Army not happy with the decision of it having to fund 10 per cent of the cost.

The Ministry of Defence’s (MoD’s) highest body, the Defence Acquisition Council (DAC), has handed a significant victory to the Defence Research & Development Organisation (DRDO) in its long-running quest to get the defence services to fund research and development (R&D) into high-technology military projects. As a result, the services could soon begin contributing 10 per cent of the cost of developing indigenous military systems.

“The DAC has agreed in principle that such projects should be funded in a 70-20-10 per cent ratio: 70 per cent by the DRDO, 20 per cent by the industry partner that will manufacture the developed product; and 10 per cent by whichever of the three services the product is being developed for,” senior MoD officials told Business Standard.

That 10 per cent liability for the military will amount to no more than Rs 300 crore a year, which is a small fraction of the Rs 30,000 crore spent annually on foreign arms. But the DRDO hopes that this relatively small amount will transform what it calls an unduly critical approach of the military towards home-grown military products. A 10 per cent ownership, the DRDO believes, will transform the military from a detached and demanding buyer into a stakeholder, which regards the projects as its own.

The military is unhappy with this decision. Sources in the tri-service Integrated Defence Staff say the army argued forcefully against the proposal, when it was discussed in the MoD.

The DRDO chief, M Natarajan, admitted recently the behind-the-scenes battles that preceded this decision. But he underplayed the benefits to the DRDO, telling a gathering of the defence manufacturers that the private sector and defence PSUs would be equal beneficiaries.

Natarajan said, “The DRDO has certainly demanded this, but it is equally applicable to the private sector and the public sector undertakings.”

The defence minister said that while he appreciates the DRDO’s concerns, he would also like to take on board the views of the services. “So the proposal was considered carefully and finally the DAC has given its approval. I think this is a very significant development,” the minister said.

But the new funding pattern has not been included in the new Defence Procurement Policy (DPP-2008), which will come into effect from September 1. The DPP-2008 gives the DRDO responsibility to develop “strategic, complex and security sensitive systems”, which include ballistic missiles and electronic warfare systems that are not normally up for sale. These will continue to be funded entirely by the DRDO.

The new 70-20-10 per cent funding pattern applies to what the DPP-2008 categorises as “High Technology Complex Systems”, which include advanced systems like tanks, fighters and helicopters, which could be bought internationally, but which the MoD wants the domestic industry to develop. The DPP-2008, however, excludes the DRDO from this category, reserving it for “RuRs/Indian industry/DPSUs/OFB/Consortia”.

A similar provision existed in the DPP-2006 but over the last two years only the DRDO has developed “High Technology Complex Systems”, such as the Dhruv helicopter, Light Combat Aircraft (LCA), and Arjun tank. Not a single project has been taken up by any private company or DPSU. In addition, under the “Strategic, Complex and Security Sensitive Systems” category, the DRDO has developed several variants of the Agni missile and electronic warfare systems like the Samyukta.

Senior army sources say they intend to fight the DAC decision on joint funding. The military has already pointed out that the DPP-2008 does not mention the DRDO as eligible to develop “High Technology Complex Systems”. The DRDO admits that the new decision could face delays in implementation if the military decides to stonewall it, citing the DPP-2008.

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