Defence Industry

Reforms in Defence Acquisition
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Issue Net Edition | Date : 22 Jan , 2020

Defence is a strategic component of Sovereign India and the Services have the onerous responsibility to discharge this ‘integrity’ mandate. The expenditure, that the country commits, though not in the ‘charged’ category, is nevertheless a holy cow in Parliamentary debates. It roughly accounts for 2% of India’s GDP and 15% of CGE (2019-2020). However, if we include the pension budget and expenditure by the Border Roads organisation, the defence component swells to around 2.5% of GDP. Several Parliamentary Committees have recommended that GDP allocation to defence should increase to 3% and 10% of defence expenditure be earmarked to R&D, as against 6% presently done.

India has the dubious distinction of having a very low Self Reliance Index (SRI) (Kalam Committee 1993) of 0.3, which has not moved much, despite several public posturing to upscale our Make-in-India component, improve value addition and bolster our military industry capability. In the critical subsystems levels like weapons, sensors and propulsion, the import dependence is as high as 90%. India is also the second largest importer of conventional arms as per SIPRI (2019). Defence procurement and acquisition, which represent the revenue and capital face of defence expenditure, have always been mired in controversy and allegation of undercover agents stealthily exerting ‘under influence’ over powers that be to clinch contract are endemic.

The unholy beginning of these scandals started with purchase of second hand jeeps from Czech Republic; thanks to the dubious role being played by Mr. Krishna Menon, the blue eyed Indian envoy of Nehru at UK. On inspection, they were found to be defective; incurring a loss of Rs.16 lakh in 1951. While Krishna Menon’s personal honesty in the deal seemed to be above suspicions, the dubious role played by a defence agent still dogs defence purchases thereafter. The mother of the defence scandals, however, has been the 155mm Howitzer contract with M/s. Bofors AB (1985), where the dubious role of agents was highlighted by the Swedish Audit Board in 1986.

In the year 1987, the submarine contract with the German firm M/s. HDW, came in for similar diatribe, with allegation of payment of 7% agency commission to bag this contract. The German firm was initially found to be technically non compliant. The Congress government under Mr. Rajiv Gandhi had to pay a very substantial price politically, due to these swirling corruption charges. Much later M/s. Denel, South Africa was blacklisted (2005) due to allegation of under influence in conclusion of Anti Material Rifles. In the Rafale deal also while there is no allegation of ‘agency’ involvement, the aircraft deal has been mired in several unanswered question, despite a clean chit given by India’s Supreme Court.

Defence procurement and acquisition have been now been put through a transparent processes and procedure; thanks to the Kargil engagement, where the CAG’s special audit report brought out several procedural and financial deviation. While the aluminium coffin scandal took the centre stage, mainly to settle political score with George Fernandes, the report clearly highlighted how most of the stores arrived after the conflict was over and how the price differential given for Bullet Proof Jackets (BPJs), were way above prescribed price differential. The Tehelka sting operations (2001) brought out the widespread acceptance of bribes by politicians and defence personnel in fake defence deals.

The DPM (2005) and DPPC (2006) have been definitive steps to usher in transparency in processes, pre-evaluation and award criteria. They have assuaged the discomfort of dealing with arbitrary defence officials, taking blatantly arbitrary decision. The Defence Ministry has now appointed a committee under the DG (Acquisition) to strengthen the ‘Make-in-India’ initiative. The panel is expected to suggest measures how to ensure seamless flow from asset acquisition to life cycle costing. It aims at facilitating greater participation of indigenous industries and develop a robust defence industrial base in the country. It also looks at promoting Indian start ups and boosting R&D footprint of Indian industry.

It may be recalled that in regard to asset acquisition, the acquisition wing has been following a system where cost of equipment and spares requirement are factored in for evaluation of L1. In the MMRCA contract, however, the MoD for the first time introduced the concept of life cycle cost to evaluate L1, which includes life time requirement of labour cost, fuel and spares along with cost of main equipment. Sadly, this Buy and Make contract was cancelled to get into a Buy contract; there by losing a grand opportunity to bolster Make-in-India initiative. The MoD should opt for life cycle costing for its weapon systems and platforms in future. It’s a most welcome agenda; as it is practiced by all developed countries.

As regards, greater involvement of the private sector, the SP (Strategic Partnership) model suggested by Dhirendra Singh Committee (2015) continues to be still born. Like its preceding committee headed by Prabir Sengupta suggesting a “RUR” model, the criteria suggested by the DS Committee needs a relook and the private sector must be taken as board regarding its fairness and objectivity.

The MSME sector has been given many incentives in the nature of tax cuts, credit support through Mudra Bank and benefit of 2.0 multiplier in case of offset contracts. The offset provisions have attracted very little by way of FDI and technology transfer. The OEMs and design houses do not consider India as a welcome destination for investment in defence products as the FDI limit is 49%. The government is more often than not, partial to Defence PSUs. Such mindsets would need to be changed.

The Make procedure contains a provision that 80% funding can be made for developing a product in the ‘Make’ category by the private players. But the Make procedure is so cumbersome, that it has not taken off at all. The Defence Production Policy (2014) envisaged that R&D funding should be made to universities, private sector for designing and developing strategic products. This is yet to be activated. R&D remains the prerogative of the DRDO and it languishes badly in critical subsystems like propulsion, weapons and services. When Dr. Kalam was the SA to RM, there was vibrant participation with universities and other research organisations. Many project were getting funded in these organisation, with a view to bolstering DRDO’s footprint in indigenous research. There seems to be a limbo in this R&D synergy between DRDO and the private players.

Sadly the government has shelved a major design and development project for developing a ‘fifth generation stealth aircraft’ with the Russian. This would have given excellent opportunity to our design engineers to absorb state of art technology from the Russians. The experience of DRDO scientists in design and development with Israelis of MR-SAM project is an excellent template to emulate. Even the JV for BrahMos for developing cruise missiles is an edifying example to replicate. We seem to paying lip service to having JV and PPP in defence production. The public sector monopoly including DRDO remains unabated.

Mr. Rajnath Singh should also look into the excellent report given by Mr. Subramanian (1964) after the Chinese debacle where they flagged the need to collaborate with best design houses to develop a gas turbine engine. Instead the government chose to do it alone at GTRE. The failure of the Kaveri engine and the continuing dependence on the Americans for powering LCA through a GE engine is an excellent example of our lack of foresight to implement sensible suggestions. The Rama Rao committee (2011) had suggested that the design houses must work under the production agencies. They were reflecting on the endemic delay that has taken place in projects like LCA and MBT. Accountability of an organisation can never happen if design and production do not work in tandem.

In Russia, the success of their fighter aircraft program (SU-30) is largely a by product of the synergy between design house and production centre. It’s high time that the government takes decision to make structural change and evolve organisation like DGA (France), where research, production and post production support is handled by one agency. The Sisodia Committee had strongly recommended similar set up as in France for India.

One hopes that the present committee does not go the way, the earlier committee have gone. The Make-in-India initiative, improving India’s capability in strategic subsystems require a systemic and structural overhaul of MoD. Procedures should not be shenanigan for delay and lack of accountability. India has done well by appointing a CDS, as a single point military advisor. It has to go beyond tokenism to make fundamental changes to bolster India’s military industry capability and improve SRI in critical subsystems.

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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

Prof (Dr) SN Misra

was previously Joint Secretary (Aerospace), Ministry of Defence, Government of India.

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