Presently, the Department of Defence Production (DDP) in MoD looks after the public sector enterprises only. The private sector remains neglected. There is an urgent need to have an agency that the aspiring companies can approach to obtain clarifications and guidance.
The Kelkar Committee had strongly advocated evolution of 15 Year Long Term Plan for defence acquisitions and wanted it to be shared with the industry. Nearly two years have passed since the submission of the Committee’s report, but no such plan has been finalised as yet. The industry continues to grope in the dark as regards impending defence requirements.
Security classification of procurement proposals hampers publicity, resulting in fewer vendors participating in a tender. With advances in information-gathering technology, it is time the Government and the services have a re-look at the complete methodology of the classification system.
FDI is a highly effective route to obtain foreign technology collaborations. But it has to be attractive enough for foreign companies and investors to make business sense. The failure of the current policy should propel the Government to revisit it in its entirety to remove all dissuasive provisions.
Preferential treatment of the public sector is contrary to the stated aim of ‘open and equitable’ competition. Purchase preference granted to the public sector cannot be justified at all. Nothing causes more damage to the credibility of a system than playing favourites. The public sector must learn to do without state protection and compete on its own efficiency. Additionally, the public sector should not be given advance notice of impending procurements as it gives them an unfair time advantage to negotiate collaborations.
While seeking transfer of imported technology, a selection of Indian recipients should be based purely on merit. A private sector company may be more suited to receive incremental technology rather than a public sector nominee, as is the practice at present. Endeavour should be to utilise existing capacity optimally rather than creating infructuous duplication.
Policy on offsets should be made free of all ambiguities. All defence related activities should be accepted against the fulfillment of obligations. There should be no attempt to classify defence industry for the purpose. Offset banking may be introduced in due course after gaining sufficient experience. FDI in defence R&D may be pegged at an appealingly higher percentage.
Procedural Reforms
There is immense resistance to centralised registration of vendors. All procurement agencies want to retain powers to register vendors under their own aegis as it gives them liberty to patronise a selected few. It also helps in restricting competition by issuing tender enquiries to locally registered vendors. The Government has to initiate tough measures to force a central registry of approved vendors.
As is being done in Great Britain, the Government should have a portal wherein all tender notices in excess of a prescribed value should be displayed. Any vendor desirous of doing business with the defence should be able to download details of all tender notices. It is terribly frustrating for companies to struggle to gather information from over 150 procurement agencies.
Broad parameters of equipment proposed to be procured should be made known to prospective vendors six months prior to the issuance of RFP to give them adequate time to take well considered business decisions and carry out preparatory work. Similarly, time given for the submission of technical and commercial proposals needs to be considerably increased, especially in cases where offsets are mandated.
Instead of piecemeal buys, the Government should encourage procurement agencies to plan bulk procurements for economies of scales. Additionally, long term requirement should be communicated to indicate likely flow of orders. This will prompt companies to commit resources for establishing necessary production facilities.
Procedure should be made user-friendly. Participation of small and medium enterprises in defence production should be encouraged by facilitating an easy and hassle-free entry.
Structural Improvements
Presently, the Department of Defence Production (DDP) in MoD looks after the public sector enterprises only. The private sector remains neglected. There is an urgent need to have an agency that the aspiring companies can approach to obtain clarifications and guidance. It has been generally accepted that the DDP should be reorganised and called the Department of Defence Industry (DDI), with a much wider mandate to integrate the private sector as well.
The Government has to realise that both public and private sectors are national assets and harnessing of their potential is essential if India wants to achieve self reliance in defence production.
There is an urgent need to have a mechanism in place to facilitate the participation of Indian private sector in defence industry. A dedicated set-up, called the Defence Industry Service Group (DISG), should be established under the recommended DDI to act as the nodal agency for the complete defence industry. It should consist of experienced officials and act as an effective institutionalised interface between the MoD, the services and the industry for regular interaction.
In addition to advising companies as regards procedures and opportunities, it should also help remove general misconceptions about the fairness of India’s procurement regime. Publication of brochures covering all aspects of procurement structures and procedures in simple language will go a long way in encouraging companies. It should also be tasked to maintain a portal notifying all procurement tenders and policy directives.
Such a mechanism can also assist companies, on payment of fees, in ascertaining their current technical/manufacturing prowess and potential for entry into the defence production sector. Advisory service can also be offered to companies as regards the availability of opportunities for the supply of their current products to the defence. It could also suggest defence products which a company can manufacture with marginal addition to its facilities and indicate related areas for possible development/diversification.
A directory of credible defence manufacturers should be compiled with details of all assessed companies. This directory should be made available to every defence procurement agency to facilitate identification of companies for the issuance of tenders. The directory could also help foreign producers to locate potential Indian partners for collaboration and offset fulfillment.
Conclusion
Reforms are a continuous process. The Government has displayed its resolve, commitment and keenness to remove all infirmities in the acquisition process by periodic reviews and bold policy initiatives. Although a number of steps have been taken to make it industry-friendly, actual progress on ground has been negligible. Prospective companies continue to find the whole environment highly intimidating and dissuasive. Leaving aside a few highly visible companies, entry for new players has been woefully painstaking.
Effectiveness of any regime is primarily dependent on the credibility that it enjoys. All policy ambiguities should be removed to eliminate discretionary dispensations and promote transparency in decision making. A procedure is as good as the functionaries who implement it. It is, therefore, absolutely essential that the acquisition staff be selected with utmost care and given adequate orientation training to equip them for the highly specialised task of defence procurements. Emergence of a truly dynamic, vibrant and responsive defence procurement regime will not only cut down delays but also affect major savings.
Finally, the Government has to realise that both public and private sectors are national assets and harnessing of their potential is essential if India wants to achieve self reliance in defence production. It should not play favourites and treat both as equal partners in progress. Archaic mindset of pro-public sector bias has to be replaced by a broader outlook towards defence industry as a whole.
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