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Nomination Prevails Despite Rhetoric

By Cdr. Vikram Moorjani (Retd.)

Nomination of DRDO by DAC for designing and developing an indigenous Light Weight Electronic Warfare System for Mountains, despite evidence of development of such system by Private sector is not in tune with Government declared policy. The Author analyses this issue.

It has been a known fact now that around 90 percent of the indigenous supplies come from the Defence Public Sector Units (DPSUs) and Ordnance Factories. The Government-owned sector not only gets benefitted from nominated orders for all major programs without competition besides they also enjoy advantages of assured capital, a established manufacturing chain, experienced and skilled manpower and management. Large nominated contracts provide for years of capacity booking of the DPSUs. There is no requirement of bank guarantees for nominated contracts that allow public companies to provide corporate guarantees at nil cost. Besides, major nominated contracts grant the DPSUs stage payments while the same is denied to private sector companies. Such an ecosystem has resulted in complacency and dubious distinction of being the world's largest importer of military hardware, importing more than 60-65 percent of its defence requirements. The largest and most powerful economies of the world are testimonial to the fact that the defence industry can only thrive and prosper in an environment that devoid of a bias towards DPSUs. Notwithstanding, our transformation towards privatization of the defence sector continues to be plagued with big ticket contracts nominated to the DPSUs.

The Government is keen to cut dependence on imports through greater private sector participation in aerospace and defence. However, the policy blues the promise of level playing field, a condition of basic fairness and equality of opportunity amongst the public and private sectors has till date remained a pipe dream. The companies had already invested  specifically for the segment  in resources, technologies, facilities creation, and have built capabilities during the decades of “Reserved for the State” era. Recent example being the Defence Acquisition Council (DAC) accorded approval for Capital Procurement over Rs 3300 Crores for three indigenously designed and developed equipment manufactured by the Indian industry. Two projects under the 'Make-II' Category are:-

  • Third generation Anti-Tank Guided Missiles (ATGM) to provide 'Fire and Forget' and “Top Attack” capabilities to the troops in an armoured battle.
  • The Auxiliary Power Units (APUs) for the T-72 and T-90 Tanks to enable incorporation of various upgrades to Fire Control System and Night Fighting capabilities of the Tanks.

The third project is on discrete - Electronic Warfare (EW) systems for the mountain and high altitudeterrain - to be developed by DRDO and manufactured by design cum production partner from the Indian industry. The “Mountain EW System” that received the DAC clearance is a lightweight system that can be physically carried to remote locations, or heli-lifted onto high mountains. It is particularly useful in counter-militancy operations. EW systems are a crucial military force multiplier. They are built around a powerful receiver that picks up, records and analyses enemy (or militant/terrorist) transmissions to obtain valuable intelligence. Its integrated direction finder establishes the precise location of the enemy transmitter. That location can then be attacked, using aircraft or ground forces. Alternatively, at a crucial stage of battle, the enemy's transmissions can be disrupted with high-power jammers, throwing his plan into disarray. Good EW systems allow an Army to dominate the electromagnetic spectrum.

Surprisingly the DAC has “nominated” the DRDO for designing and developing an indigenous Light Weight Electronic Warfare System for Mountains. Despite evidence of development of such system by Private sector Tata Power (TPSED) building two far more complex “Integrated Mountain EW systems”, a global tender the company won in 2013 for Rs 926 Crores.  Further, an amended order was placed in July, which is on track to be delivered in 24 months. The highest decision making body of Ministry of Defence (MoD) nominating the public sector partnership between DRDO and Bharat Electronics Ltd (BEL) is floundering in developing two similar systems, for which they were “nominated” by the Defence Ministry at twice the price bid by Tata Power (TPSED). TPSED has two-decade-old track record in developing EW systems, involved in developing the critical command & control software and platform engineering for the integrated EW system Samyukta (in the 1990s).

Nominations create non-level playing fields and are discriminatory resulting in restricted capability building & underutilization of private sector capacity. To create level playing field in competitive bids, all procurements by MoD must be only on a competitive basis in the interests of real price discovery. Indian Industry Chambers have been strongly protesting this sidelining of private firms with a request for all capital acquisition programmes, be issued on competitive tendering basis. All cases where Acceptance of Necessity (AoNs) were granted on nomination basis but RFPs have not been issued either due to AoN requiring revalidation or due to gross delays should be made open for participation by private sector companies. Citing “security concerns” to place orders for EW systems with the DRDO/DPSUs is not a valid reason as all “A category” licensed private Indian vendors are covered under the same security guidelines issued by the MoD, as are DPSUs.

The unfortunate part is that, there are no restrictions on DPSUs from participation in open or limited tender contracts. Thus, the gains received from nominated contracts can easily be leveraged towards winning multi-vendor contracts putting the private players at a further disadvantage. This is without considering the fact that the PSUs enjoy the advantage of an established infrastructure with almost nil recurring costs. In such an environment it is more than obvious that private players would continue to be at a disadvantage till such time the PSUs are shielded from competition.

In today's era of budget cuts, a country like ours has to extract the maximum out of every penny and it is not only critical but crucial to financially justify the immunity to competition which the DPSUs and DRDO enjoy. Let us take a few simple examples. A majority of the projects with DRDO entail design and development of products which are already in the market and available for import. While self-reliance and indigenization are important it is critical to analyze at what cost are we achieving this and also the time frame for it. A cursory glance at the DRDO/NPOL site will show a number of systems which have been developed by the Laboratory. However, not even a quarter of these are currently being supplied to the Navy. In fact, many of these are failed projects which did not even reach the stage of User trials. A typical example is the Low Frequency Towed Array project which started as NAGAN and moved onto ALTAS. The project has been under development for over twenty years. After a series of failures, the IN finally got approval to import the system which was proving to be a major capability gap in the Indian Navy's Anti-Submarine Warfare Capability. The disturbing part is that despite repeated failures, DRDO remains immune to any accountability and indifferent to the urgency and requirement of the project. A new project called the IADS is now being progressed through the 'Buy and Make Indian' route and given the progress of similar 'Buy and Indian Make' cases, it is likely to see the light of the day within a short period. However, despite being procured through the 'Buy and Make Indian' route, DRDO continues to progress its project without being accountable for the costs incurred or a definite timeline.

Notwithstanding the time delays and cost overruns, the indigenous products need to be economical when compared to the imports. This too is not being achieved, indigenously developed products by DRDO and manufactured by DPSUs are significantly more expensive than further advanced and capable imports. DPSU developed products by policy, are procured without any analysis of the cost of import substitutes. Another worrying aspect is the collusion between DRDO and DPSUs. DRDO labs are free to nominate their production agencies without going through the rigmarole of a multi-vendor system and the services are then forced to procure from the DPSUs, inevitably there are negotiations for price cuts since prices are significantly marked up. The question remains as to why cannot a private player participate and become the production agency through a multi-vendor system, why do DPSUs enjoy such immunity. Why can't the technology developed by DRDO be available to the private sector for supply to Armed Forces and also to explore opportunities for export.

Unfortunately, we may not get answers to these questions anytime soon. Cost overruns, consequent budget cuts and time overruns will continue to put our soldiers at a disadvantage and in harm's way till such time we don't overcome this protectionism provided by our policies on Nomination.

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