Modernisation of the Armed Forces: Reforming the Defence Procurement Regime

India aspires to be an economic and military power. To achieve that, India must possess the necessary military strength to ensure security of its national interests in a dynamic international geo-political environment. Worrisomely, slow and tardy modernisation of the Indian armed forces has been a matter of concern for all those who are concerned with national security. Existing critical deficiencies prove that India has failed to keep abreast with newer weapon systems and technologies. Many attribute this state of affairs to archaic mindsets, poor planning and convoluted procedures.

After the Kargil War, the Group of Ministers (GoM) on National Security had also attempted to identify the regime’s weaknesses. The Group, in its report of February 2001, stressed the need to bring about improvements in the structures and procedures. Consequently, a new set-up was established in the Ministry of Defence (MoD) in October 2001 and a new defence procurement procedure (DPP-2002) was put in place. Initially, three routes were spelt out for progressing procurement proposals, i.e. ‘Buy’, ‘Buy and Make’ and ‘Make’. However, within an year, cases under ‘Buy and Make through Imported Transfer of Technology’ were also included in the procedure.

In the review carried out in 2005, the ambit of the procedure was expanded to include the offset policy. DPP-2006 contained three major changes – splitting of ‘Make’ category; sub-categorisation of ‘Buy’ decisions as ‘Buy (Indian)’ and ‘Buy (Global)’; and introduction of Integrity Pact for all procurements over Rs 100 crore. Subsequently, DPP-2008 introduced measures to promote transparency.

Despite repeated reviews, there has been no discernible improvement since 2002. Worse, instead of streamlining the procedure, every review has made the process more complex, confusing and hard to comprehend. The latest version (DPP-2016) is a mammoth document, running into close to 500 pages. As the defence production and procurement regimes remain trapped in the quagmire of bureaucratic inefficiency, the services continue to wait indefinitely for new equipment to materialise. Unquestionably, India’s defence procurement system has been an utter failure.

Indicators of the Failure of the Procurement Regime

The stated objective of the procurement procedure is threefold – to ensure expeditious procurement of the approved requirements of the armed forces in terms of capabilities sought and time frame prescribed by optimally utilising the allocated budgetary resources; to demonstrate the highest degree of probity and public accountability, transparency in operations, free competition and impartiality; and to keep the goal of achieving self-reliance in defence equipment in mind.1 As stated earlier, despite all efforts, there has been no speeding up of the procurement process. Funds continue to get surrendered while the services remain deprived of critical equipment. Decision making continues to be highly sporadic and erratic. Questions are still being raised regarding lack of transparency and objectivity of the process. Competition remains limited. Indigenous defence production continues to languish. The country remains dependent on imports for all major requirements. Quite shamefully, India holds the dubious distinction of being the largest importer of conventional weapons in the world.

Ideally, inventory of a military should consist of 30 percent state of the art equipment, 40 percent equipment of matured technologies and 30 percent equipment nearing obsolescence. In India’s case, the respective percentages are 15, 35 and 50. Thus, in addition to regular modernisation/upgradation plans, India has to make up the existence deficiency of 15 percent of the state of the art equipment. It is a huge challenge as modernisation of the armed forces is lagging behind by more than 10 years. See Illustration 1.

Illustration 1: India’s Defence Inventory – Worrisome Level of Obsolescence

India’s defence industry is in a pitiable state solely due to the gross inefficiency of the public sector. Instead of mastering imported technology and using it as a spring board to develop newer technologies, the public sector has found the easiest way of making money by acting as pure traders – assembling imported subsystems and selling them to the captive military at unethically exorbitant profits.

Every effort is made to inhibit the entry of private companies in the defence sector, lest they provide competition to the sloppy public sector. Enormous potential of India’s vibrant private sector remains untapped. Efforts to recognise the well-established private companies as Raksha Utpadan Ratna have been aborted. The much awaited policy on Strategic Partnership continues to remain under consideration since 2016. As regards DPP, not a single major contract has been successfully concluded since 2001 in a competitive environment without getting embroiled in allegations of wrong doings. Every successful deal has been on single-vendor government-to-government basis, showing total hollowness of the procurement system. The ‘Make’ procedure has been a non-starter.

