The acquisition of 145 M-777 Ultra-Light Howitzers (ULH) of BAE Systems may have got clearance by the Defence Acquisition Council headed by defence minister Manohar Parrikar, but a long process has to be underway before any order could be placed.
As per the procurement procedure laid under the DPP-13, the acquisition of M-777 ULH at a cost of $ 450 million (R2,900 crore) will also have to be first approved by the finance ministry and the Cabinet Committee on Security, before any gun comes for the Indian Army. The amount that has been cleared is based on the 2010 notification.
Additionally, the DAC also agreed to a proposal from the BAE Systems — to shift the assembly integration and testing AIT facility from Hattiesburg, Mississippi, to India. However, sources told FE after the meeting on Wednesday, that “no decision has been taken yet on who would do the assembly integration in India as it is still in the process of being worked out.”
The deal which is via a government-to-government (G2G) Foreign Military Sale (FMS) from the US arm of BAE Systems was first notified by the US Defense Security Cooperation Agency to the US Congress in January 2010 for approximately $ 647 million, when the average exchange rate was INR 46.02 to an American dollar. At this rate, the price was understood to be R2,900 crore in January 2010. But at today’s rate, the amount will be around R5,000 crore, and unless the rupee gains substantially against the dollar by the time the order is finally placed, this will be the effective price tag.
And as industry experts have pointed out, “India is also likely to bear the cost of raising the shutters and getting the line moving again in the US.”
While the validity of the old price of $647 million expired at the end of October 2013, the BAE Systems also began winding down its assembly of the howitzers at this time as the existing orders were completed. It was conveyed to the Indian side that there will be a cost attached to the reopening of the assembly line in the US.
The company in an effort to resurrect the dead deal had earlier this year offered to build components in India for the 155-mm/39-calibre M777 ULH as part of the 30% offsets. It had also offered the transfer of the AIT capabilities to India. The AIT facility will not only provide in-country support to the army on its weapon system but will begin the process of creating an ecosystem for the indigenous manufacture of modern artillery in India. The US-based BAE has already tied up with 40 SMEs and MSMEs to fulfil its offset obligation.