Department of Defence Production and Conflict of Interest

Major General Mrinal Suman, AVSM, VSM, PhD

It is a well-known fact that the modernisation of the Indian armed forces is lagging behind by up to 10 years. The current profile of the equipment held by the armed forces is a cause of concern to all knowledgeable observers – over 50 percent of equipment is nearing obsolescence and needs immediate replacement. Whereas there are a number of contributory factors for this worrisome state of affairs, the Department of Defence Production (DDP) in the Ministry of Defence (MoD) is commonly considered to be the biggest impediment to the modernisation of the armed forces.

The Department of Defence Production was set up in 1962, in the aftermath of the Chinese aggression to create a self-reliant and self-sufficient indigenous defence production base. Although it has a vast domain of 39 Ordnance Factories and 9 Defence Public Sector Undertakings (DPSUs) under it, performance of DDP has been pathetic to say the least. It is solely responsible for the current pitiable state of the indigenous defence industry – even after a period of sixty five years of Independence, India is forced to import more that 70 percent of its requirements. Worse, indigenous production is mostly limited to assembly of imported sub-assemblies under licence and manufacture of low-tech components.

Further, DDP is also to blame for the poor quality of ordnance supplied to the armed forces. Many soldiers have lost their lives due to sub-standard arms, ammunition and explosives produced under the aegis of DDP and passed for quality assurance by its agencies. The armed forces are forced to accept whatever is provided to them by DDP.

The primary fault lies with the structure and charter of duties of DDP. It deals with matters pertaining to defence production, indigenisation of imported stores, equipment and spares. It also exercises control over departmental production units. In addition, the following organisations provide technical support to DDP:-

· Directorate General of Quality Assurance (DGQA)

· Directorate of Standardisation

· Directorate General of Aeronautical Quality Assurance (DGAQA)

· Directorate of Planning & Coordination

· Defence Exhibition Organisation

As will be seen later, functioning of DDP suffers from serious internal contradictions, thereby giving rise to acute conflict of interest issues. Normally, a conflict of interest occurs when an organisation is involved in multiple functions, one of which could possibly corrupt objective decision making in the other. In other words, interests of certain functions get sacrificed while ensuring protection of ostensibly more critical functions. Resultantly, the organisation fails to do justice to all its responsibilities – it becomes overindulgent to some while neglecting the others. Conflict of interest invariably results in subjectivity and impropriety.

Modernisation of the Armed Forces

Performance of Indian defence public sector units can be summed up in one word –‘dismal’. With Indian armed forces as their captive customers, they have never felt the need to improve their skills. Quality of their products is sub-optimal. They never adhere to promised schedules and charge exorbitant prices. With assured orders in hand, they charge unreasonably high prices and find no incentive to modernise/upgrade. Schedules of delivery mean very little to them. They keep extending timelines and increasing cost at will.

DDP is guilty of shielding an inefficient public sector whose proverbial complacence is solely due to their conviction that DDP will ensure that the services are forced to buy what they produce. Their confidence is not misplaced. All ploys are tried by DDP to ensure regular flow of orders to its public sector units. Imports of urgently needed items are blocked with blatantly false claims of local production which never materialise. Private sector is kept at bay through cleverly introduced provisions of nominating public sector units for major contracts.

It is DDP’s sacrosanct duty to help modernise the armed forces. On the other side, it finds itself obliged to support an inept public sector. Instead of providing troops with latest high quality systems, it saddles them with sub-standard goods of outdated technology. This conflict of interest results in impacting military’s war preparedness adversely.

Development of Indigenous Defence Industry

As stated above, development of indigenous defence industry is DDP’s prime responsibility. Although DDP should be promoting both the public and the private sectors, it can never be fair to the private companies as it is the god-father of defence public sector units. As a matter of fact, private sector is considered a threat to the existing monopoly of the private sector and all efforts are made to deny it a foothold by avoiding open competition for contracts.

