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Experts Speak

  Lack of accountability for time and cost overruns  
By Rear Admiral (Retd) Sushil Ramsay

As a sequel to massive revamp of the national security apparatus, the Defence Procurement Procedure (DPP) was promulgated in 2001. Based on shortcomings and deficiencies observed over a period of time the DPP has been fine-tuned and already there are six upgrades, latest being the 2011 edition. The DPP lays the guidelines and procedures for defence procurement on the Capital side, with well defined stages, timelines and schedules for an efficient procurement system. It may however be relevant to observe that the DRDO, defence public sector units and ordnance factories follow their respective procurement guidelines which are quite different to DPP and offer enormous scope for flexibility and fast track procurement.

The most challenging hurdle and the bottleneck are the time delays in the procurement system. As per DPP timelines a large contract should fructify between 36 to 52 months, passing through all of eleven phases — from request for proposal (RFP) to contract conclusion and management. The major anomaly is affixing of accountability for the time delays on the concerned agency. This information is never available in the public domain, hence remains immune to much desired corrections and finding solutions to the problem.

Another impediment to the process is the lurking fear of allegations of corruptions which invariably result in cancellation of contracts. This danger not only sends the process into the orbit of compounding delays, it causes serious inhibitions on the prospective global and indigenous bidders for participating in future modernisation programmes. Ultimately the modernisation programmes of the armed forces suffer from severe time and cost overruns, adversely impacting upon the depleting force levels. This emerges as major challenge on the decision making apparatus at all levels of MoD, Acquisition Wing and the Services Headquarters. Consequently, no single authority is accountable for any procedural lapses or avoidable delays at any stage of procurement.

The offsets provisions under the DPP 2011 mandates ploughing back 30 per cent of the deal amount in Indian defence, aerospace and homeland security industries. This provision is a common practice by several nations which make defence purchases from foreign countries. However, the offset mechanism as in DPP suffers from complexity related to accountability. The complexity is due to divided responsibility between the office of the Director General (Acquisitions) and the Department of Defence Production as neither of them is willing to take responsibility.

It is contemplated that the MoD is brought under a national offsets authority to create an umbrella organisation for procurement by all Govt. departments. In the absence of any definite headway, MoD took the initiative by enunciating a clear policy under DPP, the latest version of which includes Transfer of Technology. To facilitate its implementation, MoD has created a Defence Offset Facilitation Agency to assist vendors to interact with the Indian defence industry and to identify potential offset products, projects, technology and provide data and information. Above notwithstanding, foreign vendors who have considerable experience in operating under the offset environment elsewhere are apprehensive of the DPP provisions and lack of readiness of domestic industry to absorb offsets.

India’s procurement budget is about $17 bn in FY2012-13, of which about $12 billion is earmarked for procurement from abroad. This budgetary provision includes the committed liabilities (about 70 per cent) towards the ongoing schemes and the new schemes (about 30 per cent). The capital expenditure of major countries like the US ($220 bn), China ($60 billion), UK ($31 billion), France ($34 billion), Germany ($27 billion), Saudi Arabia ($21 billion) and Japan ($ 26 billion) which is much higher than what India can aspire to spend. It is so because all countries other than India and Saudi Arabia largely procure their arms from indigenous sources.

While there is a strong case for growth and development of domestic defence industry towards accomplishment of the national policy on self-reliance, this is linked to the inherent dilemma over the capability and capacity of the indigenous defence industry, both in public and private sectors to invest in the front line technologies to take forward the long term perspective plans for the modernisation of Indian Armed Forces. Creating joint ventures and partnership agreements is easier said than done, owing to clashes of interests of varying kinds.

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