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DEFENCE PROCUREMENT: WAY FORWARD

The MoD needs to speed up decision making, de-layer approval stages, eliminate repetitive process steps, bring in real level playing field, to unleash and promote indigenization and to reduce the import.

Despite  slew of important policy reforms in the last three years, there is need to speed up decision making, de-layer approval stages, and eliminate repetitive process steps, bring in real level playing field, so as to unleash and actively promote indigenization. After utilizing the government fund to manufacture arms and weapons, the public sector delays the availability and perforce India has to look for imports. In nutshell, there is no accountability as there is no penalty for this sector. In the year 2016, India is leading with 13 percent for all arms imports, spending $55,923 million. However, India arms sales declined by 1.2 percent in 2016 as compared to 2015.

Different people have their own way of working and prospects and the change in Defence Ministers thrice have impacted the acquisition, production and various other crucial decisions. There have been number of such meetings and assurances in the past with many new formulated reforms and policies which looked promising and could change the fate of Indian Industrial base, but again regrettably it is back to square one, favoring public sector of the Indian defence industry.  Frequent changes of Defence Minister, their indecisive policies has shaken the trust of the private sector.

Number of leading companies keen to work under the government's “Make in India” initiative for the defence sector have met the Raksha Mantri, Nirmala Sitharaman recently to explore mechanism for gearing up the decision making. The Defence Minister said to have discussed issues relating to private participation in defence manufacturing and time-bound action on key issues raised as under:-

  • Speeding up of procurement processes.
  • Creation of a tiered defence industrial ecosystem.
  • Skilling of manpower in the MSME sector.
  • Commercialization of technologies developed by the DRDO.
  • Timely conclusion of procurement proposals.
  • Resolution of licensing issue with the Home Ministry.
  • Tax-related matters with the Finance Ministry.

Let us look at the past programmes and the progress.

 

Delays and Orders Cancellation

The Acquisition involves long processes and scrapping of the tender at drop of the hat, results in unnecessary comments and loss of credibility for MoD as well for the country. Moreover, it impacts the preparedness of our Armed Forces. The MoD so far has withdrawn at least $25 billion worth of tenders over the past three years thus delaying the procurement. These include:-

  • $20 billion tender for 126 combat planes, first issued in 2007. Bought 36Rafale planes in IGA.
  • $1.6 billion mid-air Refueling Aircraft retracted in 2010 due to High price.
  • Airbus A330MRTT tanker aircraft was shortlisted after trials, retracted 2014.
  • Two attempts were made for Reconnaissance and Surveillance Helicopter but failed. The AS550 Fennec had emerged as the technically-compliant L-1 bidder. The second time the tender didn't progress beyond the field evaluation trials
  • 197 light utility helicopters, the acquisition process went through three cancellations, the latest in 2014.
  • Now, Kamov Ka-226T helicopter in India to meet the armed forces' requirement, and 15 years have gone by since the first tender for the helicopters were issued in 2003.
  • 65,678 assault rifles (worth $750 million), canceled in June 2015.
  • 44,600 carbines ($500 million, 2016),
  • 44,000 light machine guns (Aug 2017).
  • 204 ARV ($275 million, May 2017) for T-90 main battle tanks that was to be awarded to Polish firm Bumar;
  • 702 light armored multipurpose vehicles ($190 million, August 2016)
  • 98 torpedoes to arm the Indian Navy's new Scorpene submarines ($200 million, June 2016)
  • 16 multi-role helicopters ($300 million) canceled in June 2016 after a decade-long process.

Delays and Non Starter

Some of the major programs awaiting decisions due to lack of capability in taking decisions includes artillery systems especially towed and ultra-light guns, armoured vehicles to include upgrades, overhauls, FICV, FMBT, Air defence missiles and gun systems, ATGMs, Submarines, Single engine fighter aircraft, helicopters LUH, NUH etc. Some of the indigenously designed developed and manufactured (IDDM) have been unduly delayed for example Akash Short Range Missiles and Pinaka Rockets etc.

The Govt in Parliament boasted that under 'Make in India', the defence ministry has accorded Acceptance of Necessity (AONs) to 105 proposals worth approximately Rs 2.33 lakh crore in the past three years. The number seems impressive, though it need to be considered that AoN is the very first stage of a military procurement and not all AONs result in tenders being issued.

Fact of the matter is the much hyped 'Make in India' projects Futuristic Infantry Combat Vehicle (FICV), a Rs. 50000 crore project, Tactical Communication System (TCS) and Battlefield Management System (BMS), have not reached even at development stage after almost 4 years. The broad timeframe to execute and sign these was supposed to be between one-and-a-half and two-and-a-half years. However, not a single one of these proposals under 'Make in India' has managed to make it through to approval. The process after the selection of the prototype manufacturer, actual production and placement of orders will take another decade.

