Companies With Low Financial Ratings To Be Out of 'Make in India'

  • Our Bureau
  • 05:40 PM, July 25, 2015
  • 2140

A high-powered ministry of defence (MoD) panel has recommended to remove low credit-rated and debt-ridden companies from the major defence projects under 'Make in India'.

Even though the companies are shortlisted and are in the prominent position now, this recommendation can disqualify some of them from the defence manufacturing plans, Economic Times reported today.

The panel led by former home secretary Dhirender Singh has proposed that the companies need to have a minimum credit rating of ICRA B++ and a net worth that's 40% of development cost of the project. Moreover, companies seeking contracts must also not be in the midst of corporate debt restructuring (CDR) especially for large and strategic projects.

The government guarantees a minimum order and also takes care of 80% of the development and engineering (D&E) costs for projects under the Make (India) category. As per the procedure, two private firms are shortlisted who develop a prototype each of the equipment with one being chosen. This means minimum financial exposure even for the losing firm.

The panel suggested that minimum  net value equivalent to 40% of estimated D&E cost and credit rating equivalent to CRISIL/ICRA - 'B++' should be considered sufficient for most of the schemes.

"A provision to consider higher net worth and credit rating may be provided, based on outcome of feasibility study or assessment of Integrated Project Management Team," the panel suggested.

The panel stated that legal issues may be looked into while permitting them to participate based on the strength of their parent company.

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