All nations seek offsets that are in consonance with their national needs – either to meet an urgent economic need or to fill a critical technology void. Shockingly, India has abdicated the right to select methodology, fields and offset programmes to the vendors, thereby rendering India’s needs inconsequential. As is expected, foreign vendors opt for programmes that cost the least and are easy to fulfil. Since India lacks a credible verification mechanism, it is an open invitation to unscrupulous foreign vendors and their dishonest Indian partners to collude and cheat the country by presenting exaggerated claims. MoD has no option but to accept their claims at their face value. The Comptroller and Auditor General (CAG) has severely faulted the offset regime on multiple counts.2

Reasons for Failure

Apparently, the government has failed to put in place a responsive, dynamic and effective defence procurement regime. The complete process suffers from indifference, apathy, inefficiency and lassitude. Old bureaucratic mindsets and penchant for status-quoism inhibit forward thinking.

It appears paradoxical and incongruous that repeated reviews of DPP result in retrograde measures. Every provision is public sector centric. Despite loads of frequently doled out promises, the private sector continuous to be a fringe player with enormous untapped potential. Clout wielded by the public sector stalls every move towards open competition. With a view to safeguard interests of an inefficient and uncompetitive public sector, all policy initiatives attempt to ensure its monopoly and predominance.

There are 39 ordnance factories and the Ordnance Factory Board is the largest departmentally run industrial undertaking in the country. In addition, MoD has 9 defence public sector undertakings. Despite getting preferential treatment from MoD, they have singularly failed to keep pace with world-wide developments. They thrive on periodic infusion of transferred technology and have developed no indigenous competence.3

The Defence Research and Development Organisation (DRDO) is like an albatross around the services’ neck. It promises a lot but delivers little. Not a single state-of-the-art weapon system has been developed or produced by it so far. On numerous occasions, the services have been denied urgently required equipment because of DRDO’s claims of indigenous development. Even if DRDO is able to make some progress in a few cases, it is always done with major compromises with respect to the stated qualitative requirements. The services are forced to accept sub-optimal equipment. It has been a history of false claims, tall promises, unexplained delays and sub-optimal products.4Recent restructuring of DRDO has been a meaningless exercise.

Indifferent quality of the acquisition staffis the single most important reason for delays in procurements. Officials who perform acquisition functions are drawn from the civil services, defence forces and the defence finance. No one is selected for any special talent/qualification/flair for the job. Worse, no training is ever provided to them. Resultantly, their approach remains entrenched in bureaucratic mediocrity and procedural quagmire.5 Even CAG was forced to highlight the fact that defence acquisition was a cross-disciplinary activity requiring expertise and criticised the system of entrusting acquisitions to unspecialised personnel posted for three-year tenures.

As per the Indian offset policy, all defence contracts where the estimated cost of the proposal is Rs 2,000 crore or more will attract a minimum offset obligation of 30 percent of the estimated cost.6 Foreign vendors are unconvinced that the Indian industry can absorb offsets worth billions of dollars.

Indian officialdom is known for its haughty and pretentious attitude. Though called public servants, most officials consider themselves to be rulers and behave accordingly. Additionally, as awarders of high value contracts, they assume the role of dispensers of favours.7 Rather than considering businessmen as partners in enhancing nation’s defence preparedness, they are ill-treated. This adversarial relationship results in total lack of communication resulting in misapprehensions, and thereby, giving rise to doubts about the transparency and fairness of the process. Many aspiring entrants lose heart and get dissuaded.

Recommended Reforms

In the absence of a strong will to transform, India continues to flounder in the labyrinths of bureaucratic indecision while the country suffers – the armed forces are not getting the required equipment in time and the indigenous defence production is languishing. True test of national leadership is not routine governance but ability to take bold and radical decisions to put a derailed and inefficient system back on track. Here are some recommendations for the government to consider:

1) Creation of an Empowered Independent Entity

To start with, it must be appreciated that planning and implementation functions are distinctly different. They demand dissimilar but highly focused treatment. Therefore, they must be segregated. Planning functions should primarily be performed by officials and military leaders who possess necessary understanding of the national security concerns. On the other hand, implementation functions must be entrusted to professionals who are fully conversant with modern technologies and are aware of the latest management techniques to administer multi-faceted and multi-agency programmes.8 See Illustration 2.