In all ‘Buy and Make’ cases, it is always a public sector unit that is nominated to receive technology for indigenous production of bulk quantity even though a private company may be better suited for the task. Similarly, DDP has appropriated for itself the right to nominate recipient for ‘ToT for Maintenance’.

In DPP-2011, shipbuilding was split into two sections – one for placing orders on a nominated public sector shipyard and the other for open competitive bidding. As is apparent, proposals will be thrown open to competitive bidding only after the public sector shipyards are fully loaded with orders and throw their hands up. Till then, private sector shipyards will have to keep nursing their idle capacities, thereby wasting enormous national assets.

Thus, DDP faces acute conflict of interest predicament. Instead of being a promoter of Indian defence industry as a whole, it stalls entry of the private sector to protect public sector units. Resultantly, indigenous defence industry remains deprived of the technological prowess acquired by the private sector.

Quality Assurance of Defence Products

Normally, it is the prerogative of a buyer to satisfy himself as regard the quality of the products that he pays for. Therefore, he nominates one of his agencies to carry out the task of quality assurance. In cases requiring special expertise, an independent agency may be detailed for quality assurance functions. But under no circumstances can a seller be delegated the authority to validate the quality of the products being supplied. Unfortunately, this is exactly the practice that is followed by DDP.

Items manufactured by DPSUs and the ordnance factories are inspected for quality assurance by DGQA (armaments, stores and equipment) and DGAQA (military aviation). DDP controls both the production agencies and the quality assurance authorities. The buyers, i.e. the armed forces, are forced to accept whatever is supplied to them. They can neither check quality nor reject sub-standard items.

DDP is conscious of its responsibility to supply quality goods to the troops. It is also fully aware of the fact that the quality of items manufactured by the public sector entities is unsatisfactory. Despite frequent complaints from the services about indifferent quality of items supplied by its production units, DDP is forced to defend its production units.

Production units claim that they are not to blame as their products are duly inspected and passed by DGQA/DGAQA. On the other hand, DGQA and DGAQA maintain that they carry out random percentage checks as per the laid down norms and that it is the responsibility of the production units to maintain specified quality across the complete batches.

As DDP faces a serious conflict of interest, it is unable to take any corrective measures. In case it asks inspecting agencies to be stringent in quality assurance checks, hardly any production would get cleared for delivery. Mass rejection of entire batches will not only stall production but also put a question mark against the receipt of future orders from the services – a most unwelcome scenario.

The Way Forward

MoD should take three steps to overcome the above mentioned dilemma faced by DDP due to conflict of interest:-

a) DDP should be re-designated as Department of Defence Industry. It should look after the interests of the defence industry as a whole and not be biased in favour of the public sector units.

b) All provisions of DDP that accord primacy to public sector should be rescinded to facilitate a level playing field for all companies.

c) A large number of DPSUs can be transferred to other ministries. MoD has no business to get involved in industrial activities. For example, there is no justification whatsoever for shipyards and HAL to be under the control of MoD.

DDP has to realise that both public and private sectors are national assets and harnessing of their potential is essential if India wants to build globally competitive defence industrial base with necessary economies of scale. By playing favourites, it creates conflict of interest dilemmas for itself, thereby impeding modernisation of the armed forces.

Footnote

Efficiency of DDP can be gauged from the fact that the latest figures that its website shows of production and exports by DPSUs and Ordnance Factories are for the year ending December 2002. The website has not been updated for the last 10 years. That is dynamism for you.

Time to Perfect the Defence Procurement Regime

Major General Mrinal Suman, AVSM, VSM, PhD

After the breakup of the erstwhile Soviet Union, a need was felt to have detailed policy guidelines for carrying out defence procurements in a multi-vendor environment. As a result, Defence Procurement Procedure – 1992 (DPP-1992) was formulated in February 1992. However, it was found to be wanting in many key aspects. Commercial bids were sought after technical trials thereby allowing successful vendors to quote unreasonably high price. Further, the procedure neither catered for long duration projects like ship-building nor for emergent requirements. Transfer of technology was also a major grey area. Worse, no dedicated organisation was set up to handle procurements as officers were asked hold multiple responsibilities, thereby dividing their attention and efforts.

