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Mahindra to assemble M777 howitzers

On Monday, the United States Department of Defense (Pentagon) delivered to the defence ministry a Letter of Acceptance (LoA), agreeing to supply 145 M777 ultra lightweight howitzers to India. Valid for 180 days, the LoA spells out the contract price, terms of supply and options available.

Sources close to the sale tell Business Standard the asking price for 145 guns is about $750 million (Rs 5,000 crore). The vendor, BAE Systems, will supply the first batch of 155-millimetre, 39-calibre howitzers within six months of signing the contract. The remaining guns would progressively be built in India.

In August 2013, the Pentagon had notified the US Congress that it was raising the maximum price of the sale to India from US $647 million, which had been notified in Jan 2010, to $885 million. However, BAE Systems officials clarify that this represented a maximum ceiling price, and the actual sale price would be significantly lower.

On Wednesday, BAE Systems named the Mahindra Group as its Indian partner for assembling imported M777 kits into fully built guns. BAE Systems has so far assembled the M777 in Hattiesburg, USA. With this line now shuttered, Mahindra will build the guns in an "Assembly, Integration and Test (AIT) facility", using components shipped to India from BAE Systems facilities in the UK.

"BAE Systems is pleased to partner with Mahindra on our offer to develop an Assembly, Integration and Test facility in India. The facility is a fundamental part of the M777 production line,"said BAE Systems on Wednesday.

According to BAE Systems officials, the Pentagon has drawn up the LoA in close consultation with the customer, i.e. the Indian government. That would suggest the bulk of the negotiation has been completed.

Last May, after years of negotiations, the defence ministry cleared the purchase of 145 M777s for Rs 2,900 crore. The Union cabinet must now clear the sale at the new price of Rs 5,000 crore.

Over the last three years, negotiations had apparently stalled, with successive defence ministers, AK Antony and Arun Jaitley, informing parliament that the cost was too high, and BAE Systems' offset proposal was inadequate.

That impasse was broken last year when BAE Systems offered to assemble, integrate and test the M-777 in India. This brings the offer in conformity with the "Make in India" initiative. BAE Systems has also submitted a fresh offsets proposal.

BAE Systems pointed out on Wednesday: "A domestic Assembly, Integration and Test facility will enable the Indian Army to access maintenance, spares and support for the M777 locally."

The M777, which has seen extensive operational service with the US military in Afghanistan, is being acquired to support Indian army operations on the rugged Himalayan borders with China and Pakistan.

Built of titanium components and weighing just four tonnes (compared to 10-tonne conventional 155-millimetre guns), it can be air-lifted to high altitude deployment areas by helicopters like the CH-47E Chinook, which India is buying separately. The gun can also be towed more easily on narrow, twisty mountain roads.

The initial order for 145 guns could rise significantly once the M777 starts being built in India. This would equip just 6-7 artillery regiments, while the army actually needs new artillery for 50-plus artillery regiments in 16 mountain divisions.

"If India can offer a consolidated order for the 1,000-odd guns needed for 50 regiments, BAE Systems could be induced to offer far higher indigenisation," says a senior artillery officer.

India's 220-odd artillery regiments have received no new artillery since the 1980s, when it bought 400 FH-77B, 155 mm/39 calibre Bofors guns. An indigenous effort by the Ordnance Factory Board to develop a 155 mm/45 calibre gun is proceeding slowly, with a gun barrel bursting during trial firing in 2013. Simultaneously, the Defence R&D Organisation (DRDO) is developing a 155 mm/52 calibre artillery gun in partnership with the private sector.

India has pursued the M77 procurement through the Pentagon, under the Foreign Military Sales (FMS) programme. This involves the Pentagon negotiating terms with the vendor (BAE Systems), and signing the deal as a government-to-government contract.