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For the mantra to become an all-pervasive reality in defence acquisitions in India will be to multiply manifold the onset, frequency, range and depthof its industry engagements.
The effort to set right the operating environment has to start with creating a mechanism to review the existing devolution of power comprehensively based on clearly defined principles and not in an ad hoc manner.
This Brief analyses industry demands and reviews existing regulations in IT and defence procurement markets, culminating with suggestions on a possible way forward for reforms that can avoid adverse implications of industry demands, particularly in view of their potential conflict with important policies fostering indigenisation.
There is no single agency in MoD to deal with these issues holistically. Generally, matters related to administrative powers are processed separately for each service by the administrative wings concerned with little concern for commonality.
Widespread problems have made the operating environment ‘dysfunctional and inefficient’. Some of this is on account of inscrutable issues like ‘integration of the services with the MoD’ or ‘civil-military relations’ but, in large part, the immediate problem lies with MoD’s inability to resolve more mundane issues.
his Issue Brief examines certain provisions relating to intellectual property rights and transfer of technology in India’s defence procurement procedures, together with suggestions on streamlining the same for achieving enhanced procurement efficiencies in capital acquisitions.
Widespread problems have made the operating environment ‘dysfunctional and inefficient’. Some of this is on account of inscrutable issues like ‘integration of the services with the MoD’ or ‘civil-military relations’ but, in large part, the immediate problem lies with MoD’s inability to resolve more mundane issues.
The national aim should be to make India a design, development, manufacture and export hub. India must study the Chinese concepts of “leap frogging” of technology across several generations and “civilianisation” to exploit dual use technology.
While the government is widely seen as investor-friendly, investment decisions, however, are made on more tangible considerations – ease of doing business, security of investment and intellectual property rights, and returns on investment.
The Indian defence industry needs procedural clarity and simplification to be ingrained in the “Make” procedures, as the rules are presently silent on a number of important operational aspects.
Under the earlier policy, the foreign portfolio investment in Indian defence industry was either banned, or capped at an arbitrary level for certain companies, causing a lot of dissatisfaction among several listed Indian companies which had pleaded their genuine helplessness in controlling such investments given their nature of flow.
There has been much speculation since 2011 about who is going to manage the proposed fund, how is it to be different from the already existing technology related heads in the defence budget, and how will the amount set aside for the purpose be utilized.
There now seems to be greater recognition of India’s concerns on transfer of technology and not just about co-production but also co-development of next generation weapons. The larger objective for India, however, must be to reduce its dependence on import of foreign equipment and modernize its armed forces in the quickest possible timeframe.
The Guidelines of 2012 have been under review for some time. While a drastic shift in the policy is unlikely, some changes in the policy, clarity about some of the existing provisions and simplification of the procedure seem necessary to make the policy work better.
There are speculations whether the present budget is sufficient to meet expenditure on big ticket items but one has to bear in mind that it is only the advance payment – generally 15% of the contract value – that becomes payable on signing of a new contract. Even if new contracts are signed for say INR 50,000 crore, MoD will require just about INR 7,500 crore for those schemes.
The Defence Minister made two significant points: one, the need for making a significant amount of the nation’s resources available for defence and two, he talked about the slow pace of acquisition of defence equipment as the key concern. These are unexceptional statements of intent and the challenge would be to meet these objectives.
The proposal to relax the present cap on FDI in defence has expectedly drawn sharp reactions. Those who oppose argue that higher FDI is not required and, more importantly, it will not be in national interest, not the least because it will stymie the process of indigenization. This calls for a dispassionate analysis.
It may perhaps be useful to examine some features of India’s Defence Procurement Procedure (DPP) for streamlining of the capital acquisition process for defence procurement. After all, the DPP may well be the only procurement regulation in the world that discriminates against its own domestic bidders
A country’s response to external threats and internal security challenges is based on its defence preparedness, advance planning for contingencies and the political will. The new government will have to make key decisions on different aspects of defence reforms. This Policy Brief puts forward some suggestions.
Ministry of Defence which accounts for 13-14 per cent of the central government expenditure, if one also takes into account the expenditure on defence pensions, could come under some pressure to prepare an action plan as the outcome of what it does is often intangible, undisclosable, or simply unmeasurable. The author puts forward some suggestions.