Consequent to the recommendations of the Group of Ministers on National Security, constituted in the wake of the Kargil War, a new defence procurement procedure for ‘Buy’ cases, commonly referred to as DPP-2002, was promulgated in December 2002. Soon its scope was enlarged in June 2003 to include ‘Buy and Make through Imported Transfer of Technology’ cases as well. A major review of the procedure was carried out in 2005. It resulted in the inclusion of procedure for indigenous warship building, standard contract document and offset policy.

With a view to incorporate recommendations of the Kelkar Committee, the procedure was revised once again in 2006. Main thrust of DPP-2006 was to give a boost to indigenous development of defence equipment, normally referred to as ‘Make’ cases. Signing of an Integrity Pact was made mandatory for all procurements over Rs 100 crores. Most importantly, a Fast Track Procedure for emergent procurements was included. The next revision took place two years later and DPP-2008 introduced measures to increase transparency in technical evaluation wherein it was made mandatory to indicate the complete trial methodology upfront in Request for Proposals (RFP) itself. In November 2009, MoD decided to share the future needs of the armed forces with the industry through a public version of the perspective document.

DPP-2011 is the latest version of the procedure. It came into effect on 01 January 2011 and contains two major changes. One, shipbuilding process has been split into two sub-categories – nomination and competition. Two, the scope of offset activities has been enlarged to include civil aerospace sector, internal security sector and training within the ambit of eligible products and services for the discharge of offset obligations.

Nearly 10 years have passed since the promulgation of the current genre of DPP in 2002. Even with considerable experience and five major reviews, DPP continues to flounder in bureaucratic labyrinth. It has neither been able to expedite the procurement process nor acquire much-needed credibility. Time and cost overruns have become the hall marks of India’s procurement regime.

Ten years is a long gestation and learning period. The country cannot wait indefinitely for MoD to streamline the system to make DPP deliver. The armed forces are carrying deficiencies of critical equipment for unduly long periods, thereby raising serious doubts about their operational preparedness. It is time MoD understands that major reforms are needed to streamline the process – minor tinkering through periodic reviews will not help. Key issues that warrant urgent attention have been discussed hereunder.

Perspective Planning

According to the policy, all procurements should be carried out as per the approved plans. 15- Years Long Term Integrated Perspective Plan (LTIPP) is considered to be the mother plan and is based on Defence Planning Guidelines and 15-Years Defence Capability Plan. It is prepared by Headquarters Integrated Defence Staff (HQ IDS) in consultation with the Service Headquarters (SHQ) and approved by the Defence Acquisition Council. 5-Years Services Capital Acquisition Plan and Annual Acquisition Plans are drawn from LTIPP.

As seen above, timely finalisation and approval of LTIPP is critical for planned acquisitions as all other equipment procurement plans flow from it. Unfortunately, not adequate attention is paid to this aspect. Even Comptroller and Auditor General (CAG) was constrained to fault MoD for delayed approval of LTIPP. In the absence of duly approved plans, unplanned procurements are resorted to. Most infirmities that afflict the procurement regime can be attributed to such ad-hoc procurements. Therefore, it is of utmost importance that all perspective plans are evolved and approved in a time bound manner.

Centralised Notification of Impending Procurements

There are over 150 procurement agencies under MoD. In the absence of a system for centralised notification of all defence procurement tenders, prospective vendors have to learn about impending tender enquiries by maintaining direct contact with all procurement agencies, which is a tall order. Most tenders get limited publicity as they are published only in local papers. Many medium and small sector companies possessing required manufacturing competence do not get to know of the tenders prior to their issue. They lose by default as DPP does not allow addition of new vendors once a tender is issued.

