Defence Industry

Defence Purchases: time India asserts itself
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Issue Vol 24.4 Oct-Dec2009 | Date : 19 Jan , 2011

Lack of Professionalism

In India, acquisition functionaries are posted in routine turn over. There is no selection based on educational qualifications, demonstrated flair or past experience. Unfortunately, the services are to blame the most in this respect. They have failed to grasp the importance of staff proficiency. A number of critical acquisition functions are being performed by officers posted to New Delhi on their last-leg posting prior to superannuation. Similarly, a bureaucrat from Animal Husbandry or Panchayati Raj Department can be posted to the Acquisition Wing to negotiate advanced weapon systems worth billions of dollars. The role of defence financial advisors is performed by Defence Finance functionaries without elementary knowledge of economics and military matters.

CAG has highlighted numerous cases where the three services have purchased the same item from the same vendor at different rates. Vendors are quick to exploit such weaknesses in the system to derive undue benefits.

Worse, no training is ever provided to acquisition functionaries to enable them to discharge their duties efficiently. Lack of integral legal advice has been another major weakness of the system. To sum up, it will not be incorrect to aver that defence acquisitions in India are being handled by amateurs who are ill-equipped to carry out highly specialised functions.

Poor Contract Drafting

Before the release of Defence Procurement Procedure – 2005, India had no standard contract format. The usual practice followed was to ask the vendor to prepare and submit a draft contract document. On receipt, the draft was circulated to different agencies involved to elicit their comments. The quality of contract vetting depended solely on the diligence of the official involved. The whole exercise was thus carried out in a highly casual and perfunctory manner.

As was to be expected, vendors drafted contracts keeping their own interests in mind and small print invariably contained provisions detrimental to India’s interests. These aspects got revealed at a much later stage when nothing could be done to retrieve the situation. There are numerous instances where India has paid dearly for such lapses.

Lack of Planning

Delayed finalisation of 15-year Long Term Integrated Procurement Plan and 5-year Services Capital Acquisition Plans forces India to go for unplanned procurements. According to CAG, 28 and 43 percent of the budgets in 2004-05 and 2005-06 respectively were expended on unplanned items. CAG held unplanned procurements responsible for restricted competition amongst other ill-effects, thereby giving undue leverage to vendors to demand higher prices.

Also read: A Vision for India

Lack of planning also results in a last minute rush to conclude contracts before the end of a financial year to avoid surrendering unexpended funds. Contract Negotiation Committee for all proposals over Rs 75 crores for the services and Rs 20 crores for Coast Guard is headed by Acquisition Manager with Technical Manager and Financial Manager as members. As a financial year draws closer to closure, they get hard pressed to devote adequate time to each contract, resulting in flawed provisions.

Indifferent Monitoring and Poor Post-Contract Management

Performance of a vendor can best be gauged by the degree of earnestness with which he adheres to the various provisions of a contract. India lacks an effective system for post contract management and monitoring. Although there are a number of agencies involved, there is no single overarching authority to ensure coordination among them. To start with, while responsibility for contract administration and management is that of the Service Headquarters (SHQ) concerned, post-contract monitoring is conducted by the Acquisition Wing. In addition, Equipment Induction Cells are raised by SHQ to deal with the issues related to smooth induction of major equipment in service.

In cases involving one time off-the-shelf buys, Acquisition Manager reviews progress. However, in complex projects entailing design, development and testing, a steering committee under DGA is constituted. The Acquisition Wing submits Quarterly Contract Implementation Reports to the Defence Procurement Board. Due to its preoccupation with procurement activities, the Acquisition Wing has little time to spare for monitoring functions. Once a contract is signed and the related expenditure is booked, the case slides into the background.

Also read: Defence Procurement: Shrinking Competitor Pool

As regards monitoring of the implementation of the offset contract, the vendor is required to submit quarterly reports to the Acquisition Manager concerned. The Offset Monitoring Cell in the Ministry of Defence (MoD) is tasked to assist the Acquisition Wing in monitoring progress of offset programmes. Where necessary, an audit by a nominated official/agency may be ordered to ascertain the actual status of implementation.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Maj Gen Mrinal Suman

is India’s foremost expert in defence procurement procedures and offsets. He heads Defence Technical Assessment and Advisory Services Group of CII.

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