Ex­pert Com­mit­tee on De­fence Pro­cure­ments in 2015: An Ap­praisal

With a view to stream­line the process, DPP 2002 has been sub­jected to seven ma­jor re­views dur­ing the last 13 years. Un­for­tu­nately, all re­view com­mit­tees re­stricted them­selves to suggest­ing pro­ce­dural changes only

SP's LandForces - - FRONT PAGE - Ma­jor Gen­eral Mri­nal Su­man (Retd)

With a view to stream­line the process, DPP 2002 has been sub­jected to seven ma­jor re­views dur­ing the last 13 years.

CON­SE­QUENT TO THE REC­OM­MEN­DA­TIONS of the Pub­lic Ac­counts Com­mit­tee (PAC), the Min­istry of De­fence (MoD) is­sued de­tailed guide­lines for cap­i­tal ac­qui­si­tions and the first De­fence Pro­cure­ment Pro­ce­dure (DPP) came into be­ing in Fe­bru­ary 1992. How­ever, it suf­fered from some ma­jor de­fi­cien­cies which af­fected its im­ple­men­ta­tion. As rec­om­mended by the Group of Min­is­ters con­sti­tuted in the wake of the Kargil con­flict, a fresh and far more com­pre­hen­sive DPP was is­sued in De­cem­ber 2002.

With a view to stream­line the process, DPP 2002 has been sub­jected to seven ma­jor re­views dur­ing the last 13 years. Un­for­tu­nately, all re­view com­mit­tees re­stricted them­selves to suggest­ing pro­ce­dural changes only. They lacked courage to sug­gest rad­i­cal over­haul of the sys­tem, fear­ing its out­right re­jec­tion by the de­ci­sion makers. No holis­tic study of all facets of the de­fence pro­cure­ment regime has ever been un­der­taken. No se­ri­ous thought has ever been given to pro­vid­ing an im­pe­tus to in­dige­nous pro­duc­tion. Re­sul­tantly, we have ac­quired the shame­ful tag of be­ing the largest im­porter of con­ven­tional weapons in the world.

There­fore, con­sti­tu­tion of an ex­pert com­mit­tee un­der Dhirendra Singh in May 2015 was viewed with con­sid­er­able op­ti­mism. The com­mit­tee was tasked to evolve a pol­icy frame­work to fa­cil­i­tate ‘Make in In­dia’ in de­fence man­u­fac­tur­ing and align the pol­icy evolved with DPP 2013. It was also asked to sug­gest req­ui­site amend­ments in DPP 2013 to re­move the bot­tle­necks in the pro­cure­ment process and to sim­plify/ ra­tio­nalise var­i­ous as­pects of de­fence pro­cure­ment. The com­mit­tee sub­mit­ted its re­port to MoD re­cently.

The com­mit­tee’s rec­om­men­da­tions are three-pronged: achieve­ment of ‘Make in In­dia’ mis­sion stream­lin­ing of the pro­cure­ment process; and strength­en­ing of the in­dige­nous de­fence man­u­fac­tur­ing base through the in­te­gra­tion of the pri­vate sec­tor. A num­ber of mea­sures have been sug­gested to cre­ate a gen­uine level play­ing field for both the pub­lic and the pri­vate sec­tors. Fur­ther, the com­mit­tee has de­sired that In­dian man­u­fac­tur­ing in­dus­try be as­sured of a fair treat­ment vis-à-vis the global play­ers.

Rec­om­men­da­tions of the com­mit­tee can be grouped un­der four sub­heads: con­cep­tual lad­der for ‘Make in In­dia’ mis­sion; amend­ments to DPP 2013; in­te­gra­tion of the pri­vate sec­tor; and sup­ple­men­tary is­sues. Their salient as­pects have been dis­cussed here­un­der.

