Business Standard Editorial, 8th Feb 2010
If evidence was needed of how easily defence modernisation is stalled, witness the ongoing Delhi High Court battle between Italian electronics major Selex Systemi Integrati and the Government of India. Selex wants the court to stay the modernisation of 30 defence airfields, most of them in border areas, alleging irregularities in tendering. The airfields languish while the court decides whether the bidding, in which Selex came second by a whisker, was indeed flawed or whether the Italian company (which, significantly, has modernised 75 per cent of China’s airfields) is just a bad loser. Others may follow Selex to the courts since the Ministry of Defence (MoD) has indeed sent out the message that allegations of corruption are a quick way to stymie ongoing purchases. This newspaper has drawn attention to the ministry’s ill-considered blacklisting of arms companies, both foreign and Indian, on mere suspicion of corruption. Blacklisting no longer follows the establishment of guilt, or even the filing of a charge sheet.
In the world of Mr Clean, defence minister AK Antony, the launch of an investigation by a government agency against a company satisfies the burden of proof. While politicians in power incessantly claim that they are innocent of every charge unless doubly proved guilty, defence equipment companies can be damned with just words. With India’s choices sadly depleted by official and unofficial bans on vendors, important purchases stall for want of enough bidders. This procurement logjam sends Indian soldiers into combat with outdated weaponry, even as the MoD returns unspent billions to the exchequer. Since 2006, the MoD has returned successively larger amounts of money to a grateful finance ministry, culminating in a record surrender of more than Rs 7,000 crores last year.
With the MoD unwilling to risk taking the tough decisions involved in competitive tendering, equipment evaluation and choosing a winner, most weapons procurement now follows the single-vendor route. The ministry can conveniently justify single-vendor contracting with Russia, partly because that country provides “strategic systems” that nobody else in the world would part with. When India wants to lease a nuclear submarine, or build its own, New Delhi picks up the phone to Moscow. This government-to-government procurement method has now been inexplicably extended to joint development programmes — including the Fifth Generation Fighter Aircraft and the Multi-Role Transport Aircraft — even though western countries are eager to partner India. Russia also benefits from single-vendor repeat orders for Russian weaponry that India already uses, e.g., the T-90 tank and the Su-30MKI fighter.
India’s growing purchases from the United States have also followed the single-vendor path, the American Foreign Military Sales (FMS) programme providing a convenient shield against allegations of corruption. After choosing a weapons platform through internal rather than competitive processes, the MoD makes a request to the US government, which then nominates an American defence contractor to supply the equipment. The FMS route, while absolving the MoD from the tough decisions of competitive bidding, effectively surrenders the leverage of a buyer. The MoD’s obvious preference for single-vendor purchases conflicts glaringly with the Defence Procurement Procedure (DPP), which explicitly mandates multi-vendor competition in order to beat down prices. For Indian defence procurement to benefit from competition, the MoD must learn to make and justify the subjective decisions associated with multi-vendor choices. Urgently needed is a functionally specialised acquisition department that can efficiently handle a task that is obviously beyond the capabilities of the current organisation. This has been recommended by a Group of Ministers in the aftermath of the Kargil conflict in 1999, and echoed by the CAG in an excellent performance audit of defence procurement in 2007.