India’s Defence Procurement Procedure: One Step Forward, Three Backwards
The new Defence Procurement Procedure (DPP) was officially released by the defence minister on January 13, 2011. This bulky document—281 pages long and revised eight times in the last nine years—comes into effect on January 1, 2011.
The defence minister, in a press release on the same day, stated that the intent of DPP-2011 was to expand the Indian defence industrial base, encourage indigenous defence production, and reduce defence imports. It is to be noted that he unveiled India’s first defence production policy on January 14, which emphasised the same objectives.
DPP-2011 contains a few changes; major ones from the previous DPPs include new guidelines for shipbuilding and an enhanced product list for offsets. Other changes include enhanced validity for Request for Proposal, post accord of
Acceptance of Necessity, the constitution of a Technical Oversight Committee, expanded transfer of technology (ToT) and clubbing of Performance and Warranty Bond. Thus, DPP-2011 promises to be more refined than the earlier one.
It must be mentioned that the DPP is the official document that provides operational guidelines for acquiring defence products and services for the armed forces. This does not include procurement by DRDO, production agencies, or ordnance factories. Suppose the enlarged security sector includes internal security and other sectors indirectly contributing to the defence sector (for example, the Department of Atomic Energy or Space). In that case, the scope of DPP in the security sector is limited. Yet, seen from another angle, if Rs 60,000 crore is being spent on capital expenses by the MoD in the current year, a figure that has seen 500% increase in the last seven years and likely to see a possible 10-12% increase in subsequent budgets, ways to spend such a huge amount necessitate a procedural accountability that the DPP ought to provide. As military procurement accounts for nearly half of the defence budget, it is necessary to evaluate the degree of DPP’s effectiveness and suggest refinements, if required.
A set of six issues has been highlighted here for further consideration. First, DPP-2011 must find ways to tackle the growing trend of acquisition through fast track procedures as well as inter-government agreements that have accounted for more than 70% of major acquisitions in the last three years. If such a trend persists, it will make most DPP provisions redundant.
Second, DPP-2011 must address the lengthy evaluation procedures, which entail 11 phases starting from services requirements till post-contract management with seven committees in between for evaluation and 13 different departmental organs to examine and vet the process. With seven of the 11 phases having scope for time extension, it is no surprise that even a normal acquisition decision takes a long time. Competing vendors’ allegations and counter-allegations make the matter worse as the MoD officials tend to play safe while dealing with such situations.
Third, DPP-2011 created class divisions among industries by categorising them under different heads. At least three conflictual situations are visualised—between foreign prime contractors and major Indian companies, between state-owned and large private Indian companies, and between large private Indian companies and SMEs. Similarly, ways of acquisition through ‘buy’, ‘buy and make’, ‘buy and make Indian’ and ‘make’ are too many overlapping categories that need to be simplified. Introducing new guidelines for shipbuilding for private shipyards in DPP-2011 also needs further clarification as it might create a class division instead of healthy competition.
Fourth, a workable offset policy still eludes the initiator and the beneficiary. Since the offsets clause was introduced in DPP-2005, the mandarins have complicated the provisions further. A 30% direct offset as an industrial compensation package will neither bring in critical technical knowledge nor help Indian system integrators—state-owned or private. At best, it can create a secondary assembly line manufacturing base, which India does not desire. DPP-2011 seems to have developed complications by expanding the scope of offsets, thanks primarily to the demands of the foreign vendors, into civil aerospace, internal security and training domains whose implementation process is likely to witness inter-departmental/ministerial conflicts of interests between the MoD, ministry of home affairs, ministry of civil aviation and ministry of commerce.
Fifth, DPP-2011 has so far failed to adequately address the issue of ToT of critical systems, which lies at the heart of India’s defence acquisition policy along with self-reliance. In most cases, the DPP complicates ToT provisions with licence production.
Lastly, DPP-2011 must address the structural aspects of defence acquisition by clearly defining the role of each organ in the process, which, in turn, requires further reforms in both participatory and exclusive activities within the government and outside. In the absence of a clear structure, agencies within the MoD virtually operate in silos that can only be broken if horizontal interaction takes place among various agencies, ministries as well as armed forces.
One does not need a historiographer’s findings to understand the central problem that the Indian state is facing in its defence procurement today. It lies with intentions, structure, and accountability.