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Defence Procurement: A Reality Check

The delays in Defence Procurement are hindering the military's modernisation. The MoD needs to speed up decision making, de-layer approval stages, eliminate repetitive process steps, bring in real level playing field, to unleash and promote indigenization and to reduce the import.

The admission in Government circles few months back as a follow up of Parliament Committee Report on Defence, 'Make in India' not taking off in Defence production for myriad reasons. The points made by the report were not new or unknown to MOD, most of these have been highlighted earlier and suitable recommendations made by various committees. The real issue is that the recommendations were never followed by vested interests. Resultantly no major 'Make in India' defence project has actually kicked off in the last three to four years. The present Defence Minister after taking over the charge discussed issues relating to private sector participation in defence manufacturing and time-bound action on key issues such as speeding up of procurement processes, timely conclusion of procurement proposals besides others. Given the pace at which things are moving, it  is unlikely to sign on any of the major procurement by mid next year.  Recently a comprehensive report from Motilal Oswal has also high lighted the issues in a mild manner mainly from industrial perspective.

Acceptance of Necessity is just one step

The Govt in Parliament stated that under 'Make in India', the defence ministry has accorded Acceptance of Necessity (AONs) to proposals worth approximately INR4.8 Lakh Crores from FY15 to FY19 (till date), almost 1.7 times of the Rs. 2.8 Lakhs Crores of AON accorded over FY11-14. A  cross comparison is shows that pattern of AON as almost same during the period FY 11-14 and FY 15-19.

However  these are mostly focused on indigenous production as shown in figure, but AON is one of the initial steps in the defense procurement process.We need to keep in mind that all AONs do not result in RFP being issued, as AONs are valid for 6-12 months. The record reveals that AONs issued over FY15-FY19 almost Rs 3 Lakh crores of AONs, about 67%   are yet to convert into orders as shown in Figure below.

Procurement Pattern

In recent past 70 capital acquisition contract worth over Rs.1.3 lakh crore inked with foreign vendors since 2014 and 120 contracts worth Rs. 1.17 lakh crore inked with Indian vendors since 2014.  90% of domestic acquisitions are from DPSUs & 41 ordnance factories and about 10% from private sector. Most of the procurement still being sourced from DPSU/ Govt sector, despite claims of level playing field.  Fact of the matter is India has made little headway in getting its private sector to take to defence production under 'Make in India' policy with foreign collaboration.

Make Projects

The much hyped 'Make in India' projects Futuristic Infantry Combat Vehicle (FICV), a Rs. 50000 crore project, Tactical Communication System (TCS) and Battlefield Management System (BMS), have not reached even at development stage after almost 4 years. The broad timeframe to execute and sign these was supposed to be between one-and-a-half and two-and-a-half years. However, not a single one of these proposals under 'Make in India' has managed to make it through to approval. The process after the selection of the prototype manufacturer, actual production and placement of orders will take another decade.

Strategic Partnership

The aim of Strategic Partnership model announced in 2016 was to allow local private sector companies to form manufacturing joint ventures with foreign defence equipment makers to make path into the defence equipment business. Four projects were initiated under SP route P75 (I) submarine, Naval Multi Role Helicopters (NMRH) , Naval Utility Helicopters, Future Ready Combat Vehicle and Single-engine fighter aircraft.

The much-talked-about SP model to select private companies for long-term manufacturing projects is however yet to fully take off, with the ministry trying to firm up the modalities to select companies and award contracts. Foreign vendors have been sent a request for information for the submarine project, with responses coming from Russia, France, Germany and Sweden. However, formal tenders have not been issued yet, nor has the process to identify Indian companies for the project begun.

Time Lines

The procurement delays from the formulation of technical requirements to the final approval by the competent financial authority like the Cabinet Committee on Security, amount to 2.6 to 15.4 times the laid down deadlines for various projects. An interesting observation, strangely the purchases being made from foreign vendors have been processed much faster by the ministry over schemes meant for Indian companies.  The 'Buy Global' schemes took less time to mature than 'Buy Indian', which is somewhat surprising. Moreover, none of the 'Buy and Make India' or 'Buy and Make' schemes fructified on time, the delay being medium in case of the former, i.e. 87 months against the authorized time period of 16 months.

The late realization of known facts through an internal report of MoD, that only 8-10% of 144 proposed deals in the last three financial years fructified within the stipulated time periods.

The average time taken by these 133 schemes was 52 months, which is more than twice the laid down duration of 16-25 months stipulated in the defence procurement policy.

Redundant Stages

There are number of redundant stages in procurement process which need to be done away or streamlined. Look at the number of committees or collegiate Vettings with in MoD and Services HQ. The number of such committees have been increasing with each expert committee and revision of DPP. Some of these committees such as Collegiate committee for Phase wise vetting of QR, SCAPCC/ SCAPCHC, Technical Oversight Committee (TOC) etc. are mere duplicated efforts.  The User have to telescope formation of QR and realistic field trials. Why a file need to go to Finance Ministry when the proposal is within MoD allocated Capital Budget and it has to approved by CCS where the Finance Minister could be a member.

Way Forward

There is a need to speed up the procurement process, delays not only derail the modernization plans of the armed forces, but also result in cost overruns. Thus need to streamline and simplify the defense procurement procedures in national interest. Moreover, there is need to, increase the involvement of the private sector and supplement with committed funding for upcoming projects.

Despite  slew of policy reforms in the last three years, there is need to speed up decision making, de-layer approval stages, and eliminate repetitive process steps, bring in real level playing field, so as to unleash and actively promote indigenization. The ability of the government to navigate through the Indian business environment, to reduce the time taken for defence procurement right from the initial clearance to placing the order on competitive basis will decide the direction, in case it really wishes to remove the policy paralysis. The ministry is now fine- tuning major changes in the procurement procedure to make it swifter, less cumbersome, more transparent and responsive to needs of the Armed Forces.

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