“A comparison with other defense industries would be in order to draw some relevant deductions. Take China, Turkey, South Africa, South Korea, Israel and closer home even Pakistan. We began at about the same time and with a similar technological base. Today all these countries are way ahead of us. Pakistan too has done better than us. Look at our performance a little more closely. We had the unique advantage of being able to access technology and defense systems both from the Soviet Union and the West. Did we capitalize on this distinctive benefit of choice? Should someone be answering questions?”
Ever since the Bofors scandal, procurements by the Defense Ministry have continued to be mired in controversies. CAG and CVC reports bundled with CBI investigations have now regrettably become routine with the defense purchases. Consequently, much at the expense of national security, defense procurements are now more about—not procuring.
That not enough funds are allocated in the defense budget for addressing deficiencies in the inventory, upgradation and modernization is another matter. But the little that is available is being allowed to lapse or frittered away in doles to the defense public sector undertakings. It is indeed inexcusable particularly when our security vulnerabilities are so high and evident.
To presume that we can sanitize our procurements from these universal methods of doing business is infantile naivete.
Over a period of time the MOD has become inured to the defense services agitating over limitations in their combat capabilities as also the occasional criticism from the media. All it does when the focus on defense preparedness becomes unbearably sharp is to come out with a revised procurement policy. So we have had policies being churned out every other year accompanied by pious statements of intent like “Armed Forces all over the world are in a process of speedy modernization and restructuring. India cannot lag behind in this trend. We want a highly modern Armed Force, which will be able to respond quickly and which will be able to meet any challenges,’ or “Speedier acquisition of armaments, systems and platforms while ensuring greater transparency in the procurement process are some of the hallmarks of the–.” The concerns of the gullible are thus assuaged. However, the services of course remain skeptical and convinced that nothing will change, and nothing has, over the last two and a half decades.
So what happens? Our defense forces despite considerable amounts being spent on them for their upkeep are not able to ensure national security. After the attack on our Parliament we mobilized our defense services for Operation Parakrama but did not go beyond the threatening posture. Nov 26 terror attack happened in Mumbai and there was much talk and hype about punitive action; the rhetoric was high, the voices shrill but all talk of action petered out. We may argue that restraint and dialogue are more sensible ways of resolving problems. But if we are pushed into talking for want of an option then some introspection is necessary; and more importantly resolute and urgent action.
The current crisis in Kashmir and the belligerent posturing by China suggest a dangerous collusion. The situation is grave. The distressing and inexcusable part is that we should have seen it coming and should have prepared ourselves for such an eventuality. We can now only hope and pray that the crisis is averted.
One way ahead is to constitute empowered committees with extendable five year terms to manage the complete process of procurement of selected major and vital weapon systems
National defense preparedness in our context hinges around three main factors – the defense budget, the quality and sophistication of our defense industry, and the efficiency and maturity of our procurement procedures. All three are important and merit deliberation followed by a time bound implementation of remedial measures.
Let us begin with defense modernization. The beginning of the problems with our procurement system can perhaps be traced back to the Government’s decision at the time of the Bofors deal to prohibit agents and the payment of commissions. It was a decision that went against the basics of commerce and the way business practices have evolved the world over. Sales personnel, marketing and commission agents, lobbyists, sweeteners, incentives are an intrinsic part of commerce. To presume that we can sanitize our procurements from these universal methods of doing business is infantile naiveté. So what happened? The system went into some kind of paralysis and its operators learnt to play the game of pretense; hear no evil, do no evil and see no evil. The agents have not gone away and the commissions could not have stopped. So who are we fooling?
No one can argue about the complexity of defense purchases. The entire process of deciding what is required, identifying choices, evaluating them, making a selection and then contracting is truly ‘ rocket science’ where judgment has to be frequently exercised. Our irrational insistence on removing the element of judgment has progressively led to the system’s paralysis. There are any numbers of procurement cases that have been languishing in the pipeline. For the Army the most notable is the case of the new 155 mm gun systems. This case merits recounting.
Twenty five years hence, the Army still does not have self propelled artillery nor does it have the 155 mm guns it needs.
After a comprehensive study in the late 70s the Army concluded that it needed to induct 155 mm guns into its artillery. At that time the Artillery literally had no self propelled guns; a must for mechanized formations. Besides there were the multiple requirements of increasing the potency of its fire power in addition to compulsions of replacing the gun systems that were getting obsolete. Trials for the self propelled and the towed systems were conducted almost simultaneously. Subsequently because of the outrage over the story of commissions having been paid for the Bofors contract, the procurement of the self propelled guns was shelved. Follow up action to manufacture the Bofors gun in India was also not taken despite having had paid the fees for transfer of technology.