One can only attribute to lack of political will and follow-through, bureaucratic and long winded procedures and technical squabbles.

 

Public Sector Preference

Public sector makes huge promises to manufacture the item indigenously which eventually results in long delay and lack of quality; and by the time government realizes the mistake, the technology becomes redundant or costlier by the time it is finally ordered, leading to yet another setback. The government policy to look for private sector to include them in production is not moving as still the public sector is getting most of the orders. Due to fear of loss of monopoly they are gearing up, but the question is - till what extend they would perform as most of them are already booked for almost 10 years.

In financial year 2016-17, HAL received orders worth Rs 21,000 crore that included 12 Do-228 aircraft for the Indian Navy, 32 advanced light helicopters for the Indian Navy and the Coast Guard and AL-31 FP engines for Su 30 MKI. Whereas, BEL is having Rs 40,000 crore order book. Additionally, during the calendar year 2015-16, DRDO have been sanctioned 78 new projects at a total cost of Rs. 3,723 crore although, in that year it has only completed 42 projects at a total cost of Rs 1,353 crore. DRDO currently has 291 ongoing projects (excluding strategic projects) amounting to approximately Rs. 49,030 crore (including User share). Out of 291 ongoing projects, 42 large projects (cost ≥ R 100 crore) have a cost of Rs. 42,643 crore (DRDO's share~ 70% of the total share).

It has been stated that defence ministry saved more than Rs 1 lakh crore worth of foreign exchange as in the past two years. It has been hailed by the government as it is going to help the development of the indigenous defence industry as the money which would have been transferred to foreign vendors would now be spent within the country and will also develop the capabilities of the indigenous players. The projects where the government has decided against the foreign vendors and gone for DRDO's Made in India products include projects for:-

  • Short Range Surface to Air Missiles (SR-SAMs) for Navy
  • Short Range Surface to Air Missiles (SR-SAMs) for the Army
  • The Quick Reaction Surface to Air Missile (QRSAM) for Army
  • Anti-Tank Guided Missile (ATGM) for the Army
  • Helicopter-launched anti-tank guided missiles for the Army and the armoured vehicle launched anti-tank missiles for the ground force.
  • HELINA (Helicopter Launched NAG missiles) and NAG (expected cost Rs 10,000 crore): The HELINA programme has been going on for several decades and it started showing success in tests in recent times.

Let us hope they deliver the quality product in time.

Public Private Partnership

Setting up of defence industrial base require huge requirement with very long gestation period so the Public Private sector partnership could be best viable solution in our context. Some projects can be cited as perfect examples of public-private sector partnerships. BEL in Bengaluru is the prime contractor for the Akash while Tata Power SED and L&T are the prime contractors for the Pinaka. Each of them, in turn, engages several other private sector firms down the value chain.

Almost half the cost of the orders will be ploughed back into the country in the form of taxes and salaries.

There is scope to launch at least 8-10 make programme every year. The indigenous platforms have delivered their true force multiplier effect.These 'Make in India' projects, collectively worth over Rs 1 lakh crore or one percentage point of India's GDP, would have delivered a substantial long-lasting boost to indigenous industry, particularly the development of indigenous electronics and spurred job creation.

Strategic Partnership Route

The aim of Strategic Partnership model is to allow local private sector companies to form manufacturing joint ventures with foreign defence equipment makers to make path into the lucrative defence equipment business. Till date there are four projects under SP route - the first is for - P75(I) submarine, Naval Multi Role Helicopters (NMRH) , Naval Utility Helicopters, Future Ready Combat Vehicle and Single-engine fighter aircraft.

There is not much movement in any of the deal under Strategic Partnership route. Meanwhile, there are many obstacles crop-up OEM's need assurance, they are not ready to transfer full technology and are not liable for any shortfalls or defects. Seems like even government is reluctant to move ahead with this route.

Under this route, definition of “strategic partners go through so many rounds of amendments and interpretations that its very concept is now on shaky grounds.

Conclusion

Defence sector indigenisation has a potential to create over a quarter million jobs, save about 10 Billion USD in foreign exchange over the next decade, besides building national capability, capacity to support platform and equipment requirements, across the spectrum of technologies. The government initiatives are failing and the whole route is getting back to the public sector monopoly. In order to get the defence industry on track, Indian government has to take some risks and most crucially have to formulate and stick to strong policies. The issue is bigger than the public or private monopoly. It is more about making the best technology available to our Armed Forces at the right time through the public-private partnership in defence manufacturing.

[Issue: 1, January-February 2018]

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