Indian Defence Review

Defence Procurement Organisation

In spite of the ‘distinction’ of being the top ranking in arms imports, India does not have a dedicated and centralised defence procurement body. The existing system is, at best, a loose ad hoc mix of defence experts, public sector manufacturers, R&D ‘experts’ of the DRDO, bureaucrats and the political leadership. A proposal to set up an organisation as a single point for defence procurements is reportedly under consideration by the government. The new Defence Procurement Organisation (DPO) is intended to integrate and streamline the long and arduous procedure of defence acquisitions. While managing defence acquisitions, is would also be providing assistance in developing a robust defence industrial base in the country.

Acquisitions are currently managed through a loose structure that has the DAC and various other supporting bodies, such as the Defence Procurement Board, the Research and Development Board and the Defence Production Board. The entire procurement process is tedious and tardy. The Group of Ministers set up after the Kargil War had recommended a revamp of the entire national security system and had proposed a centralised acquisition body. The MoD has taken all these years to realise the requirement of such an organisation and appointed a high-powered committee under the stewardship of Dr Pritam Singh, former Director of the Indian Institute of Management, Lucknow. The Committee submitted its report to the then RM Manohar Parrikar in February last year. If and when the report is accepted, the organisation will need at least another two to three years to be established with a dedicated cadre. The body, once established, would be autonomous under the RM, with experts in legal, costing, contracting, technical issues related to armaments.

Western nations such as the UK, France, USA and others, have such organisations for defence procurements, which Indian planners need to observe and learn from. France is one good example that could be adapted to suit the Indian requirements and was recommended to be followed even by the Kelkar Committee, appointed by the MoD in 2005, for ‘Self Reliance in Defence Preparedness’. The French body has about 10,000 personnel, highly professional and trained in their respective fields. The technical and professional competence of this body has resulted in France fulfilling over 90 per cent of its military requirements through its domestic defence industry.

In comparison, the Indian current defence acquisition manpower is drawn from civil bureaucracy and the armed forces, very few of whom, if any, are trained in the legal, contractual or technical issues pertaining to acquisitions. In addition, none of the personnel are permanently deputed to the organisation, which further leads to delays in decisions. The proposed DPO would have to be structured in a manner to overcome the present shortfalls and be able to efficiently expend the huge funds earmarked each year in the defence budget for capital acquisitions.

Additional Steps Needed

There is no doubt that steps have been taken to make the dream of ‘Make in India’, a reality but much more needs to be done. If India wishes to attract a foreign OEM as SP in defence production, it has to show investor-friendly business intentions, giving positive vibes to investors. For that, it must fine-tune its policies to provide freedom of action to the joint ventures that are now steadily mushrooming, to respond as per market dynamics. It would, therefore, be sensible for the policy makers and for those who implement those policies, to gain an insight into the minds of investors to understand where their motivation lies to make large investments in a foreign nation with the associated risks. It is but obvious that an investor would want complete control over the use of his funds, freedom of action to increase/decrease production capacity as per market trends and have access to markets to ensure commercial viability, through economies of scale. Towards this end, India would also need to relook at its defence exports policy. There is also the need to address the following urgently:

•  Place accountability for expenditure of public money, not just to raise an issue in Parliament, but to ensure that national security requirements are fulfilled in entirety.

•  There has to be clarity of vision and mission statement. The decision to buy or make the new Light Utility Helicopters (LUH) and the replacement for Avro aircraft have been changing with sickening regularity in the past several months. Similarly, the decision to make/purchase single-engine fighter aircraft has been changing almost on an overnight basis!

•  Introduce accountability in all indigenous projects, be they in manufacturing or in the R&D sector, for every month of time and cost overruns. There has to be a clear plan for each organisation’s charter of duties, timelines for approvals and detailed project reports.

•  The potential of the private sector needs to be harnessed through synergy with the public sector and the users. Their manufacturing competency should not just be profit-oriented.

•  The DPSUs/DRDO and their controlling babus in the MoD must shed their mindset of considering the private sector as competitors and rather see them as partners.

•  The private sector has to be given the necessary encouragement by providing it a level playing field by removing protective policies favouring the public sector. Simplification of the tax regime, through the implementation of Goods and Services Tax (GST) is a welcome step, but ambiguities need to be removed.

•  Tap the potential of MSMEs by supporting their innovative skills in the defence production sector and viewing them as strategic partners. MSME defence licensees should be the automatic choice for Indian Offset Partners.

•  Further simplification and streamlining of the Defence Offset Guidelines.

•  Enhance R&D and skill levels through constant interaction with the academia and allocation of funds for research, much more than what is being done now. The private sector should be partner to the development of advanced technologies, based on shared expenditure.

•  All acquisitions should be through an unambiguous policy and a single agency, rather than having multiple documents and multiple agencies. The setting up of the DPO should be accelerated.

•  The Defence Export Policy needs to be simplified. The mandatory requirement of the present NOC and End-User certificates should be removed, if the export is to the published list of countries, where exports are permissible.

The most formidable impediment to the success of the ‘Make in India’ campaign, to quote Bharat Karnad, will be, “…relying on the existing decrepit apparatus of the State, unimaginative policy establishment and the government’s usual lackadaisical way of doing business to deliver results.” In short, a major bureaucratic overhaul and a change of mindset in the government thinking would probably get the ‘Make in India’ campaign rolling.

Concluding Thoughts

According to an answer to a question raised in Parliament, Subhash Bhamre has admitted that the country has attracted just Rs 1.17 crore as FDI in the defence production sector, under the ‘Make in India’ framework in the last four years. This measly amount is notwithstanding the FDI policy being liberalised, open-minded changes made in the policies for creating SPs and the abolition of the Foreign Investment Promotion Board (FIPB), all enablers of indigenisation. The sector has floundered, to say the least, in attracting FDI. Not that the ten years of the previous government did any better, wherein less than $5 million had come in. For some reason, the private sector of the country too has not displayed much enthusiasm on the ground, except in making statements and welcoming certain changes to existing policies.

Understandably, India does not wish to be a 70 per cent import-dependent nation. Yet, at the same time we cannot be 100 per cent self-sufficient nation. It is just not feasible to be an isolationist in a networked world of global trade. Indigenisation will have to be in phases, as there is no ‘quick-fix’ solution. Since it is a networked world, there has to be a give-and-take with the foreign OEMs. The government of the day probably understands this, since certain favourable steps have been initiated to remove bottlenecks, but much more needs to be done to make the sector more conducive for business. The defence industry, both Indian and foreign and the Indian Armed Forces need to work together on co-production of proven platforms and co-development of new projects. India has had an excellent record of the “man behind the machine”, but defence preparedness is not just training the man, the man needs weapons and machines too. A carefully worked out plan for indigenisation that encourages the participation of all concerned and which recognises that India must learn to walk before it can run, would be the pragmatic path for the government to follow.