Defence Industry

Defence Procurement: A procedure sans policy
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Issue Vol 25.4 Oct-Dec 2010 | Date : 08 Aug , 2012

Sukhoi Su-30MKI

The Genesis

Since the early sixties, India was almost totally dependent on the Soviet Union for military hardware. This was also the powerful binding force in the strategic relationship between the two nations. While enjoying a special status, India was privileged to receive through straightforward government to government transaction all the required frontline equipment and the latest technologies at friendship prices. Payment to the Soviet Union was made through a barter system based on a Rupee-Rouble exchange rate and did not involve any transfer of hard currency, which for India was always in short supply.

This type of dithering by the government ultimately had adverse effect on the troops deployed in the high mountains of Siachen accessible only by air.

Admittedly, military hardware of Soviet origin was technologically less sophisticated but was robust and largely met with the requirements of the Armed Forces. However, equipment in limited quantities was procured from Western sources mainly from France and the UK through deals with the government in hard currency. For political reasons, during the Cold War days, American equipment was not available to India.

With the end of the Cold War and collapse of the Soviet Union, the primary source of supply of military hardware to India was in complete disarray resulting in serious difficulties for the Indian Armed Forces especially with regard to upkeep of equipment of Soviet origin held on the inventories. In a few years, the Russian Government did manage to restore a degree of order and stability in the defence related industries with some help from India by way of direct orders for 228 SU 30MKI air dominance fighters as also the $1.6 billion deal, now risen to $2.3 billion, for the refurbished aircraft carrier Gorshkov with its complement of MiG 29K aircraft.

New Paradigms

However, by the beginning of the first decade of the new millennium, with the aim of exploiting newly emerging opportunities in procurement of defence equipment, it was decided by the Government of India to adopt the Open Tender System for major acquisitions. Compared with the direct Government-to-Government transaction or acquisition through the FMS programme of the US Government, the Open Tender System offered clear advantages as it provides the best of terms, wider choice, competitive pricing and prescribed level of investment by the vendor in the Indian domestic industry by way of “Offset Liability” and mandatory Transfer of Technology.

Apart from “Best Value for Money”, it provided a convenient opportunity for the Indian Armed Forces to break away from the Russian stranglehold and savour modern aircraft and other equipment of Western origin. It was thus that the Ministry of Defence formalised the Open Tender System through an elaborate and complex document entitled Defence Procurement Procedure (DPP) issued in 2006. This document defined the framework for processing cases for major programmes related to acquisition of military hardware, laid down the steps involved, spelt out mandatory levels of Offset Liability and Transfer of Technology as also defined responsibilities of the Service Headquarters and the various departments of the Ministries of Defence and Finance.

In March last year, the Indian Ministry of Defence (MoD) without stating the reason, cancelled the $1 billion tender for 22 Attack Helicopters for the Indian Air Force (IAF) adversely affecting operational potential, unacceptable in the context of the deteriorating security environment.

The document was refined and a revised edition, DPP 2008, was issued two years later. Further amendments to the document were issued the following year effective November 01, 2009 to promote the domestic industry to participate in defence production, streamline formulation of Qualitative Requirements, ensure greater transparency and accountability in defence procurement and facilitate offset transactions. However, despite noble intent, every revision has rendered the procedure more complex and impeding rather than facilitating the procurement process. As per the Minister of Defence AK Antony, the DPP is under revision and a 2010 edition should be available soon. This time the focus of the revision would be on minimising delay in the procurement process as also to ensure a level playing field for the domestic defence industry vis-à-vis foreign players with suitable safeguards against a labile foreign exchange rate, ensure a fair tax structure and stimulate the development of capabilities of the Small and Medium Enterprises in India.

Although the DPP 2006 and the revised editions issued thereafter were meant to facilitate the process of procurement of weapon systems, the effect appears to have just the opposite leading many to believe that it has so far been a non-starter. Undoubtedly, the Indian bureaucratic and military establishments have since the early sixties been handling largely direct transactions with foreign governments for the procurement of weapon systems. The Open Tender System now formalised as DPP, is therefore a new experience to which the system is yet to retune. Besides, the watchdogs of the government such as the Central Vigilance Commission, Comptroller and Auditor General and the Central Bureau of Investigation are highly aggressive and intrusive in an effort to guard against the lurking menace of corruption in defence deals which tragically is widely believed to be present and inclined to subvert the system.


On the face of it, actions of the Government watchdogs often seem to be in conflict with the imperatives of the national security interest of the country. The recently enacted law on transparency, the Right to Information Act, facilitates easy public scrutiny of every decision especially where high value transactions are involved. Deals related to the procurement of military hardware can no longer remain shrouded in secrecy.

While lofty pronouncements regarding the total transformation of the Indian Armed Forces through the massive induction of military hardware and the staggering levels of investments in the offing, emanate from both the political and military leadership with predictable regularity, the ground realities are hardly inspiring.

The complex dynamics of all these factors severely inhibit decision-making. This leads to interminable delay in the procurement of major weapons systems or frequent cancellation of tenders. In fact, since the promulgation of DPP 2006, not a single transaction pertaining to the procurement of weapons systems has been concluded successfully. The easier option for the government and the Armed forces therefore appears to be the FMS route. While there is much greater certainty of defence deals being completed successfully in reasonable time frame, the FMS route does not offer the unique advantage of obtaining the “Best Value for Money” which the DPP is expected to offer.


While lofty pronouncements regarding the total transformation of the Indian Armed Forces through the massive induction of military hardware and the staggering levels of investments in the offing, emanate from both the political and military leadership with predictable regularity, the ground realities are hardly inspiring. Despite years of effort and colossal investment, the indigenous defence industry has not met with the expectations of the Armed Forces. Given the state of affairs in the domestic defence industry, there is no reason to expect any significant change. At least in the foreseeable future therefore, the nation will have no option but to depend to a large extent on foreign sources for military hardware. There is, therefore, an imperative need to rationalise the Defence Procurement Procedure so that it serves the purpose of it a facilitator, and not an impediment to the acquisition of defence equipment.

Perhaps at the outset, the Government needs to enunciate a comprehensive and pragmatic national policy and on the re-equipment of the Armed Forces, and based on this, formulate a workable procedure for the acquisition of defence equipment from foreign sources with efficiency and speed. Without a clearly defined national focus, the existing Defence Procurement Procedure will continue to be afflicted by drift offering little hope for the future.

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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

Air Marshal BK Pandey

Former AOC-in-C Training Command, IAF.

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