Reforms in India’s Defence Procurement
Reforms in the defence acquisition procedure was announced by defence minister Rajnath Singh on 30 September 2020, all of which will be implemented 1st October onwards. The purpose behind the reforms was two-fold, first goal was ‘Atmanirbhar Bharat’ implying that New Delhi aspires to be self-reliant in defence production which would allow it to defend its national interests. Second goal was ‘Make in India’ which would enable the government to not only reduce expensive imports but also to strengthen the domestic industry and nurture it to become an export hub over time.
Following are the reforms which are enacted as part of the defence acquisition procedure 2020:
1. The government has banned 101 weapons for imports including but not limited to artillery guns, assault rifles, corvettes, light combat helicopter etc. which will help push for indigenization.
2. Indigenization of the imported parts by encouraging the foreign vendors to undertake manufacturing in India. A ‘new category of buy’ has been established which says that the entire equipment or part of it must be made in India through a subsidiary. Co-production of the instruments through inter-governmental agreement to meet import substitution.
3. A new foreign direct investment policy has been promulgated which would allow foreign entities to set up manufacturing units in India, but at the same time necessary protections have been accorded to the domestic industry.
4. Project management unit has been created to ensure that decisions are taken at a faster pace, along with that, advisory and consultancy support will be performed by this unit to help streamline the process.
5. Procedural changes with respect to enhancing ease of doing business has been propagated. For instance, single stage of all or none order has been accorded to help reduce time.
6. The planning system has been tweaked for instance Long term integrated perspective plan (LTIPP) of 15 years has been re-labelled as integrated capacity development plan (ICDP) and the period reduced to 10 years.
7. Reservation for Indian vendors in certain categories for example Buy-Indian indigenously developed and manufactured, Make I, Make II, design and development production agency, defence public sector undertaking model as well as strategic partnership model.
Source: https://pib.gov.in/PressReleasePage.aspx?PRID=1659746)
8. Enhancement in indigenous content has been made to make India a manufacturing base in defence production. The table above presents the changes that have been made as compared to the 2016’s defence procurement procedure. Here two new categories of buy has been introduced.
9. The trial and testing procedures have been rationalised for example scope of trials will be restricted to physical evaluation, ample opportunities would be given to vendors to rectify their shortcomings during the trials.
10. A simplified procedure along with single stage trials is set to reduce time and emphasize on certification for systems designed by the defence research and development organization, defence public sector undertaking as well as ordnance factory board.
11. A new category of leasing has been introduced which will enable the government to operate equipment without owning the asset. Post contract management is established to formalise procedures with regards to inspections, contract amendments etc.
12. Industry friendly commercial terms are established such as proper provisions to ensure payment to vendors through digital verification within defined timelines.
Key Issues & Implications:
The union government through the reforms in the defence acquisition procedure of 2020 has favoured ‘Make in India’ in hope of being self-reliant but the way this step has been taken, it raises more questions than it answers. For example, in a case where the cost of import is lesser than the cost of manufacturing in India, will the government choose to give priority to local manufacturers or import the cheaper item?
The case is that indigenous manufacturing has been prioritised while analyses over cost premiums has been neglected. The vital issue with regards to indigenization is India lacks manufacturing capability of core sub-systems as well as in production expertise, with the result being that systems developed would be produced for the first time. The cost of producing the defence items at home needs to be compared with the cost of import and there may be times when the cost to produce indigenously may turn out to be higher than the cost of import. For instance, UK decided to purchase a new Apache fleet directly from Boeing rather than manufacturing them at home through Augusta Westland as it was cheaper to import than manufacture.
The central government is pushing for indigenous production but the encounter with weapons development at home has been disastrous due to mismanagement, time delays as well as costs escalations. For instance, Arjun, the main battle tank project was initiated during the mid-1970s, but due to innumerable concerns, it got delayed till 2004 when it was finally inducted by the army. Moreover, it was never optimally used by the land forces due to the weight of the tank as it was too heavy to be deployed along the India-Pakistan border. Similarly, Hindustan Aeronautics Limited faced numerous problems such as lack of human resources, quality issues that it took the firm three decades to build light combat aircraft Tejas.
The cap on foreign direct investment has been increased to 74 % from 49 % through the automatic route. In addition to that, all investments will be scrutinised by the government prior to approval and be reviewed post-approval. Complex regulations coupled with the embargo placed upon the import of defence items, and along with that, the list for banned import items will be humongous by the time it comes into effect in 2025. The implication is that the foreign entities may not desire to invest in India.
Source: (https://idsa.in/issuebrief/decoding-dap-2020-acowshish-201120)
The table explicitly displays the actuality that the planning structure has been tweaked but no organization has been dedicated to defence policy or a national security strategy document placed to look after it. The implication is that there is no body to oversee the defence plans, the question arises- how will changing the name and the period of the planning structure help when there is no body to run it?
The reforms have given priority to the indigenous element with regards to production of defence material with the goal of making it self-reliant, but the reality is that money demand by the armed forces and the resources allocated remain far apart as the deficit was ? 1,03, 536 crores. This suggests that the government needs to back the armed forces with adequate financial resources if it aspires to be self-reliant in defence production. The defence acquisition procedure points India in the right direction but the glaring issues mentioned here needs to be given sufficient attention.
Conclusion:
The reforms were brought in by the government to ameliorate India’s standing in defence production. This would allow it to become self-reliant in the defence sector leading to reduction in sky-high imports as well nurture the ‘Make in India’ program to enhance the manufacturing sector. However, there are crucial issues which needs to be tackled before the policy can be hailed a success. The step to push for indigenization is unerring provided that the reforms are properly implemented, flaws rectified. The reforms by themselves would not empower the armed forces to defend the national interest of India unless the aspiration to be self-reliant can be backed by material wherewithal. No policy is perfect, every policy faces issues of one kind or another, but the policy which succeeds is regularly amended to resolve the problems which hinder it.
End Notes:
1)https://pib.gov.in/PressReleasePage.aspx?PRID=1659746
3)https://www.theweek.in/theweek/business/2020/07/09/flight-plan.html
5)https://thewire.in/government/dap-2020-india-defence-production-dpp-2016
6)https://idsa.in/issuebrief/decoding-dap-2020-acowshish-201120
Pic Courtesy- Indian Navy spokesperson twitter handle
(The views expressed are personal.)