For ‘Make in In­dia’ Mis­sion

Be­ing one of the key terms of ref­er­ence, the com­mit­tee has spent con­sid­er­able ef­fort in suggest­ing a road map to achieve the envis- aged ob­jec­tive of ‘Make in In­dia’. A con­cep­tual lad­der has been evolved to rep­re­sent pro­gres­sive de­vel­op­ment of com­pe­tence level in the de­fence in­dus­try, from the very ba­sic level of re­pair and main­te­nance to the level of ac­quir­ing abil­ity to de­sign, de­velop, man­u­fac­ture and test sys­tems/equip­ment. Dif­fer­ent stages in the lad­der have been well cor­re­lated with var­i­ous cat­e­gories of the cap­i­tal pro­cure­ments as ob­tain­ing to­day. It is an in­no­va­tive sug­ges­tion.

The re­port rightly cau­tions that ‘Make in In­dia’ cam­paign should not be al­lowed to de­gen­er­ate into ‘As­sem­ble in In­dia’ pro­gramme. To pre­vent fall­ing into such a trap, it sug­gests higher in­dige­nous con­tent across all de­fence pur­chases and upgra­da­tion of in-ser­vice equip­ment un­der the ‘Make’ cat­e­gory. The com­mit­tee is of the view that the in­dige­nous con­tent in the pro­cure­ments should be in­creased from the cur­rent lev­els of about 35 per cent to nearly 70 per cent in a phased man­ner.

The com­mit­tee feels that by en­cour­ag­ing In­dian in­dus­try to un­der­take upgra­da­tion of in-ser­vice sys­tems, the process of fa­mil­iari­sa­tion by the in­dus­try with the tech­nolo­gies, op­er­at­ing en­vi­ron­ment as well as user re­quire­ments can be ac­cel­er­ated. It sug­gests ‘In­dus­try in the Lead, De­fence Re­search and De­vel­op­ment Or­gan­i­sa­tion (DRDO) as a Part­ner’ model for quicker and more ef­fi­cient re­al­i­sa­tion of the ob­jec­tives. If con­sid­ered nec­es­sary, a for­eign tech­nol­ogy part­ner could also be con­sid­ered.

Al­though small and medium en­ter­prises (SMEs) are uni­ver­sally ac­cepted as en­gines that drive tech­no­log­i­cal progress in all in­dus­trial sec­tors, their im­por­tance in the de­fence sec­tor gets fur­ther en­hanced due to the fact that de­fence in­dus­try is highly tech­nol­ogy-in­ten­sive. As SMEs lack re­sources to com­pete with big play­ers, the com­mit- tee has sug­gested hand-hold­ing by the gov­ern­ment. It wants MoD to make nec­es­sary fi­nance avail­able to them on easy terms.

The com­mit­tee has made two sug­ges­tions to im­prove the func­tion­ing of the pub­lic sec­tor en­ti­ties. First, it has re­it­er­ated the of­ten heard de­mand for the cor­po­rati­sa­tion of the man­age­ment struc­ture of the Ord­nance Fac­tory Board. Se­condly, the com­mit­tee has rec­om­mended that the four ship­yards un­der MoD be merged into one cor­po­rate en­tity, re­tain­ing the yard fa­cil­i­ties in their present ge­o­graph­i­cal lo­ca­tions but work­ing un­der one sin­gle man­age­ment.

Sug­gested Amend­ments to DPP 2013

The com­mit­tee has made a num­ber of rec- om­men­da­tions with re­spect to the pro­vi­sions of the pro­cure­ment pro­ce­dure. As DPP keeps re­fer­ring to the term In­dian ven­dor re­cur­rently, the com­mit­tee felt the need to de­fine the term in un­am­bigu­ous terms to avoid mis­in­ter­pre­ta­tions and con­fu­sion. Ac­cord­ing to the com­mit­tee, the es­sen­tial in­gre­di­ent of the cri­te­rion is the controlling stakes of the In­dian en­tity ex­cept cases where the for­eign direct in­vest­ment (FDI) above 49 per cent has been al­lowed to an en­tity for a par­tic­u­lar de­fence prod­uct and the en­tity is com­pet­ing for the sup­ply of that prod­uct.

