New Delhi. The Defence Acquisition Council (DAC) has approved the additional costs on account of customs duty for the procurement of 145 M777 ultra-light howitzers (ULH) for the Indian Army. It also cleared the incorporation of Mahindra Defence as a party, clearing the final obstacles to the contract which could now be signed as early as next month.
“Variations between India’s Letter of Request and the US’ Letter of Acceptance in this Foreign Military Sales (FMS) proposal have been reconciled with these DAC approvals,†sources confirmed to India Strategic shorty after the decision on Oct 21. The deal now requires a final go-ahead by the Cabinet Committee on Security (CCS).
Customs duty will hike up the M777 tab for the Ministry of Defence by an expected 20 per cent beyond the indicated price band of $ 750m to $ 885m. The Government of India’s recent decision not to give Customs exemption for military imports has delayed several defence procurements – including the M777 – since earlier price approvals did not factor in Customs.
The approval for Mahindra as a party will provide contractual clarity. Mahindra has been chosen by BAE Systems, the original equipment manufacturer (OEM), as its partner for the setting up of an Assembly Integration and Testing (AIT) facility in India which will put together 120 of the 145 artillery guns.
The AIT facility will be set up to discharge the 30 per cent offsets obligations, and also to give this India-US FMS deal a Make in India flavour. Under this plan, the M777 AIT facility at Hattiesburg in Mississippi, US, will be shifted to India.
BAE Systems will not invest equity in this AIT facility, but this will be made part of the global supply chain for the M777. “There are plans for this gun to be exported from India in the future,†company sources disclosed.
Indeed, it was the offer to transfer the AIT facility from the US to India which put this deal back on the table in 2014 after a prolonged stalemate over the earlier offsets plan, which was declared non-compliant by the Ministry of Defence.
The US has Congressional approval for the sale of this gun to India till 2018 in the price band of $ 750m to $ 885m.
The M777 will be the first new artillery gun to be purchased for the Indian Army after the acquisition of Bofors in 1986 which attracted allegations of corruption and poor quality from some politicians.
Battle-proven in Afghanistan and Iraq, the M777 will be a significant firepower augmentation to India’s mountain warfare capability. More significantly, it removes the curse cast by some politicians of yesteryears on the modernisation programme of the Indian Army.
