Saturday, 19 May 2007

CAG criticises army`s purchase procedures

(Part 1 of a three-part series on the CAG's report on defence procurement)

by Ajai Shukla
Business Standard: 19th May 2007

Considering that the military, in survey after survey, has been voted India's most honest institution, it is a paradox that the public consciousness also sees defence deals as murky, opaque and possibly corrupt transactions.

This popular perception could be reinforced by a Comptroller and Auditor General (CAG) audit into defence procurement, Report No 4 of 2007, that was tabled in Parliament on Monday.

In what is termed a "performance audit", the CAG has closely scrutinised 37 purchases of equipment from foreign vendors, worth Rs 3,201 crores, to reach conclusions on how the overall defence procurement system is working. The contracts were all signed between January 2003 and March 2006, and relate to equipment only for the army.

The CAG's performance audit reaches sharply critical conclusions about an acquisition process that functions on an unplanned basis, creates prolonged delays, does little to fulfil the army's expectations, formulates its equipment requirements poorly, chooses its purchases improperly, and confines its custom to a small number of vendors who consequently have the leverage to demand higher prices.

The reason for all this, concludes the CAG, is the MoD's failure to implement a Group of Ministers' instructions to put in place a functionally specialised acquisition organisation that can efficiently handle a task that is beyond the capabilities of the current organisation.

Take just one of the many acquisitions it has examined, the procurement of the Integrated Oxygen/Communications Mask Helmet (IOCMH). This is worn by helicopter pilots when flying high altitudes, allowing them to talk on the radio and simultaneously breathe pure oxygen from an onboard cylinder.

The army took ten years to go through the procurement process and eventually paid four times the price that the Indian Air Force (IAF) paid, a whopping Rs 3.75 lakh extra per mask.

While the IAF purchased the IOCMHs from an Indian company, the army (which flies the same helicopters in the same areas around Siachen) insisted that they needed oxygen at higher pressures and so time-consuming trials for foreign equipment were necessary.

The CAG points out that while the army insisted on meeting the specifications on higher oxygen pressure, it subjectively let other parameters fall by the wayside. While conducting IOCHMs trials in Leh, the temperature parameters spelt out in the tender (that the mask should function from -40 degrees to +50 degree Centigrade) were not insisted upon. Instead the army tested the equipment only up to +35 degrees.

Questioned by the CAG about why it chose a foreign supplier for the army IOCHMs when the IAF was using cheaper, Indian made masks, the MoD replied that the equipment was urgently required and the Indian supplier needed time to modify the IOCHM to army requirements.

That reason was rejected by the CAG, who observed that MoD was aware about the Indian supplier 3½ years before the contract was signed and so adequate time was available for making modifications.

The CAG termed it a clear case of discrimination against an indigenous supplier. The CAG also pointed out that another Indian firm had introduced itself as a supplier of IOCHM as far back as 1998.

The delays and lack of coordination that the CAG points out around each acquisition merely reflects the disarray that exists at the highest level. The audit report points out that the defence services’ 15-year Long Term Integrated Procurement Plan (LTIPP), which lays down procurement schedules from 2002-2017, was only finalised in 2006, four years after it was supposed to have commenced.

The five-year Services Capital Acquisition Plan for the period 2002-2007 had not been approved while the CAG audit continued. Little has changed now. The 11th Defence Plan, which covers the period 2007-2012, and which commenced on April 2007, awaits formal approval.

In these circumstances, the CAG report points out that of the 250 pieces of equipment planned for procurement in the 10th Plan period (2002-2007), just 96 had been procured up to March 2006.

While planned procurements were stalled, their place was taken by unplanned purchases. In 2004-05, 28 per cent of the budget, and in 2005-06, 43 per cent of the budget was expended on unplanned items.

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