Con­sid­er­ing the above, the com­mit­tee has sug­gested that the def­i­ni­tion of In­dian ven­dor should read: “For de­fence prod­ucts re­quir­ing in­dus­trial li­cence, an In­dian en­tity/part­ner­ship firm, com­ply­ing with, be­sides other reg­u­la­tions in force, the guide­lines/li­cens­ing re­quire­ments stip­u­lated by the Depart­ment of In­dus­trial Pol­icy and Pro­mo­tion as ap­pli­ca­ble. For de­fence prod­ucts not re­quir­ing in­dus­trial li­cence, an In­dian en­tity/part­ner­ship firm reg­is­tered un­der the rel­e­vant In­dian laws and com­ply­ing with all reg­u­la­tions in force ap­pli­ca­ble to that in­dus­try”.

An­other key rec­om­men­da­tion per­tains to the cur­rent pro­vi­sion of DPP 2013 wherein re­port of the Tech­ni­cal Eval­u­a­tion Com­mit­tee is ap­proved at the Vice Chief/Deputy Chief/Di­rec­tor Gen­eral level in the con­cerned Ser­vice HQ and for­warded to DG Ac­qui­si­tion for ac­cep­tance. The same pro­ce­dure is fol­lowed in the case of the Staff Eval­u­a­tion Re­port. The com­mit­tee is of the view that once the above two re­ports are ap­proved at se­nior lev­els in the Ser­vice Head­quar­ters, there should be no need for their ‘ac­cep­tance’ by MoD. It is a wel­come sug­ges­tion and will not only avoid du­pli­ca­tion of ef­fort but also in­ject an el­e­ment of trust.

Some of the other ma­jor changes rec­om­mended by the com­mit­tee in DPP 2013 are as fol­lows:

Va­lid­ity pe­riod of Ac­cep­tance of Ne­ces­sity (AoN) for ‘Buy (In­dian)’, ‘Buy & Make’ and ‘ Buy (Global)’ be re­duced to six months as Ser­vices Qual­i­ta­tive Re­quire­ments (SQR) for such cases are fi­nalised prior to the ac­cor­dance of AoN.

With a view to lend ra­tio­nal­ity, clar­ity and trans­parency to the process of cat­e­gori­sa­tion of cap­i­tal ac­qui­si­tion pro­pos­als, defin­ing at­tributes of each cat­e­gory should be in­cor­po­rated in DPP.

The De­fence Pro­cure­ment Board (DPB) should be au­tho­rised to ap­prove mi­nor de­vi­a­tions in SQR which do not ma­te­ri­ally al­ter the char­ac­ter of the re­quest for pro­pos­als (RFPs) in terms of ca­pa­bil­ity be­ing sought, as­so­ci­ated de­liv­er­ables or have ma­jor com­mer­cial im­pli­ca­tions.

The min­i­mum thresh­old of the per­cent­age of in­dige­nous con­tent for ‘Buy (In­dian)’, ‘Buy & Make (In­dian)’ and ‘Make’ cat­e­gories should be re­vised to 40, 60 and 40 per cent re­spec­tively.

The re­port rightly cau­tions that ‘Make in In­dia’ cam­paign should not be al­lowed to de­gen­er­ate into ‘As­sem­ble in In­dia’ pro­gramme. To pre­vent fall­ing into such a trap, it sug­gests higher in­dige­nous con­tent across all de­fence pur­chases and upgra­da­tion of in-ser­vice equip­ment un­der the ‘Make’ cat­e­gory.

Fur­ther, there should be a bi­en­nial up­ward re­vi­sion of in­dige­nous con­tent across the board. Re­trac­tion of RFP in cases where a sin­gle ven­dor sit­u­a­tion de­vel­ops af­ter tech­ni­cal eval­u­a­tion of the bids should be avoided in ‘Buy (In­dian)’ and ‘Buy and Make (In­dian)’ cases, since the com­mer­cial quotes would have been sub­mit­ted ear­lier in a com­pet­i­tive en­vi­ron­ment. ‘Per­for­mance Based Lo­gis­tics’ should be pre­ferred over ‘An­nual Main­te­nance Con­tract’ model. ‘To­tal Cost of Ac­qui­si­tion’ model should be adopted for all plat­forms/sys­tems where ma­jor el­e­ments of cost are quan­tifi­able and ver­i­fi­able, ei­ther on time ba­sis or on run­ning-hour ba­sis. Con­tents of ‘Tech­nol­ogy Per­spec­tive and Ca­pa­bil­ity Roadmap’ should be more spe­cific as re­gards the na­ture of equip­ment/sys­tems that would be re­quired to be in­ducted/up­graded dur­ing the next 15 years. De­tails of all schemes in­cluded in fiveyear Ser­vices Cap­i­tal Ac­qui­si­tion Plan should also be shared with the in­dus­try.

