Israel's sales pitch to India: Our artillery gun to support 'Make in India'

Highlighting how important Tel Aviv regards an Indian order for 1,580 artillery guns, worth about Rs 20,000 crore, Israel’s Ministry of Defence (MoD) has written to Defence Minister Rajnath Singh, pushing the award of a contract to Elbit Systems – the Israeli firm that bid lowest in an Indian global tender for towed guns.

Business Standard has reviewed the letter, which was signed last Tuesday by Brigadier General Yair Kulas, director of Sibat – the Israeli defence ministry agency in charge of defence exports. It expresses concern that no contract has been signed, even though Elbit Systems was declared the lowest bidder in March 2019 in the tender for 155-millimetre, 52-calibre guns. In July 2019, Elbit successfully concluded price negotiations with India’s MoD.

“We would kindly request your guidance regarding the status of the approval process and the anticipated/planned timeline for the conclusion of the approval process,” writes Sibat.

As Business Standard earlier reported (December 10, Israeli firm Elbit offers to build 70% of artillery guns in India) Elbit priced its Autonomous Towed Howitzer Ordnance System (ATHOS) gun 40 per cent cheaper than the rival offering from French firm, Nexter. 

Elbit quoted €477 million for 400 fully-built ATHOS guns, while Nexter quoted €776 million, say Indian MoD sources. That puts the cost of each ATHOS gun at €1.2 million (Rs 10.7 crore), significantly cheaper than the €1.94-million (Rs 17.3-crore) price of each Nexter gun.

However, Elbit’s main sales pitch is not low cost, but a high degree of indigenisation. The Indian tender requires the first 400 guns to be supplied fully built or in kits, with no indigenisation requirements. The remaining 1,180 guns are required to be built by the Ordnance Factory Board (OFB), with at least 50 per cent indigenous content.

On October 14, Elbit provided a written commitment that it would indigenise production to the extent of 70 per cent, including the first 400 guns.

Sibat’s letter indicates that the Israeli government will not restrict technology transfer or impose controls that might prevent Elbit from meeting its indigenisation commitment. “On behalf of the Israeli MoD, I would like to take this opportunity… to convey our strong support in Elbit Systems undertaking to contribute to the Make in India initiative,” the letter says.

For meeting this tough 70-per cent indigenisation target, Elbit will take the unprecedented step of setting up two production lines in India. It will partner the Pune-based Kalyani group and its flagship, Bharat Forge, for building the first 400 guns. After that, in accordance with the tender requirements, Elbit will transfer technology to the OFB to build the next 1,180 guns.

When production shifts to the OFB, the Kalani group line will not be idle. Elbit and the Kalyani group will keep that line alive, building ATHOS guns for the global market.

“According to our understanding, the project will quickly provide highly advanced capabilities to the Indian artillery forces, as well as create numerous new job opportunities and prospects for export to third countries,” wrote Sibat.

According to Elbit, it will succeed in indigenising 70 per cent of the first 400 guns, having already taken “very decisive, firm and committed steps” to partner Indian companies. 

Elbit has a joint venture (JV) with Bharat Forge called BF Elbit Advanced Systems, and a JV with Alpha Design Technologies called Alpha-Elsec. It is also concluding a JV with Aditya Precitech, Hyderabad.

The MoD initially preferred the Defence Research and Development Organisation’s 155-mm, 52-calibre Advanced Towed Artillery Gun System, over Elbit’s ATHOS gun. This became clear when the MoD embargoed the import of all 155-mm, 52-calibre towed guns from December 31, 2020.

However, partly because of the ATHOS’ low price and also roadblocks in the development of ATAGS, the MoD changed its mind in favour of the ATHOS. As Business Standard reported (November 30, Artillery import embargo put off, doors open for Rs 23,700-cr Israeli guns), the MoD reversed course on August 21 and permitted imports for another year, till December 31, 2021.

The question mark that still hangs over the signing of a contract with Elbit Systems is the reduced availability of funds. Given the Covid-19-related economic slowdown, strict spending controls have been imposed on the defence capital budget, leaving little for anything other than “committed liabilities”, or annual instalments on large contracts concluded in earlier years.