by Ajai Shukla
Business Standard: 12 Sept 2006
Hallelujah! A new bible is here to govern the expenditure of some 50,000 crore rupees a year on weaponry for India’s defence forces. On 1st September, the Defence Procurement Procedure and Manual, 2006 (DPP-2006 and DPM-2006) superseded its equally inconsequential predecessor, the DPP-2005, unveiled just a year earlier. Despite the fanfare that attended its release, the latest manual is little more than a compilation of existing regulations, now set out in consolidated form. The DPP-2006 makes some attempt to create bulwarks against corruption, but it fails to address a fundamental issue in arms procurement: the systemic bias against the private sector that has prevented it from carrying the values of cost-efficiency and accountability into a Palaeolithic landscape dominated by public sector dinosaurs.
In 2001, defence manufacturing was opened to the private sector, with conditions that still apply: compulsory licensing and a ceiling of 26% on foreign shareholding. Despite many private companies being keen to enter the defence business, they were allowed no more than a peripheral role by entrenched patronage networks between defence production officials in the MoD and the government research and production agencies (the Defence Research and Development Organisation (DRDO), the 9 defence PSUs and 39 ordnance factories). Using the rhetoric of self-reliance as a smokescreen, these monoliths anointed themselves keepers of the faith, with creative accounting and cross-subsidies hiding a sorry tale of inefficiency. Last year, the far-sighted Kelkar Committee recommended that private industry be tapped to create an integrated defence industry. DPP-2006 does nothing to unshackle the private sector.
The dominance of government agencies like the DRDO rests on the veto power that they wield in the procurement process. When the military requests for any new equipment, the DRDO gets to decide whether that demand should be categorised as “buy” (purchase outright from the international arms market), or “buy and make” (buy technology from a foreign vendor and manufacture in India) or “make” (develop the technology in DRDO laboratories and then manufacture it in defence PSUs or ordnance factories).
A frustrated military does not dispute the need for foreign purchases to be weighed against the possibility of indigenous development. But there is bitterness at the DRDO’s unchallenged power to hold up desperately needed equipment by opting to make it, dragging on research for years, and finally delivering a shoddy product. There is growing realisation that the DRDO has a vested interest in opting for development; the vast establishment of scientists, laboratories and a generous budget has to be justified somehow. This conflict of interest goes unquestioned. Rarely, if ever, is research passed on to the more sophisticated private sector. With characteristic gallows humour, army officers suggest the DRDO motto should be: Main hoon na!
While the government dinosaurs grapple unsuccessfully for decades with sophisticated systems like tanks, air defence missiles, night vision devices and radio sets, there is nobody to provide the simple, low-tech kit that the army needs most desperately --- boots, helmets and bullet proof jackets. Soldiers in J&K wear cheap, off-the-pavement motorcycle helmets instead of the Kevlar helmets that are standard protection for reputable armies. Frontline combat units still do without bullet-proof jackets for all their soldiers. It is easy to see why ordnance factories or defence PSUs have failed to provide such basic necessities: the budgetary allocations would not be as lucrative as they are for high-tech projects.
DPP-2006 fails to address the DRDO’s discretionary power to cherry-pick projects. Also unaddressed is the unfair clout of the defence PSUs, establishments like Bharat Electronics Limited (BEL), whose institutionalised role in MoD decision-making effectively elbows out the private sector. The Deputy Chief of Air Staff received a communication from BEL earlier this year, (letter 4860/2/DCMS/HQ dated 15th March 2006) demanding business favours in contracts for twelve critical projects, including electronic warfare equipment, radars and navigation systems, many of which were already being procured from other companies. BEL did not explain why it should be given preferential treatment. It was enough to say, “main hoon na!”
Compare this marginalisation of India’s private industry with mature powers like the USA and the UK, where defence research and production are entirely privatised. The US is developing a high-tech Future Combat System (FCS), comprising of a light, air-portable force of 150,000 soldiers who see a far-away enemy through a network of satellites, make decisions through secured communications links and then use high-tech weaponry to hit the unsuspecting enemy. The lead contractor for this $500 billion project is Boeing, which is harnessing the efficiencies of several other private corporations. The Pentagon will provide Boeing $21 billion for research till 2014; Boeing will answer for any delays.
Similarly, in the UK, privatised corporations like BAE Systems do major R&D and also operate many of the systems that are required to keep the British military functioning, such as aircraft maintenance and pilot training. South Block scoffs that India’s private sector lacks the capability to execute major defence projects. If private companies are kept on the margins forever, that will always be the case.
Defence Minister Pranab Mukherjee, while releasing DPP-2006, declared, “we have effectively opened the doors for the (private) Indian industry to participate in defence research, development and production.”
Not really. The chorus in South Block is undiminished: “main hoon na!”