En­cour­age Open Reg­is­tra­tion

The com­mit­tee was asked to pe­ruse draft pol­icy on em­ploy­ment of agents by for­eign ven­dors. Ac­cept­ing the need to reg­u­late the func­tion­ing of agents, the com­mit­tee has con­curred that the process of reg­is­tra­tion should be con­sid­er­ably sim­pli­fied to en­cour­age open reg­is­tra­tion. As en­gage­ment of agents by for­eign ven­dors could ei­ther be om­nibus for all their prod­ucts in the re­gion or for han­dling spe­cific RFP, guide­lines must cater for both the sit­u­a­tions. To avoid any am­bi­gu­ity in in­ter­pre­ta­tion, uni­for­mity of the texts of all clauses per­tain­ing to agents in DPP must be en­sured.

De­bar­ment Must Take Na­tional and Pub­lic in­ter­ests into Ac­count

The com­mit­tee was also asked to pe­ruse the draft pol­icy on de­bar­ring ven­dors for al­leged mis­de­meanours. It con­curred with the un­der­ly­ing phi­los­o­phy that mis­deeds of an en­tity or its employees should not be vis­ited on the equip­ment/sys­tem/plat­form which had been care­fully cho­sen by the Ser­vices fol­low­ing the pre­scribed pro­ce­dure. Fur­ther, prag­ma­tism de­mand that the is­sue of putting on hold, sus­pen­sion and de­bar­ment of the en­ti­ties be de­cided tak­ing na­tional and pub­lic in­ter­ests into ac­count.

In­te­gra­tion of the Pri­vate Sec­tor

While stress­ing the need to in­te­grate the pri­vate sec­tor in the de­fence in­dus­try, the com­mit­tee has rec­om­mended a num­ber of mea­sures for the pro­vi­sion of level play­ing field to the pri­vate in­dus­try vis-à-vis the pub­lic sec­tor and the for­eign ven­dors.

The Kelkar Com­mit­tee had pro­pounded the con­cept of nom­i­nat­ing se­lect pri­vate sec­tor in­dus­trial en­ti­ties as Rak­sha Ut­padan Ratna (RUR), to be treated at par with the pub­lic sec­tor for all de­fence equip­ment pur­poses. Some­what on sim­i­lar lines, the Dhirendra Singh Com­mit­tee feels that the strength of pri­vate in­dus­try can be har­nessed only through well de­fined part­ner­ship mod­els, de­pend­ing upon the strate­gic needs, qual­ity crit­i­cal­ity and cost com­pet­i­tive­ness. It has sug­gested the cre­ation of three types of part­ner­ship mod­els with the pri­vate sec­tor.

‘Strate­gic Part­ner­ship’ Model: For plat­forms of strate­gic im­por­tance, ‘Strate­gic Part­ner­ship’ model has been sug­gested. It aims to cre­ate ca­pac­ity in the pri­vate sec­tor on a long-term ba­sis; over and above the ca­pac­ity and in­fra­struc­ture that ex­ists in the pub­lic sec­tor. The pri­mary fo­cus of strate­gic part­ners would be to sup­port sus­tain­abil­ity and in­cre­men­tal im­prove­ments in ca­pa­bil­ity of plat­forms through tech­nol­ogy in­ser­tions over their life­times. The com­mit­tee has iden­ti­fied six seg­ments for the pur-

pose – air­craft; war­ships; ar­moured fight­ing ve­hi­cles; com­plex weapon sys­tems that rely on guidance; C4ISTR (com­mand, con­trol, com­mu­ni­ca­tion, com­put­ers, in­tel­li­gence, sur­veil­lance, tar­get ac­qui­si­tion and re­con­nais­sance); and crit­i­cal ma­te­ri­als.

