Monday, 22 April 2013

The defence ministry comes to life

by Ajai Shukla
Business Standard, 22nd Apr 2013

Slowing economic growth, a depreciating rupee, and a string of arms purchase scandals that tarnished the ministry of defence (MoD) and scuttled ongoing purchases of weaponry, together make a powerful case for building rather than buying defence equipment for India’s military. In the dozen years since defence production was opened to foreign direct investment (with a 26 per cent cap) and to private Indian companies, the MoD has published a series of limp policies that merely paid lip service to indigenization. Successive Defence Procurement Procedures (DPPs) of 2002, 2005, 2006, 2008 and 2011 took baby steps when giant strides were needed, creating despondency and mistrust within the private sector.

The latest procurement policy, DPP-2013, which the MoD cleared on Saturday, is a dramatic departure. The new acquisition procedure explicitly recognizes that India’s private sector is as Indian as the public sector behemoths. Now the Tata Group, Larsen & Toubro, Bharat Forge, and a multitude of others will be entitled to know what technologies and weaponry the military hopes to procure in the future, allowing these companies the lead time to develop and build these complex systems.

Even more significantly, an import-happy military will no longer be allowed to import defence systems by deploying the convenient argument that any delay would endanger national security. Instead, the military must foresee its requirements well in advance, and project them to industry through a publicly available “Technology Perspective and Capability Roadmap.” Only if industry fails to develop the required equipment will import be considered. While long-range plans have always been shared with the defence public sector undertakings, the DPSUs have consistently failed to meet the military’s needs. And the private sector has long been kept out on flimsy grounds of “security”.

The DPP’s details are not out yet; it is hoped that the fine print contains no devils. Also, indigenization could yet be scuttled if the military refuses to accept into service indigenously developed weaponry on the grounds that better equipment can be bought elsewhere. The MoD must therefore explicitly mandate the concepts of “spiral development” and “capability based deployment”, which encourages the military to accept indigenously developed equipment into operational service, even when it falls marginally short of the laid down specifications. This allows user feedback to be ploughed back into a “Mark II” version of the equipment that meets or even surpasses the operational requirements.

DPP-2013 has also not addressed a number of crucial issues, such as exchange rate variation (ERV) protection for private defence companies. This places the Indian private sector at a serious competitive disadvantage while bidding against foreign vendors. When the DPSUs are given ERV protection, why not their private counterparts. The gainer will be Indian defence capability.


Anonymous said...

Hi Ajai

Its a very good step in the right direction. However ERV (Exchange rate variation) should not be part for it for 2 reasons:

1. Capacity building should be done by the private sector in creating ancillary setups. If you are going to import from outside the country a large number of systems then it will be only a marginal development and not necessarily a big one. Lack of ERV will ensure that a large number of components are made in India itself.

2. ERV has also brought about the lack of quick action in the DPSU purchases. It does not matter to them if the procurement is delayed and the rupee has depreciated. This is a bad practice that should be avoided and lack of ERV protection for the private players will force them to be highly disciplined.


Anonymous said...

So what are your thoughts on the reported Chinese incursions approx 10 KM into Indian territory? The on-paper match is sure not enough if I believe what I read in the print media. I am not trying to be a smart guy, I really am interested in knowing your opinion on these recent news reports.

Mr. RA said...

In this matter the Indian Pvt. companies shall be extended the same advantages that are otherwise extended to the PSUs.

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