Defence and Aerospace Commission

 

Ø  Receives plans approved by DPPC

Ø  Converts capability needs into performance parameters         

Ø  Analyses alternatives to acquire equipment within specified time

Ø  Identifies the most beneficialand cost-effective route

Ø  Oversees growth of indigenous defence industry

Ø  Acts as nodal authority for offsets

 

 

 

Defence Perspective Planning Council

 

Ø  A broad-based overarching policy making body

Ø  Approves identified capability gaps

Ø  Approves 15-years Long Term Integrated Perspective Plan and 5-years Services Capital Acquisition Plan

 

 

Ministry of Defence
Executive Functions
Planning Functions

Illustration 2: Segregation of Planning and Implementation Functions

A Defence Perspective Planning Council (DPPC) should be constituted as the highest policy making body to handle all planning functions. It should be a broad-based body by including representatives of the Foreign Ministry, the Home Ministry and the National Security Advisor. Its role should include identification of capability gaps, approval of 15-years Long Term Integrated Perspective Plan and 5-years Services Capital Acquisition Plan. It should be empowered to approve changes in the acquisition procedure, grant deviations from the laid down policies and accord approval to invoke the Fast Track Procedure.9

India’s experience with the successes achieved by the Atomic Energy Commission and the Space Commission has been highly encouraging. It is time a similar setup is adopted for the defence sector for the executive functions. A Defence and Aerospace Commission (DAC) should be constituted to implement perspective plans approved by DPPC. It should be the nodal agency to oversee the complete defence acquisition process and the development of the indigenous defence industry.10 Suggested structure of the proposed Commission is shown at Illustration 3.

Exports and Cooperation Wing

Promote defence exports through proactive initiatives and close liaison with industrial associations. Exploit opportunities for international armament cooperationdevelopment and exports.countries.

Acquisitions Wing

An integrated set-up to undertake all acquisition functions relating to outright purchases and handle cases wherein indigenous production under licence is planned after initial purchase.

Maritime Industry Wing

Oversee indigenous production of maritime systems, both under licence and through local development. Act as an interface between the government and the industry for maritime systems.

 

SME Wing

Act as an umbrella agency to help SMEs to enter defence sector with their niche technologies and provide support to them in retaining their technological lead through continuous innovations.

Liaise with industrial associations.                            Oversee import of technology and its absorption.     Help modify policies

Defence R&D Wing

Evolve technology upgradation plan. Identify key technologies for focused attention, both through development and imports. Oversee absorption of imported technologies.  Supervise DRDO.performance. de with industrial associations.                            Oversee import of technology and its absorption.     Help modify policies

Defence Offsets Authority

Independent and empowered single window agency to manage all offset activities in a predictable, efficient and transparent manner. Responsible for approving   and validating discharge of obligations.

with decision making Liaise with industrial associations.                            Oversee import of technology and its absorption.     Help modify policies

Land Systems Industry Wing

Oversee indigenous production of land systems, both under licence and through local development.             Act as an interface between the government and the industry for land systems.

Aerospace Industry Wing

Oversee indigenous production of aerospace systems, both under licence and through local development. Act as an interface between the government and  industryfor aerospace systems.

 

Defence Technology Advisory Board
Policy Review and Training Committee Technology Advisory Board
Defence and Aerospace Commission

 

Illustration 3: Suggested Structure of Defence and Aerospace Commission

The Commission should be tasked to handle all activities pertaining to the production, acquisition and export of defence systems/equipment. For each procurement proposal, the Commission should debate, analyse and determine the route that should be adopted – outright import or indigenous development or a combination of the two. Factors like quantity, economic viability, urgency, criticality, indigenous capability and acceptable timelines would be the key deciding factors. However, technical evaluation and field trials should continue to be held under the aegis of the respective Service Headquarters as hitherto fore.11

The Acquisition Wing is the main executive arm. It should undertake all functions relating to outright purchases and finalisation of cases wherein indigenous manufacture under licence is planned. Like the current set-up, it should continue to be an integrated set-up to include officials from the Department of Defence, the Finance Division and the Service HQ.