Twenty five years hence, the Army still does not have self propelled artillery nor does it have the 155 mm guns it needs. So other than the 400 Bofors guns that were acquired in 1984-86, the rest of the Army’s fire power (over 3000 pieces) capability is limited to guns of the 60s/70s vintage. The crisis of the Kargil war in 1999 underscored the imperative of upgrading our artillery capability. It emphatically established the necessity of having guns of calibers larger than the 105 mm and the 130 mm that formed the bulk of the artillery. To evict the intruders a large proportion of the limited 155mm guns in our inventory had to be deployed. There were demands for many more of these guns that could not be met because we did not have enough. And had the war escalated the absence of self propelled artillery could have had serious consequences. Parakrama soon followed. Again the Army would have felt the lack of adequate artillery.
Another eight years of neglect have elapsed. But like Nero we continue to fiddle thus encouraging our adversaries take advantage of our weakness. And in our fiddling we also draw attention to another fundamental problem — our leaders have not yet understood the basics of military capability. The military is meant to primarily deter war. Wars are to be fought only when deterrence fails. Ever since 1990 it should have been clear to any military observer that India’s military deterrence merits urgent attention.
The Artillery is just one example. The list is long and shocking. The system has let itself be imprisoned by the procedures it has crafted. So rational procurement decisions are avoided or shelved. Instead we witness the phenomenon of some bizarre decisions being taken to buy through defense PSUs or from the USA through the FMS channel to avoid scrutiny. In such cases as a rule we pay substantially higher prices. But that does not matter or who cares?
The Artillery is just one example. The list is long and shocking. The system has let itself be imprisoned by the procedures it has crafted
Because of the apparent criticality of the situation, it appears that finally awareness is creeping in where it matters. Our leaders seem to be absorbing the harsh reality that further drift can be catastrophic. The Cabinet Committee on Security and the National Security Council must act without further delay. The MOD has year after year given proof of its inability to manage defense modernization. Till such time as it can shake itself out of its mindset intervention is unavoidable and necessary.
One way ahead is to constitute empowered committees with extendable five year terms to manage the complete process of procurement of selected major and vital weapon systems or other force multiplier platforms. I believe we need these committees for at least ten years to ensure that modernization becomes a well oiled irreversible process. Ten years is also about the time required to bring our defense preparedness to the desired levels. The members of such committees would obviously have to be carefully selected. They should be given clear cut tasks and time-frames. Some method may need to be worked out so that the procurements carried out by these committees do not come within the purview of the CAG or the CVC. If this is not feasible, some special guidelines would have to be framed so as to ensure that these committees are not shackled in the same manner as the MOD. Time bound procurements is an imperative which can no longer be ignored otherwise national security would be imperilled.
if an item can be imported by a PSU without paying duty, the same concession should be available to the private sector. Only on these terms can the private sector have the enabling environment.
The quality of our defense industry compounds the problems of procurement. Had our domestic defense industry been contemporary and better the situation would not have been so grim. Regrettably none of the defense PSUs is capable of contributing to the requirements of force modernization. Because of protection and benign supervision which demanded no accountability, efficiency, innovation, competitiveness, quality control and a host of other criteria which makes defense companies vibrant and contemporary— our PSUs have stagnated. This is particularly shameful when we consider the infrastructure and the capacities that we have created. The facilities that our defense PSUs have can be rated as lavish and would compare with the best in the world. But when it comes to productivity, cost competitiveness, design and development we are nowhere in the reckoning.
A comparison with other defense industries would be in order to draw some relevant deductions. Take China, Turkey, South Africa, South Korea, Israel and closer home even Pakistan. We began at about the same time and with a similar technological base. Today all these countries are way ahead of us. Pakistan too has done better than us. Look at our performance a little more closely. We had the unique advantage of being able to access technology and defense systems both from the Soviet Union and the West. Did we capitalize on this distinctive benefit of choice? Should someone be answering questions?
In 2001 we took a much delayed decision to open the defense sector to the private industry. It was a brave and sagacious decision. The private sector welcomed the decision and lauded the Government for introducing this long overdue reform of the defense industrial sector. The private sector deserves to be complimented for the speed and thoroughness with which it moved to gear up for entry in this new field. It made investments, created the infrastructure that it assessed would be required, explored collaboration with foreign firms, interacted with the defense services and the MOD but received little or no encouragement. Bravely it has persisted to pursue business. So far, its appeals to the Government to give it a fair chance have yielded only vague promises; nothing concrete that could provide comfort.
