are built largely of titanium, which reduces their weight to just 4.2 tonnes, much lighter than the conventional, steel 155-millimetre guns that weigh 10 tonnes. This allows the 39-calibre M777 guns to be transported easily, even heli-lifted, over the difficult mountain terrain on India's northern borders.
Companies like L&T have delivered aerospace-grade titanium parts for Indian defence systems. Other Indian vendors also claim they could build M777 components in India with technology transferred from BAE.
Even so, building M777 components and systems in India would require the government to look beyond the current 145-gun contract and entice BAE with a larger contract based on India's expansive artillery needs.
The current 145-gun tender would equip only 6-7 artillery regiments belonging to two newly raised mountain divisions. This is only a small part of the army's need for light 155-millimetre guns in 50-plus artillery regiments in 16 mountain divisions. This 1,000-gun order would be a lip-smacking prospect that would entice BAE to offer far higher indigenisation.
"Mr Modi threw out the procurement procedure in buying Rafale fighters from France. Similarly, by deviating from the M777 tender and insisting upon higher indigenisation in exchange for a 1000-gun contract, 'Make in India' could be galvanised in gun production", says an Indian defence company CEO.
BAE has signed agreements with a raft of Indian companies to discharge its offset liability in the M777 contract, worth about Rs 1,400 crore. Most of this is believed to be unrelated to the M777.
Indian military doctrine involves bringing down long-range artillery fire on the enemy, pulverizing targets so comprehensively that infantry or tanks attacking them face little resistance, suffering far fewer casualties. On battlefields over the last century, artillery has killed more troops than any other arm.
To do so, the artillery policy envisages a large number of 155-millimetre guns, which fire heavier and more lethal shells than the 105-millimetre and 130-millimetre field guns that equip most artillery regiments.
India's current 155-millimetre gun arsenal is confined to 400 FH-77 Bofors guns. In addition the OFB has just won a contract to build 114 155-millimetre, 45-calibre guns, which could rise to 414 guns if they perform well. Meanwhile, the Defence R&D Organisation (DRDO) is partnering domestic firms in developing a new 155-millimetre, 52-calibre gun in the Advanced Towed Artillery Gun (ATAG) project.
Indian generals and defence ministry officials have criticised the M777's high price, but have decided it is worth the cost. The 105-millimetre field guns that the M777 will replace cost about Rs 2.5 crore each, one-tenth the M777's Rs 25 crore tag. The OFB's 155-millimetre Dhanush gun is half the cost of the M777.
In March/April 2014, then army chief, General Bikram Singh, pronounced the M777 too expensive in a defence ministry meeting. Defence Ministers AK Antony and Arun Jaitley told parliament that the M777 acquisition was stuck because of high cost. Now, without any reduction in cost, the defence ministry has cleared the contract.
India is buying the M777 through the Foreign Military Sales (FMS) programme. In this the MoD is the buyer and the Pentagon is the seller, negotiating terms with the supplier (in this case BAE), and charging the customer a small fee.
The cost of the M777 has risen steadily, as evident from successive notifications that BAE has provided the US Congress. In January 26, 2010, the contract price was $647 million, which rose marginally in March 2013 to $694 million. On August 7, 2013, the Pentagon notified the US Congress that the contract was worth "up to $885 million". Company sources say that, without significant delay, the deal would be signed at about $700-750 million.