Land Systems Industry Wing, Aerospace Industry Wing and Maritime Industry Wing will be responsible to oversee indigenous production of their respective systems, both under licence and through local development. These wings will also act as an interface between the government and the industry, both public and private sectors.

Small and Medium Enterprises (SMEs) are the engines that spearhead technological advancement. As they operate in niche segments, they acquire exceptional expertise; gain specialised knowledge; and master manufacturing processes. However, they lack resources to be able to compete with bigger players. They need hand-holding to thrive and deliver. SME Wing should provide necessary support to them.

The Defence R&D Wing should be headed by a military-technologist and its primary responsibility should be to keep a watch over the performance of DRDO, thereby making it accountable to an oversight authority. Additionally, the Wing should facilitate identification of technologies for import to fill critical gaps in indigenous knowledge and help accelerate the process of achieving self reliance.

The Defence Offset Authority should be an empowered authority with decision making powers for efficient management of the complete gamut of offset related activities in a predictable, efficient and transparent manner. Promotion of exports and international armament cooperation will be the primary responsibility of the Exports and Cooperation Wing. The Wing should encourage formation of multi-national consortia for the purpose.

Defence Technology Advisory Board should be headed by an eminent scientist. It should formulate policies and oversee their implementation to promote development of Indian defence industry in well-delineated phases. The Policy Review and Training Committee should act as an internal watchdog and maintain a databank of all successful and unsuccessful programmes to draw necessary lessons from them. The Committee should also be assigned responsibility to organise training programmes for all functionaries involved with acquisition and developmental assignments.

2) Integration of the Private Sector

Both the public and the private sectors are national assets. To build a globally competitive defence industrial base, it is essential to exploit the potential of both the sectors. It is only then that necessary economies of scale can be achieved in different fields of defence manufacturing. The government must shed its pro-public sector bias and tap the enormous technological prowess and potential of the private sector.

Undoubtedly, the public sector possesses vast facilities, huge work force and decades of experience in assembling imported sub-assemblies/components. On the other hand, the private sector has mastered modern tools of management. It has acquired innovative marketing and financial skills. The government must explore ways and means of public-private partnership to harness their respective strengths.


 

3) Policy Initiatives

No country can afford to neglect innovations. Innovation entails an energetic and dynamic drive that seeks to improve existing systems, processes and procedures for better results. Defence technologies evolve at a very rapid pace and undergo rapid obsolescence. Defence equipment needs continuous upgradation to be able to perform effectively. The government needs to build up a supportive ecosystem to facilitate easy assimilation of developing technologies for defence systems. It could be through an open architecture that allows ‘plug and play’ and promote development of cutting-edge technologies.

The government has rightly realised the importance of Foreign Direct Investment (FDI) in the defence sector for accelerated growth. In addition to the infusion of funds, FDI brings in latest technologies and modern processes. As the defence sector is highly capital intensive and the investible funds available in the world market are finite, every foreign investor is guided purely by economic considerations. If India is aspiring for huge FDI inflows, it must make itself the most lucrative FDI destination. For that, the policies have to be tailored accordingly.

India announced its intent to demand offsets against defence procurements in early 2005. The policy has undergone a number of revisions. Offsets do not come for free and generally result in price escalation by 10 to 20 percent. It is a huge cost penalty. Hence, offsets make sound business sense only if the trade-off results in extraordinary economic or technological gains. However, India’s experience of the past few years has been highly disappointing. No benefits have been drawn from the offsets received to develop a vibrant defence industrial base.12The policy needs to be revisited.

4) Need for Professionalism

No reforms can yield results unless the concerned functionaries are trained and equipped to translate progressive policies into tangible actions on ground. It is only in India that defence procurements worth billions of dollars are being carried out by functionaries who possess no knowledge of economics, financial management and military systems. It has generally been accepted the world over that an efficient acquisition work force can not only expedite procurements but also affect considerable saving of the capital expenditure in initial purchase price and associated life-cycle costs.13

Promotion of indigenous defence industrial capability and management of defence acquisitions are multifaceted processes and are highly specialised activities needing extraordinary professional skills and unique attributes.14 It is time India pays attention to the quality of the workforce and takes concrete steps to improve it.