What is the reason for the Govt’s unwillingness to usher in the changes necessary for the new policy to take effect? Observers believe there are several reasons: well entrenched vested interests, reluctance to change, political considerations and some other issues trivial or imagined. At public forums promises are made and assurances are given, but when it comes to specifics the MOD retracts or stonewalls.
Interaction with the major private sector players would reveal that despondency and frustration is beginning to set in. In a recent NDTV award function the Chairman L&T shared his concerns in his typical forthright manner; the more important part of what he said was about the country’s defense preparedness in the context of the threats that are today manifesting themselves. He made these statements in the presence of the Finance Minister. It would be pertinent to note that much of what he said was more as a concerned nationalist and less as the head of his company.
What is the reason for the Govts unwillingness to usher in the changes necessary for the new policy to take effect? At public forums promises are made and assurances are given, but when it comes to specifics the MOD retracts or stonewalls.
The quandary of the private sector is palpable these days. They have made investments and are now finding themselves in an embarrassing position since they are not in a position to show any returns on the investments made. Shareholders can be asked to exercise patience, but only for so long. There is also considerable embarrassment because of the agreements and MOUs that they have signed with global defense multinationals. The interactions were predicated on a certain expectation from the Govt of India. The policy document and the licenses granted justified these expectations.
Over the last two decades our private sector has evolved to become globally competitive. Our companies can now compare with the best in the world. Its capacity to innovate and adjust is receiving recognition. More importantly our companies are displaying the hunger to grow and get to the top. They have the potential. All they need is a level playing field and some encouragement. For over 60 years we have stayed with the Defense PSUs and nurtured an obsolete and inefficient defense industrial base, it is time for a change.
What is a level playing field? In our context it means that the private sector be allowed to compete with the defense PSUs on equal terms. The current denial regime where in a wide range of requirements orders are confined to the PSUs, must go. Even in cases where the Govt mandates that transfer of technology is necessary; offers from both the private sector and the PSU should be compared before awarding contracts. Similarly if an item can be imported by a PSU without paying duty, the same concession should be available to the private sector. Only on these terms can the private sector have the enabling environment.
There is another important matter that has been debated for a while but a decision is yet to be taken. The problem is with the FDI being limited to 26 percent for any joint venture. Right now the Indian defense industry does not have the advanced technological base that could be leveraged to produce modern weapon systems. To get to that level it needs infusion of technology, and that can happen only if there is adequate incentive for the global players. Indicators are that that the FDI must be taken up to at least 49 percent to encourage companies to enter India. The proposal has been on the anvil for a while. It is time the decision is taken.
when viewed in the context of our offset policy such, categorization may be quite unnecessary. Let RFPs be issued to our private sector for all buy and make items. If they can compete through collaboration they will. Why keep them out?
In addition to the above, some changes to the DPP also merit examination. Take for instance the policy on “ buy and make’. This has been broken into two. In the first instance the RFP will be issued only to foreign vendors assuming that the technology transfer will then be confined to a defense PSU. In case of products where transfer of technology is not deemed necessary the RFP can be issued to all approved Indian bidders including the PSUs. Such products shall be categorized as “buy and make Indian”. This approach reflects a lack of understanding of the enterprise potential of our private industry. More so when viewed in the context of our offset policy such, categorization may be quite unnecessary. Let RFPs be issued to our private sector for all buy and make items. If they can compete through collaboration they will. Why keep them out?
Lastly is the question of funding. The current practice of the defense budget being pegged at about 2 percent of the GDP is obviously not in synch with the security threats that the nation faces. Raising the defense budget to around 3 percent is not going to adversely impact development. And by keeping at the current low levels no one is impressed but the message does go out that we shall remain a soft state. If we are to achieve a minimum level of deterrence there is no escape from increasing our defense budget. By 2013 it should reach the desired 3 percent level.
To summarize, there are three important issues that merit an urgent review. First is the defense budget. It should be progressively increased to 3 percent of GDP. This decision must be conveyed to the defense forces so that they can begin to plan. Advance planning and actions are necessary to absorb increases in the budget. If this is done without warning the funds will most likely lapse. The second is exorcising the ghosts that haunt the procurement machinery. This is of utmost importance. Otherwise funds will be badly spent or not spent at all. And lastly, let us display belief in the private sector. It can deliver.