Processes Slowing Down Defence Capital Acquisition

Policy Iteration

India’s diversified culture seamlessly unfolds few hundred miles where uniformity lies in non-conformity. Similarly the Indian growth story is unique deep rooted in Indian characteristics that thrives in confusion. Gerrymandering policy to leverage power by the executive characterises protracted decision making adding to more confusion in the garb of providing fair competition.

Sedated decision making in defence procurement, a monopsony market where the buyer also sets the rules for business comes at a cost of building capabilities on previous generation and obsolete platform rather than on future generation platforms.

‘Borgen’, a political Danish TV show on Netflix defined ‘Policy’ as a combination of ‘Reality’; ‘Idealism’; and ‘Emerging Desire’. In India, the soul of Atmanirbhayata is rooted in false sense of idealism casting shadow on both reality and desire; hence, policy iteration is poetry re-written on undeliverable promises and unaccountable statements.

Despite contradictions India continues to grow, fight the pandemic like no other country and challenge the mightiest on the high grounds of eastern Ladakh. Nothing else can justify brilliant outcomes despite irrational behaviour in iterating policies other than being blessed by million gods and goddesses.

Across Spectrum Capability

India resides in a critical fault line surrounded with hostile adversaries and thus across spectrum capabilities should be built on reality and desire to arm India with present and future generation platforms.

While the eastern neighbour developed home-grown air, ground and naval platforms to counter America as its adversary, India until the first decade of this century was building capabilities to counter the western neighbour – Strategic Blunder.

However despite innumerable past blunders the Service Head Quarters (SHQs) continue to embrace blunders by wanting to build capability on unscientific concepts where suitability of products available to meet their operational requirements are apparently explored based on Request for Information (RFI); a rather time consuming vestigial process listed in Defence Acquisition Procedure 2020 (DAP 2020 Chapter II para 2).

Vestigial process

RFIs do not have the wherewithal to create a capability matrix. This function should be outsourced to the more efficient consulting services which have the bandwidth to examine types of equipments available in the market and then build a capability matrix. These inputs are accurate, reliable and provide dependable information for formulation of Services Qualitative Requirements (SQRs). But to expect SHQs or Ministry of Defence (MoD) to collate thousand or more RFIs floated each year in silos and, then utilise these paper documents to formulate Integrated Capability Development Plan (ICDP) is rather far-fetched and, hence should be deleted from the acquisition process listed in Ch II of DAP 2020.

In a recent seminar organised by Confederation of Indian Industries (CII) the Defence Minister was upbeat about policy guiding India’s defence economy. He however expressed his desire to hasten capital acquisition and reduce the average time taken for procurement from (according to him) current four years to two years. His brave narrative that current policy outlined in Budget for Financial Year (FY22) was forward looking with a healthy mix of promise, potential and progress was good poetry.

However if Rajnath Singh is serious about turbo charging defence acquisition process, he must direct his Defence Secretary to delete Para1 (a) of Ch II in DAP 2020. By doing so, he would have partially fulfilled his desire and accelerated the process by a year. (Refer Table 1)

Table 1 (Reference DAP 2020 Ch II)

PROCEDURECOMMENTSTIME LINEPROCESSACTION
RFIInternal comments6 weeks  (Para 6)Vestigial & UnaccountedDelete & Outsource
RFI uploadedVendor Interaction and responseMin 8 weeks plus extensions (Para7)Vestigial & UnaccountedOutsource
SQRs fielded for approval of SEPCAfter Vendor responseMin 24 weeks (Para 18)Protracted & UnaccountedBusiness Process Reengineering (BPR)
AON based on SQR/JSQRApproval by SEPC/ISEPC54 weeks (Para 21)Protracted & UnaccountedBPR
Click to access DAP2030new.pdf

RFIs are not commitment for procurement but just open source information on the basis of which SHQs are expected to create a capability matrix to formulate SQRs. The timeline for procurement actually should start from the moment a thought germinates in SHQ. However, time from RFI to the minutes of the meeting of DAC for grant of AON is unaccounted and could take in excess of two years in the 118 week acquisition process listed in the proposed timeline for procurement (Appendix L to Ch II of DAP 2020).

Are we asking the right questions?

Discussing India’s defence economy has become a cottage industry and living room conversation for all. It’s cliché to talk about inadequate resources, budgetary allocations and role of private sector in building capability for the armed forces. While these could have been challenges at the turn of the century when India opened its defence economy; however, none are real challenges today. So, what are the right questions?

Why was RFI included in the acquisition process; a question which should be thrown to all stakeholders. Can a country with critical fault lines afford gerrymandering to build critical capabilities for its armed forces?

Are we scarce on resources? Well yes, resources will forever be scarce to buy commodities in any economy. But, is scarcity of resources the reason for building less than across spectrum capabilities for the armed forces?

Indian armed forces spend on an average $10 billion a year on capital procurement against a larger budgetary allocation, most of which is utilised for committed liabilities. In essence allocation under Demand Note 20 is an amount to service committed liabilities for capabilities which were built in the previous Financial Years (FY).

The 15th Finance Commission (2021-26) is recommending a dedicated non-lapsable corpus of INR 2.4lakh crore ($34 billion) over five years (2021-26) called the Modernisation Fund for Defence and Internal Security (MFDIS), largely to bridge the gap between budgetary requirements and allocation of capital outlay.

While resources have been scarce, the government must be applauded for making efforts to find alternate solutions. Allocations under Demand Note 20 though not a healthy mix of promise, potential and progress but cannot be the sole criteria to assess government’s intentions.

So what’s ailing India’s defence capital procurement? Why has private sector not been able to assert itself despite several announcements on procurements favouring domestic contractors? These are real issues which must be addressed; however, are conveniently ignored.

Core Issues

The private contractors have built significant capabilities by investing in high cost of capital to build infrastructure and create capacity without orders. The Defence Public Sector Units (DPSUs) on the other hand have enjoyed the luxury of being funded and supported by the government. Under these conditions how can a reasonable process expect private contractors to compete with DPSUs on same terms which result in unreasonable price points?

Delayed contracts and retracted Request for Proposals (RFPs) also add to the cost of executing programs which are not compensated.

At the same time all isn’t also well with the private contractors. An assessment shows that large contractors with robust leadership in the defence vertical have excelled while others despite strong leadership at the group level having created capabilities ahead of demand have suffered because of weak leadership at the strategic business unit.

MSMEs, robust in technology and dependant on the DPSUs are prospering and contractors who have de-risked business on exports have been able to sustain the protracted procurement process. But mom & pop shops with unhealthy balance sheets and business models not pivoted have felt the burden of the sector.

The government hasn’t been able to galvanise the defence economy with efficient and scientific processes where technology becomes elixir. It isn’t availability of resources but poor decision making and lack of a coherent strategic vision that’s slowing down the entire process. An honest assessment indicates that private contractors will never be able to compete with the DPSUs funded by the government and, over a period of time be reduced to Tier 2 and Tier 3 contractors rather than transforming into Original Equipment Manufacturers (OEMs).

Finally it’s not about who builds capability but how across spectrum capabilities are created over a period of time utilising resources available with all possible stakeholders. False sense of idealism rooted in Atmanirbhayata will fail to drive the sector. And, finally a message for all contractors who passionately participate in this process that getting orders in this business is no longer a function of finding access into the corridors of defence bureaucracy but a function of strong leadership, technology and capacity to build capabilities.

Vishal Nigam    Author    Dragon in the Air Transformation of Aviation Industry and the Airforce   

Email vishalnigam@hotmail.com +917428239955

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