 

Conclusion

Defence procurements are intrinsically linked to a nation’s security concerns. The nation spends a considerable part of the national exchequer to keep the defence forces fully equipped with quality equipment to enable them to perform security functions effectively. Defence acquisitions are a multifaceted process involving a large number of disciplines; need for an overarching empowered authority to administer, coordinate, oversee, direct and control myriad acquisition activities is absolutely inescapable. Authority and accountability must go hand in hand.

In order to initiate remedial measures, it is essential to get at the bottom of all issues through diligent diagnostic study of the maladies. As the review committees appointed by the government lack necessary acumen and expertise to carry out a holistic and in-depth analysis of the system, they tend to look at procedural issues in a piece-meal manner. No expert committee has displayed courage to recommend radical reforms to put the system on track. Minor tinkering with a few provisions have produced no results.

Bureaucracy abhors change and dreads reforms. It thrives on status quo and looks at every new measure as a threat to its turf. Being the ultimate decision makers, the bureaucrats resist every well-intentioned move to revamp the regime. In the similar vein, despite numerous reviews, no major progressive measure has been incorporated in DPP since 2002. Self-seeking domain interests and egoistical attitudes act as the biggest stumbling blocks. Resultantly, the armed forces continue to suffer. Lack of courage to undertake radical overhaul of the regime has been the bane of the country. Requirement of inventive policy initiatives and concrete action plans can never be fulfilled by resorting to semantics and rhetoric. 

References

  1. Indian Defence Procurement Procedure – 2016, available at https://mod.gov.in/defence-procurement-procedure
  2. Major General Mrinal Suman, ‘Appraising Cost-Effectiveness of Offsets’ ,FORCE, vol 8, issue 4(2010).

3  Major General Mrinal Suman, ‘Impediments to the Modernisation of the Indian Defence Forces’, Indian Defence Review, vol 22, issue 1(2007).

  1. ibid.
  2. Major General Mrinal Suman, ‘Reforming the Acquisition Regime to Speed-up Defence Procurements’, Geopolitics, vol VIII, issue V(2017).
  3. Indian Defence Procurement Procedure – 2016, available at https://mod.gov.in/defence-procurement-procedure
  4. Major General Mrinal Suman, ‘Doing Business with the Indian Defence Regime: Challenges and Tribulations’, Indian Defence Review, vol 23, issue 1(Jan-Mar 2008).
  5. US “Defence Acquisition Guidebook”, at http://www.defenseacquisition.com/wp-content/uploads/2010/07/defense-acquisition-guidebook.pdf . It provides detailed guidelines and commends best business practices to all functionaries involved in the acquisition system.
  6. Major General Mrinal Suman, ‘Need for Defence and Aerospace Commission’, FORCE, vol 9, issue12 (2012).
  7. ibid.
  8. ibid.
  9. Major General Mrinal Suman, ‘Defence offsets: has India benefited?’,Global Defence Offset Review, vol 4, issue 2(2015).
  10. Major General Mrinal Suman, ‘Selection and Training of Acquisition Staff: a Neglected Aspect’, Global Defence Offsets Review, vol 4, issue 3(2015)
  11. “Acquisition Operating Framework” at https://www.aof.mod.uk/index.htm It defines how UK conducts, governs and controls its defence acquisition work force and processes. It is a key enabler for improving delivery to the armed forces and for producing greater value for money for the taxpayer.

 

(Major General Mrinal Suman, AVSM, VSM, PhD, (Retd.) commanded an Engineer Regiment on the Siachen lacier and was the Task Force Commander for designing and sinking shafts for Pokhran II. He is a prolific writer and has published over 500 articles. He is considered India’s foremost expert in India’s defence procurement procedure and offsets.)

 

(This article is carried in the print edition of September-October 2018 issue of India Foundation Journal.)

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