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Buy (Indian)’ the most important policy decision introduced through DPP 2013 suggests that it should be the first option or the most preferred category. It, however, gives rise to many questions.
Most developed economies are already feeling threatened by increasing equity investments sponsored by foreign government-owned and/ or foreign government-controlled entities in the defence and high-tech industries. A coordinated government response for supervision of foreign investments will emerge on the horizon sooner than later.
Defence acquisitions are always much debated and scrutinised. The criticism ranges from a lack of direction in procurements to needles procedural complexities and from corruption in defence deals to bureaucratic apathy. The Defence Acquisition Council, chaired by the Defence Minister, has taken some bold and much needed decisions on April 20, 2013 in an attempt to address some of these issues.
On April 20th, the Defence Acquisition Council (DAC) of the Ministry of Defence announced 15 major amendments to the defence procurement and production policies, with the hope to incentivise indigenous defence manufacturing while promoting transparency and efficiency in the procurement process.
Like many other developing counties, Brazil also believes in self-reliance in arms manufacturing and has articulated comprehensive national defence policy with a strong support of its armed forces. There could possibly be some lessons for India.
FY 2013-14 has transited into the annals of the MoD but picking up a few messages from it and carrying forward the unfinished agenda to the next year would be the greatest tribute to the year gone by.
Parameters, dimensions and operational requirements specified by the user must be evaluated exclusively by the user trial team, while DGQA must concentrate only on the testing of quality encompassing the product design, the material used and the manufacturing process in addition to the environmental testing of the product under simulated conditions.
By now making software development ineligible for discharge of offsets we might be depriving ourselves of what was considered necessary only a couple of months ago. This could also prove to be a setback for the Indian software industry.
In its most candid form, the fundamental message is that the growth in the allocation for defence, as indeed for other sectors, may not always be consistent with the past trend or as per the long-term growth rates indicated by the Ministry of Finance.
A GDP growth of less than seven per cent combined with the fiscal consolidation path that the Finance Minister has articulated in his budget speech means a lot of pressure on the defence ministry whose plan for current and future expenditure up to 2017 is based on past GDP growth rate of 8 to 9 per cent.
There is a need for an overhaul of the defence planning and budgeting systems to make them outcome oriented, which will lead to the development and maintenance of requisite capability through the defence forces as an entity over a specified long-term horizon.
In the larger scheme of things, fiscal prudence is a good trait and the reduction in deficits desirable, yet an overtly ambitious approach of reducing deficits into a number game may lead to developments that may hurt us not only in the security arena but in economic growth as well.
The systems and procedures for capital acquisitions, introduced by the MoD in 2001-02, provide a decisive, if not the final, say to the Services, including the Indian Coast Guard.
India’s power in the next round of politics among nations will stem not simply from the latest purchase of military goods, but also from the manner in which it has amassed them.
The prospects of allocation for the next year being less than the allocation for the current year are remote because of the immense implications it would entail, although it is likely that the growth in the budgetary allocation for the next fiscal may be less than what has been the case in the past.
It is time that India’s offset regulations and defence procurement procedures are weeded for provisions formalising differential treatment against Indian bidders.
MoD has to assume the leadership role and provide some kind of a single-window service to the defence industry to steer the offsets in a direction that helps achieve the objective of modernisation through self-reliance.
On the capital side, there may not be much of an adverse impact of reduction in allocation if the MMRCA contract gets pushed to the next year. On the revenue side, procurement of ammunition and other equipment as well as maintenance of legacy systems would be adversely affected.
A thorough and honest review of the progress made so far is essential for arresting the drift in the Defence Production Policy and for course correction.
This commentary looks at the characteristics of Saab’s recent investments as well as the prospect and challenges for current and future Swedish-Indian collaboration in the defence industrial sector.