‘De­vel­op­ment Part­ner­ship’ Model: This model has been pro­posed for cases where qual­ity is crit­i­cal and ven­dor base is very nar­row. Given the qual­ity crit­i­cal­ity of the prod­uct re­quired, the num­ber of such part­ners in any par­tic­u­lar area (equip­ment/sys­tem) would de­pend upon the size of the mar­ket but would typ­i­cally be lim­ited. Many ‘De­vel­op­ment Part­ners’ could as­pire to at­tain the sta­tus of ‘Strate­gic Part­ner’, de­pend­ing upon their core com­pe­tence and ca­pac­ity. It would be a ‘fluid’ space which the in­dus­try can nav­i­gate by build­ing their com­pe­tence, ca­pac­ity and qual­ity of the prod­uct.

The ‘Com­pet­i­tive Model’: This model is akin to the tra­di­tional con­cept as is in force at present. All prod­ucts that are out­side the purview of strate­gic and de­vel­op­ment part­ner­ships would fall in the com­pet­i­tive cat­e­gory.

In ad­di­tion to the above men­tioned part­ner­ship mod­els, the com­mit­tee has rec­om­mended the fol­low­ing mea­sures to as­sist the pri­vate sec­tor: Grant of ex­change rate vari­a­tion pro­tec­tion to In­dian ven­dors. Making avail­able gov­ern­ment’s proof fir­ing ranges and trial av­enues to pri­vate play­ers on pay­ment ba­sis. Ra­tio­nal­i­sa­tion of taxes, levies and du­ties. Grant of ben­e­fits of ‘deemed ex­ports’ for trans­ac­tions with re­spect to off­set con­tracts aris­ing from ‘Buy (Global)’ cat­e­gory cases. Grant of in­cen­tives for R&D and in­fra­struc­ture in­vest­ments.

Sup­ple­men­tary Is­sues

The com­mit­tee has of­fered a num­ber of in­ter­est­ing rec­om­men­da­tions that fall out­side the purview of DPP. Af­ter car­ry­ing out a scan of the ac­qui­si­tion struc­tures evolved by the de­vel­oped na­tions, the com­mit­tee has reached the con­clu­sion that In­dia needs a sep­a­rate or­gan­i­sa­tion to pro­mote in­dige­nous de­fence in­dus­try and man­age de­fence ac­qui­si­tions.

Cit­ing the suc­cess­ful mod­els of the De­part­ments of Atomic En­ergy and Space, the com­mit­tee has sug­gested cre­ation of a dis­tinct or­gan­i­sa­tion un­der MoD with suf­fi­cient author­ity and flex­i­bil­ity. It could ei­ther be an at­tached of­fice or an au­ton­o­mous en­tity; but should prefer­ably be lo­cated away from MoD as the de­fence se­cu­rity zone leads to se­vere lim­i­ta­tions of ac­cess.

Fur­ther, the com­mit­tee has stressed the need to in­ject pro­fes­sion­al­ism in In­dia’s ac­qui­si­tion regime. With a view to equip the work­force with req­ui­site skills in di­verse fields (ap­pre­ci­a­tion of tech­nol­ogy, trial pro­ce­dures, com­mer­cial ne­go­ti­a­tions and le­gal is­sues in con­trac­tual mat­ters, es­ti­ma­tion of costs, fi­nanc­ing struc­tures, project man­age­ment and data anal­y­sis), the com­mit­tee has sug­gested in­sti­tu­tion­alised train­ing at in­duc­tion level and through ca­reer for all stake­hold­ers. It ad­vo­cates evo­lu­tion of a tiered sys­tem of ed­u­cat­ing the work­force with all func­tionar­ies get­ting longer tenures.

