Defence Industry

Public Sector: survival through circumventing competition
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Issue Vol 24.2 Apr-Jun2009 | Date : 07 Jan , 2011

The current equipment profile of the Indian Armed Forces has been a matter of serious disquiet to all those who are concerned with national security issues. Many wonder if India possesses the necessary punch to safeguard its national interests. Articles appearing in the press indicate a requirement of 100 billion dollars and a time span of 10 years before a semblance of balance can be achieved. Why have matters been permitted to drift to such alarming levels? Who is responsible for the current state of affairs? By jeopardizing national security, India has been rendered a ’soft state’, as amply proved by the sheer audacity of the Mumbai terrorist attack of November 2008.

Funds have never been a problem. The Government has been making adequate allocations to the defence. The Ministry of Defence (MoD) has been surrendering funds. Despite the fact that the services carry a long list of items urgently required to fill critical gaps, no major proposal appears to be getting fructified. A close examination reveals that major impediments to the modernisation of the armed forces are Defence Research and Development Organisation (DRDO) and the defence public sector. They make a lethal combination that effectively stalls all equipment procurement proposals.

Very often the services are given only one option ““ “˜take whatever the public sector offers or do without it. In a way, the public sector has contributed directly to the current state of affairs where the armed forces are saddled with mediocre and outdated equipment.

Earlier, no procurements from abroad could be carried out unless DRDO, which was a member of all sanctioning boards, accepted that the product could not be produced/developed in the country in the required time frame. DRDO was always wary of conceding this for two reasons. One, it reflected adversely on its research and development competence, and two, every new project meant an opportunity to expand its own domain with the associated budget. There has hardly been any equipment which DRDO has developed in the promised time-frame and conforming to the formulated parameters. In almost every case, it was only after years of failed trials that DRDO reluctantly allowed the services to resort to imports. It has been a history of false claims, tall promises, unexplained delays and sub-optimal products, thereby forcing the services to live with huge voids.

Defence Public Sector and its Hegemony

The Indian defence public sector consists of nine public sector undertakings and 39 ordnance factories. Despite getting preferential treatment through the patronage provided by the Department of Defence Production (DDP) in MoD, they have singularly failed to keep pace with technological developments. They thrive on assured orders from the services and periodic infusion of transferred technology. No indigenous competence has been developed. Most unfortunately, the Indian military is a captive customer of the public sector and is forced to buy what it produces. Very often the services are given only one option – ‘take whatever the public sector offers or do without it’. In a way, the public sector has contributed directly to the current state of affairs where the armed forces are saddled with mediocre and outdated equipment.

In all cases where technology is purchased for subsequent production within the country, a public sector entity is nominated as the recipient even if a private sector company can manage production by receiving only incremental technology. At times the technology is totally alien to the nominated public sector entity entailing long delays in its absorption and subsequent production.

Also read: The myths exposed by Wikileaks

The public sector is adept at taking preemptive action. Being a part of MoD, it gets to know the military’s likely projections of equipment acquisitions in advance. Armed with this information, it promptly signs and MOU with foreign vendors to forestall competition from the private sector, thereby presenting a fait accompli to the decision makers. Once orders are in hand, it displays no urgency in delivering quality goods in the promised time frame.

To illustrate the clout that the public sector enjoys to guard its exclusive turf, the case of Tactical Communication System (TCS) has been discussed in detail herein. It is indicative of the extent to which the public sector can go to retain its monopoly. Although, promotion of ‘free competition’ is one of the stated objectives of the much touted defence procurement procedure, every subterfuge is being used to award the contract to a public sector favourite underhandedly by eliminating competition.

Tactical Communication System

There is an urgent need to put in place a system which can handle communication requirements (voice, data and video) of a field force in the Tactical Battle Area. The current system called Army Radio Engineering Network (AREN) is totally outdated. TCS is a force multiplier and the current void can result in grave consequences.

A case for replacement of AREN by TCS was initiated way back in 1996. Initially, TCS was proposed to be an upgrade of AREN and a case was processed accordingly. After five years of bureaucratic travails, in 2001, MoD directed that the project be taken up as a fresh procurement proposal. Accordingly, the Army Headquarters (AHQ) initiated the case and obtained Acceptance of Necessity. Under the provision of the defence procurement procedure, the case was categorized as a hybrid of ‘Buy and Make’ and ‘Make’. It was stipulated that the first two systems would be imported and the balance manufactured in India with imported technology. The latter ‘Make’ part of categorization related to indigenous development of secrecy and Network Management System by DRDO.

The case took another turn in November 2007 when it was proposed to recategorize the proposal as ‘Make (Hi-Tech)’ under the newly issued ‘Make’ policy as a part of Defence Procurement Procedure – 2006 (DPP-2006). Here a word about the new ‘Make’ policy would be in order. As per the policy, development of all strategic, complex and security sensitive systems are required to be undertaken by DRDO while projects entailing high-tech complex systems would be identified as ‘Make (Hi Tech)’.

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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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