Indian Defence Review

“¦with the integration of the private shipyards, indigenous shipbuilding capacity would have recorded a quantum jump, thereby obviating the need to depend on foreign ship builders. Unfortunately, MoD has missed a golden opportunity”¦

DPP-2011 clearly states that capacity assessment of DPSU shipyards would determine their nomination. An interesting point needs to be highlighted here. In case a single DPSU shipyard is unable to accept the complete order, it has to be split with other DPSU shipyards and not with private shipyards. It implies that no order will ever be split between public and private sector shipyards. Further, every proposal has to be categorised for nomination or competition in entirety. The quantity required cannot be split between the two categories.

The above provision will ensure that no comparison can ever be done between the efficiency and cost-effectiveness of public and private sector shipyards. As per earlier plans, India was to build six next generation diesel-electric submarines in India under Project 75I – three at Mazagon, one at Hindustan Shipyard and two at private shipyards. It was an exciting prospect for the private sector as it would have given it an opportunity to prove itself when pitched against DPSU shipyards. However, in a sudden turn around, MoD decided to keep private sector out of Project 75I, preferring to place orders for two submarines on foreign shipyards.

It is apparent that no DPSU will ever participate in competitive bidding under Section ‘B’ of the policy. The reason is simple – if a DPSU possesses spare capacity and covets the order, it can bag it through nomination at a negotiated price at the outset. It would never forego nomination route to compete for the order under Section ‘B’ through a commercially competitive bid. Thus, the open competitive category would be limited to private shipyards only. As is well known, public sector units loathe the idea of competing against the private sector.

The Way Forward

Building of naval ships, submarines, yard crafts, auxiliary ships and coastal vessels is a complex activity. It is both capital and technology intensive. That is the reason why only a handful of nations build warships. India wants to develop its warship building capacity at an exponential rate. It is well nigh impossible for DPSU shipyards to meet the complete requirement of the Navy and the Coast Guard in the required time frame. Potential of private shipyards must be optimally utilised. In the absence of challenging orders, the growth of private shipyards is bound to get stunted.

It is apparent that no DPSU will ever participate in competitive bidding under Section “˜B of the policy.

As discussed above, splitting of SBP into two sections is a detrimental and convoluted step. It amounts to reserving contracts for DPSU shipyards without open competition. The sole objective of the policy appears to perpetuate the existing monopoly of DPSU shipyards and to ensure that they are never made to compete against more efficient private shipyards.

It would have been more prudent to keep shipbuilding under a single ‘open competition’ category, thereby providing equal opportunities to all shipyards. This would have resulted in immense gains for the country. First, the potential of private shipyards would have been harnessed and further developed. Secondly, DPSU shipyards would have been forced to improve their functioning and efficiency to be able to compete. Thirdly, orders would have flown to the most efficient and cost-effective shipyard. And finally, with the integration of the private shipyards, indigenous shipbuilding capacity would have recorded a quantum jump, thereby obviating the need to depend on foreign ship builders. Unfortunately, MoD has missed a golden opportunity due to its inability to rid itself of pro-public sector bias.