In a significant policy shift, the Indian government has decided to transition from nomination-based contracts to competitive bidding or tendering for all major defence projects going forward. This move aims to create a level playing field for the domestic private sector, which has long sought equal opportunities alongside public sector defence companies.
“We will provide visibility to the domestic industry regarding upcoming contracts and ensure a level playing field for the private sector by mandating competitive bidding for all our projects,” Rajesh Kumar Singh, Defence Secretary of India, told NDTV Profit in an exclusive interview.
“Whether it is the AMCA, which is a developmental model, or standard shipbuilding contracts, these will no longer be awarded through nomination. They will be tendered to ensure genuine price discovery and fair competition,” Singh added.
Historically, the government has awarded high-value defence contracts—such as those for aircraft and warship platforms—exclusively to public sector undertakings, citing limited private sector capabilities. Over the past two decades, however, private companies have made significant investments in engineering and capital equipment, and are now ready to compete for large-scale projects.
This policy change is expected to benefit private players like Larsen & Toubro Ltd. and Swan Defence and Heavy Industries Ltd., which have underutilised shipyards capable of building ships. Currently, private shipyards contribute by manufacturing smaller components, which are then integrated at PSU shipyards, such as Garden Reach Shipbuilders and Engineers Ltd., Cochin Shipyard Ltd., and Mazagon Dock Shipbuilders Ltd.
High-end projects, like the submarine projects where private sector has limited participation, will be outside the competitive bidding for now.
While this move opens up opportunities for the private sector, it poses challenges for PSU shipyards, which will now have to compete for orders. A move from nomination to competitive bidding is seen as margin dilutive for PSU shipyards.
A substantial portion of a warship's cost lies in its electronics and warfare systems, which can still be integrated at PSU facilities for security reasons. However, basic shipbuilding—such as steel cutting and dock work—can be carried out at any modern shipyard, public or private.
In a recent earnings call, a major PSU shipyard revealed it is running out of space to accommodate new shipbuilding orders, further highlighting the need to diversify production across more facilities.
The government has already applied this competitive model to the Advanced Medium Combat Aircraft project, which is being developed by the Aeronautical Development Agency. The Ministry of Defence stated in a May release that the execution model will offer equal opportunities to both public and private sector companies. Indian firms can bid independently, as joint ventures, or as consortia. ADA will soon invite Expressions of Interest from eligible companies.
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