Of Matters Military. Mrinal Suman
alt="image"/>
Illustration: Saga of Mushrooming Categories: Confusion Compounded
Every procurement proposal received from SHQ is debated at length by the Defence Acquisition Council to determine the route to be followed for its execution and is categorised accordingly. To start with, only three categories (‘Buy’, ‘Buy and Make’ and ‘Make’) were specified in DPP-2002.
Progressively, there has been a proliferation of newer categories – nine of them in DPP-2011, thereby complicating and delaying the whole process. For example, ‘Make (High Tech)’ category, introduced in 2006 had proved to be a non-starter. Nearly four years had passed and not a single case had taken off. Similarly, ‘Buy and Make (Indian)’ category of 2009 had proved to be a damp squib. Now, DPP-2011 added two categories for ship-building – one by nomination and the other by competitive bidding. See Illustration.
It would have been prudent to revert to the erstwhile three categories. ‘Buy’ category could be restricted to Indian industry on case to case basis. All developmental activities must remain under the Defence Research and Development Organisation, as it is beyond the competence of SHQ to oversee development of high-tech systems.
(b) Lack of Equal Opportunities to the Private Sector
Despite MoD’s repeated assertions of providing equal opportunities to the private sector, it continued to be treated unfairly. DPP-2011 introduced two measures that were likely to affect the private sector adversely – placement of ship-building orders on public sector shipyards by nomination and nomination of entity by DDP to receive transfer of maintenance technology.
Both the above mentioned steps were retrograde in nature. Instead of harnessing the potential of the private sector through open competition, MoD had introduced partisan provisions.
(c) Excessive Centralisation of Decision Making Powers
The complete procurement regime is controlled by MoD. At every stage, reference has to be made to the bureaucrats and Defence Finance officials. Headquarters Integrated Defence Staff (HQ IDS) and SHQ do secretarial work and put up cases with noting sheets to the bureaucracy for directions. Decision making becomes the first casualty as the bureaucrats possess little knowledge of military systems.
Once RFP is issued, the procurement process consists of technical and commercial evaluation. Technical evaluation entails examination of technical proposals submitted by vendors, field trials and preparation of staff report identifying vendors whose equipment is considered fit for induction into the services. As technical evaluation is purely in military domain, MoD should have delegated the authority to oversee it to HQ IDS.
(d) Archaic Methodology of Formulation of Parameters
One of the main reasons for MoD to resort to single vendor contracts is the procedure’s inherent weakness of not according due importance to technology. It is mandated that parameters should be of ‘contemporary technology widely available in the world/indigenous market’. Such technology cannot be exclusive. Further, all vendors whose equipment satisfies all parameters are considered at par and contract is signed with the lowest bidder. As high end technology would invariably be more expensive than a mediocre one, services get forced to accept commonplace technology.
It had been repeatedly suggested to MoD to introduce matrix system for technical evaluation wherein due credit is given to equipment with better performance parameters (albeit within the specified range). As performance is a function of technology, such an arrangement would help get latest equipment in inter se evaluation in a competitive environment and fetch best value for money.
(e) Offset Muddle
Counter trade in the form of export of sundry low-tech items is considered to be the most wasteful way of doing offset business. Despite the fact that self-reliance is one of the stated objectives of the defence procurement procedure; India has failed to recognise potential of offsets in infusing latest technology. Consequently, India continues to incur cost penalty of millions of dollars on account of offset overheads but gets no worthwhile benefits in return.
India should have made transfer of technology to be the preferred offset route. Additionally, it should have established an empowered offset authority to oversee all facets of offset regime and lay down guidelines for approving, validating and measuring offsets.
Conclusion
MoD wasted yet another opportunity by its failure to address major infirmities afflicting the procurement regime. Eight years is a long period for any policy to prove itself and for MoD to accept the inability of the existing regime to deliver. Instead of resorting to mere window-dressing, MoD should have taken bold initiatives to put the system on track. Due to bureaucratic inertia and prevailing sense of complacency, review of DPP turned out to be a self-defeating exercise.
Regretfully, MoD had been fast losing credibility both amongst foreign vendors and the Indian private sector. Foreign vendors found the procurement regime to be ambiguous, subjective, unpredictable and highly dissuasive. Private sector companies were becoming highly sceptical of MoD’s assertions of providing equal playing field to them. They found the environment to be highly skewed in favour of the public sector. They had invested considerable resources but continued to wait on the sidelines. Their patience was running thin and despondency was setting in. It did not augur well at all.
Most critically, due to an inefficient procurement regime, modernisation of the armed forces was lagging behind by 10-15 years. The services continued to wait indefinitely for vital equipment to fill critical operational voids. The situation was alarming and MoD failed to respond to the wake-up call to put the procurement regime in order through radical reforms.
Defence Procurement Procedure – 2013
In April 2013, the Defence Acquisition Council (DAC) met under the chairmanship of the Defence Minister to approve the newest version of the procurement procedure, i.e. DPP-2013. It aimed at kick-starting India’s quest for self-reliance in defence production. Stressing the need for rapid indigenisation of defence products through the strengthening of the defence manufacturing base and infusion of greater efficiency in the procurement process, the Defence Minister exhorted both the public and the private sectors to play pivotal roles in this endeavour. He also promised to create genuine level playing field for Indian manufacturing industries vis-à-vis global players.
All cases in which the Request for Proposals (RFP) was issued after 01 June 2013 were to be guided by DPP-2013. Procurement cases under progress in accordance with the provisions of earlier versions of DPP were to continue as such. Salient aspects of the procedure have been discussed hereunder.
Preference to the Indigenous Defence Industry
Although earlier versions of DPP also considered indigenous procurement/ development to be the preferred option, DPP-2013 laid it down as a policy directive. This was by far the most significant change incorporated in DPP-2013 and was expected to give a strong impetus to indigenisation efforts. Every proposal for acquisition had to be examined for categorisation as per the following order of preference:-
(a) Priority 1: ‘Buy (Indian)’. Procurement of complete requirement from indigenous sources. It was specified that in addition to the equipment, even the product offered at the trial stage must also have minimum 30 percent indigenous content.
(b) Priority 2: ‘Buy & Make (Indian)’. Purchase of limited quantity from an Indian vendor followed by licensed production/ indigenous manufacture in the country with minimum 50 percent indigenous content on cost basis. Indian vendor could also be an Indian company forming joint venture or establishing production arrangement with foreign original equipment manufacturer. In such cases, RFP would be issued to only those Indian vendors, who are assessed to have requisite technical and financial capabilities