The com­mit­tee is of the opin­ion that ac­qui­si­tion func­tionar­ies are wary of tak­ing bold de­ci­sions as they dread be­ing sub­jected to sub­se­quent in­quests. It has sug­gested that an en­vi­ron­ment of con­fi­dence should be built to pro­vide a safety net to the ac­qui­si­tion of­fi­cials. Four sug­ges­tions have been made by the com­mit­tee. One, Tech­ni­cal Over­sight Com­mit­tee should be re­tained to as­cer­tain ad­her­ence to the laid down pro­ce­dure dur­ing the tech­ni­cal eval­u­a­tion phase for se­lect cases. Two, the con­cept of Em­i­nent Per­sons Group should be rein­tro­duced to ex­am­ine ob­ser­vance of all pre­scribed pro­cesses and pro­ce­dures in the course of com­mer­cial ne­go­ti­a­tions for ac­qui­si­tion pro­pos­als in ex­cess of 300 crore and any other case rec­om­mended by DPB. Three, a sys­tem of Om­buds­man should be set up for ad­vice as re­gards grant of tech­ni­cal/com­mer­cial de­vi­a­tions and for post-con­tract con­sul­ta­tions. Fi­nally, it has been sug­gested that the Comptroller and Au­di­tor Gen­eral should carry out con­cur­rent/pre-au­dit of ma­jor de­fence ne­go­ti­a­tions and con­tracts.

As the pro­posed off­set pol­icy per­mits three routes for the dis­charge of off­set obli­ga­tions (direct off­sets, tech­nol­ogy trans­fer and skill de­vel­op­ment), the com­mit­tee has sug­gested lay­ing down of sep­a­rate guide­lines for the com­mit­tees man­ag­ing the three av­enues. Af­ter pe­rus­ing the draft off­set pol­icy, the com­mit­tee feels that the on­go­ing off­set con­tracts as well as those in the pipe­line should be al­lowed to run their course un­der the pro­vi­sions of ear­lier DPPs. Fur­ther, the com­mit­tee has sought in­cen­tives for SMEs. More im­por­tantly, it cau­tions that the new off­set pol­icy should be out­come-ori­ented rather than process-ori­ented.

Con­clu­sion

MoD de­serves credit for making the re­port pub­lic. It is a path-break­ing ini­tia­tive. How­ever, expectations from the Dhirendra Singh Com­mit­tee were very high, es­pe­cially due to the rep­u­ta­tion of its Chair­man. It was ex­pected to sug­gest rad­i­cal mea­sures to over­haul the cur­rent ac­qui­si­tion dis­pen­sa­tion which has been a to­tal fail­ure. Sadly, all hopes have been be­lied. It has turned out to be a rou­tine pe­ri­od­i­cal re­view of DPP – a damp squib.

The re­port is symp­to­matic of the bug of con­sen­sus that af­flicts all In­dian pol­icy ini­tia­tives. It ap­pears that the com­mit­tee asked ev­ery stake­holder to make its sub­mis­sions on the is­sues that im­pact it. Need­less to say, ev­ery stake­holder has tried to en­sure that his turf re­mains in­vi­o­late. Any com­mit­tee that tries to ac­com­mo­date all in­ter­est groups can never be ob­jec­tive in its re­port. Most dis­ap­point­ingly, the Dhirendra Singh Com­mit­tee re­port is more ‘sta­tus-quoist’ than re­formist; and that is its big­gest lim­i­ta­tion.

Fi­nally, al­though ex­pert com­mit­tees are con­sti­tuted for well thought-through and holis­tic spe­cialised guidance, it is for the serv­ing of­fi­cials to ac­cept or re­ject the rec­om­men­da­tions. If the past ex­pe­ri­ence is any indi­ca­tor, MoD will ac­cept only those rec­om­men­da­tions that suit it and strengthen its stran­gle­hold on the ac­qui­si­tion regime. All ‘un­com­fort­able’ sug­ges­tions will be con­signed to the dust­bin. For ex­am­ple, cor­po­rati­sa­tion of the ord­nance fac­to­ries will re­main a pipe dream and DRDO will con­tinue to evade ac­count­abil­ity.

The com­mit­tee con­curred with the un­der­ly­ing phi­los­o­phy that mis­deeds of an en­tity or its employees should not be vis­ited on the equip­ment/ sys­tem/plat­form which had been care­fully cho­sen by the Ser­vices fol­low­ing the pre­scribed pro­ce­dure

Pinaka 214MM multi-bar­rel rocket launcher sys­tem de­vel­oped by DRDO

(Top) DRDO de­vel­oped Akash medium-range mo­bile sur­face-to-air mis­sile;

(above) MBT Arjun Mk II

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