BAE Systems offers to make 'ultralight' guns in India

US-based company proposes to supply artillery guns for the army's new mountain strike corps

BAE Systems Inc has sweetened its offer to supply artillery guns for the army's new mountain strike corps. The US-based company hopes this will resurrect the procurement of 145 M777 ultralight howitzers (ULH), which has been in limbo since July, when the defence minister told Parliament that the price was too high.

The new proposal, which dovetails with the "Make in India" initiative, offers to build more components in India for the 155-millimetre/39-calibre M777 ULH. In another major step forward, BAE Systems has offered to build the gun in a plant in India. This would become the global assembly, integration and test (AIT) centre for the M777 once the US plant at Hattiesburg, Mississippi shuts down.

The ministry of defence (MoD) has faced sharp criticism, most recently from Parliament's Consultative Committee on Defence, for not buying equipment - especially artillery - for the new mountain strike corps being raised for the Sino-India border. In a television interview last Monday, Defence Minister Manohar Parrikar promised to prioritise funding for buying artillery guns.

"Encouraged by Prime Minister Modi's call to Make in India, we have developed and submitted a strengthened proposal on the M777 case. This includes a significantly higher degree of indigenisation on the weapon system. Moreover, we have included in our offer the transfer of the Assembly, Integration & Test (AIT) capabilities into India. The AIT facility will not only provide in-country support to the army on its weapon system but will begin the process of indigenous manufacture of modern artillery in India," said Mark Simpkins, the India head of BAE Systems.

Simultaneously, BAE Systems is finalising a more attractive offsets proposal, which involves fabricating a significant number of M777 components in India.

"We have already signed Memoranda of Understanding with around 40 Indian companies after assessing their capabilities to manufacture M777 components to the requisite standard. Nearly half of these are micro, small and medium enterprises (MSMEs)," says Simpkins.

Simultaneously, BAE Systems is seeking to assure the MoD that the price of the M777 ULH would be reasonable. Its cost has risen since January 26, 2010, when the Pentagon had quoted $647 million (Rs 4,015 crore) for 145 guns in a Letter of Acceptance (LoA) to the MoD. This was marginally raised to $694 (Rs 4,306 crore) in March 2013. But alarms bells went off in New Delhi on August 7, 2013, when the Pentagon notified the US Congress that the guns would cost "up to $885 million" (Rs 5,492 crore).

BAE Systems has clarified in discussions that $885 million is the "upper limit of the price envelope" in case negotiations drag on for years. If finalised quickly, they say the cost would remain around $694 million, quoted in last year's LoA.

India is buying the M777 through the Foreign Military Sales (FMS) programme.

In this the MoD deals with the Pentagon; which negotiates terms with the supplier (in this case BAE Systems); while charging the buyer (the MoD) a small fee for its services.

The offer to shift M777 assembly from Hattiesburg to India is a win-win proposal for BAE Systems and India.

After supplying over a thousand M777s to several armies, Hattiesburg has no new guns on order. Until 2013, BAE Systems Inc had spent over $50 million on keeping the Hattiesburg line open in anticipation of an Indian order. Shifting AIT to India would spare the company that on-going cost.

If shifting AIT to India were not enough to interest the MoD, BAE Systems Inc. is dangling a further carrot, by pointing out that a larger Indian order for the M77 would allow far more components to be built in India.

Most military experts regard the order for 145 guns as a preliminary one, which would equip just 6-7 artillery regiments of the mountain strike corps' two divisions.

The army's failure to buy artillery since the 1980 - which Parrikar himself highlighted - means that India's 16 other mountain divisions also badly require light, air-portable artillery guns, adding up to a total requirement of over a thousand guns.

In addition, several projects are under way to meet India's requirement of 1,580 towed guns for the plains sector.

The Ordnance Factory Board (OFB) has developed a 155-mm/45-calibre gun called the Dhanush, and is building 114 for the army. Separately, the Defence R&D Organisation (DRDO) is spearheading the Advanced Towed Artillery Gun (ATAG) project, to build a powerful 155-mm/52-calibre gun, in partnership with the private sector.

In August, the defence ministry cleared the manufacture of 40 self-propelled guns, called Catapults, for an estimated Rs 820 crore.

And in November, it gave the go-ahead for building 814 mounted gun systems (MGS) under the "Buy & Make (Indian)" category of the procurement procedure for an estimated Rs 15,750 crore.