The Telegraph
Since 1st March, 1999
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- Professionalized military procurement is still elusive in India

IAF’s Su-30 aircraft: show time

The latest report of the parliamentary standing committee on defence, tabled in April, has expressed concern over the depleting combat fleet of the Indian air force, which stands at 33 squadrons against the authorized 39.5. It has also noted the delayed progress on the proposed acquisition of 126 multi-role combat aircraft. Considering the time taken for such inductions, it appears inevitable that IAF force levels will decline further to 28 squadrons. Vayu Bhawan’s cup of woes does not end here. Recently, the Russians, who are learning the tricks of the globalized arms trade faster than others, have dropped a bombshell. They want to renegotiate contract terms not only for the recent top-up Su-30 aircraft order, which was intended to shore up the depleting force levels, but even the earlier sealed contract. In the fiercely competitive arms marketplace, it appears that even the sanctity of contracts is becoming a casualty, leave alone sentiments of long-standing friendships and procurement relationships.

It is ironic that on the day there were celebrations marking three years of the present government in office, the findings of the comptroller and auditor general on an audit of capital acquisitions by the ministry of defence for the period 2003-2006, were reported. The audit looked into the reasons leading to the defence ministry’s surrender of Rs 3,500 crore out of the allocated capital budget. The ministry’s justifications cut no ice and the CAG concluded that the structure of the defence acquisition organization is inefficient and ineffective and it is unable to spend what it is allotted.

These strong observations merit deep introspection. Soon after the present government took office, this writer had, in this column, reflected optimism as the manifesto of the leading party had claimed that it would “ensure that all delays in the modernization of our armed forces are eliminated and that funds budgeted for modernization are...spent to the fullest”. Never, to one’s knowledge, had any party manifesto been so sensitive to and specific about the armed forces’ modernization needs. There was indeed hope.

These reports, therefore, come as a huge disappointment. Whilst it must be said that the present CAG audit also covers a part of the period of the previous dispensation, the issues stretch beyond specific governments. They reflect a frozen bureaucratic mindset, one impervious to the crying needs of the fighting services. That there is awareness among the highest echelons of the government is not in doubt. It is the failure to understand the complexity and dynamics of the international arms trade and to introduce changes to leverage participation to national advantage that is disappointing.

Pursuant to the recommendations of the group of ministers on reforming the national security system, a dedicated structure for defence procurement was set up with the specific goal of achieving better time-cost management in the acquisition process, building up institutional memory and helping obtain better value for money. In this revised organization, the defence minister chairs the defence acquisition council with respective secretaries chairing the acquisition, production and research and development boards.

This was followed in 2006 by the release of the defence procurement procedure for capital acquisitions by the defence minister, which introduced, among other things, the provision of offsets in contracts exceeding Rs 300 crore, and an integrity clause to eliminate middlemen. The defence minister even expressed the hope that during the Eleventh Plan period, Rs 45,000 crore would become available by way of offsets. Clearly, the offset clause appeared the high point of this procedure. If reports are to be believed, there are already discordant voices from the industry.

In theory, we have instituted a comprehensive procedure. We now expect things to fall in place. In the international arms marketplace, things don’t quite work out that way. We already have a case in court where, notwithstanding the variant of the integrity commitment, warring vendors have in court confirmed that commissions were paid on a helicopter contract. As for offsets, these are noble in intent but highly complex in content and execution, and in their benefits. In a researched paper titled, “Arms Trade Offsets & Development”, Jurgen Brauer and Paul Dunne, “find virtually no case where offset arrangements have yielded unambiguous net benefits for a country’s economic development”. This issue needs to be meticulously studied, taking into account larger national interests and the merits related to each individual case. It certainly cannot be a blanket requirement.

Initial optimism, born out of realization at the highest levels of government of the need for modernization and commitment towards its achievement, is giving way to disappointment. Recently, the parliamentary standing committee on defence was critical of the functioning and performance of DRDO. Based on this, an independent performance audit committee has recently been set up. Here was a clear pointer that even the reorganization was not delivering on expectations. The latest standing committee report further strengthens the argument that there are deep fissures within the system that do not yield to superficial tinkering. If our armed forces are to graduate to a brave new world of efficient military procurement and modernization, then drastic surgery is the answer.

Thanks to Bofors and Tehelka syndromes, few of those in transitional seats of authority really have their hearts in soiling their reputations in the procurement business. They would prefer to complete their tenures keeping their reputations intact rather than risk taking decisions and being hounded thereafter. A change of mindset is needed in every echelon of decision-making. But that is easier said than done.

Another issue relates to the complexities of defence modernization in general and defence procurement in particular. The CAG report has highlighted that defence acquisition is a “cross disciplinary activity requiring expertise in technology, military, finance, quality assurance, market research, contract management, project management, administration and policy making”. In spite of this, our defence acquisition process is managed by people who are serving a tenure posting for two to three years in the course of which they will need to deal with industry professionals. Also, the system remains confined only to the defence ministry. A start can best be made by professionalizing the entire organization through educating and well-trained cadre dedicated to this profession.

If these are the challenges, then every superficial action that is taken supposedly to streamline and document procedures towards efficient procurement will become a hurdle towards achieving our objective. The reorganized high-level structures can only be as good as the staff inputs they receive. Similarly, the defence procurement procedures, while being perfect in intent, will take flexibility out of the hands of professionals who, when indulging in complex technical and commercial negotiations, must be as agile as their counterparts across the table. Often in these hard negotiations, fleeting opportunities and trade-offs have to be grabbed. How does one negotiate when every initiative taken may be construed as motivated and when every small point must be referred to the highest levels for endorsement'

Arms trade in the modern world is capital- and technology-intensive and cruelly competitive. It casts a shadow over every facet of national activity, be it defence research and development, trade, commerce, economy, security or diplomacy. It must meet clearly defined national strategic objectives. It is a task for professionals in this field. The American department of defence runs a Defence Acquisition University, whose stated mission is “to provide practitioners training, career management and services to enable the acquisition, technology and logistics community to make smart business decisions and deliver timely and affordable capabilities to the war fighter”. Until we recognize this fundamental need, and move rapidly towards professionalizing defence procurement, we will continue to stumble from one crisis to another.

Considering that the nation still awaits a national defence university, a proposal which the cabinet has accepted, another defence university might be a distant dream. If so, the nation should be prepared for continued ad hocism in military modernization and forget the objective of delivering timely and affordable capabilities to our war fighters.

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