As is done in most advanced countries, MoD should issue a monthly a Defence Procurement Communiqué in print and electronic forms. The objective should be to provide all required inputs to prospective sellers to help them take informed business decisions. In addition to information about latest procurement policies, developments in offsets and progress of various acquisition cases, the Communiqué should act as a single-point official source of all business opportunities for companies desirous of entering the defence sector. It should contain details of all impending tenders to provide advance information to enable prospective vendors to get their names included in the approved vendors’ list, if they so desire.

Adoption of Performance Matrix for Technical Evaluation

Presently, SHQ are tasked to formulate Qualitative Requirements (QRs) before floating RFP. QRs specify minimum performance attributes, corresponding to the task/tasks to be performed by the equipment under procurement. All QRs are essential and no deviations are allowed after the issuance of RFP. Such a provision has a major disadvantage – an excellent piece of equipment surpassing all vital performance parameters can get eliminated because of its non-compliance with some inconsequential QR.

Another strange provision is that all equipments that satisfy laid down QRs have to be considered at par and the vendor who quotes the least gets the contract. Needless to say, the cheapest equipment will never be of cutting-edge technology as high-tech equipment can never cost less than a mediocre one. Such an unfair provision not only dissuades vendors from fielding their latest equipment but forces the armed forces to accept run-of-the-mill equipment which just about meets the specified performance parameters.

It is time India discards the current archaic system of procuring equipment by laying down QRs. Instead, matrix system should be adopted for technical evaluation wherein equipment with better performance parameters (albeit within the specified range) gets credit in inter se evaluation. Such a system will allow MoD to select the equipment that it considers best-value-for-money.

Separation of Technical and Commercial Functions

Presently, the complete acquisition process is controlled by MoD officials. Neither HQ IDS nor the SHQ have been given any powers whatsoever. They have been reduced to doing secretarial work for MoD. Every issue has to be referred to MoD for decision. In other words, bureaucrats of MoD have made the whole system totally captive to their dictates, thereby delaying conclusion of procurement proposals.

Acquisition process consists of two distinct functions – technical evaluation and commercial evaluation. Technical evaluation is a purely user oriented activity and MoD has little to contribute as most functionaries in MoD do not possess even elementary knowledge of defence equipment or its exploitation in operations. Therefore, the complete gamut of activities relating to technical evaluation of competing systems should be assigned to the armed forces.

However, approval of acquisition plans, categorisation of proposals, budgetary allocations, commercial evaluation and signing of contracts should continue to be under the direct control of MoD, as at present. Defence Acquisition Council, Defence Procurement Board, Defence Production Board and Defence R&D Board should continue to function as at present. The recommended division of responsibility will not only expedite decision making but also impart much needed professionalism to the process. HQ IDS possesses sufficient spare capability to assume additional responsibility.

Promotion of Indigenous Production

Despite repeated assertions by the Government of its resolve to develop indigenous defence industry and reducing dependence on imports, India continues to import more than 70 percent of its military equipment. Worse, indigenous production is limited to the assembly of certain equipment under licence and manufacture of certain low-tech items (sub-assemblies and components). Inadequate attention has been paid to self-reliance in DPP. Like an afterthought, an innocuous sentence “the goal of achieving self-reliance in defence equipment will be kept in mind” has been added at the end of its statement of objectives.

MoD needs to take the following two steps if it is serious about promoting indigenous defence industry:-

a) a) Preferential treatment of the public sector must be stopped. A level playing field must be provided to the private sector. Despite frequent promises, private sector companies are yet to be given a fair chance to compete. Disturbingly, they appear to be losing patience and appear to be suffering from the fatigue factor due to unending wait. For example for warship building, no orders should be given to the public sector shipyards by nomination. Let the most efficient shipyard, public or private, bag orders. Similarly, private sector companies should also be eligible to receive technology for maintenance.

b) Categorisation of procurement proposals specifies the route chosen for their further progression. It is a critical process and needs to be rationalised. There are nine different categories specified in DPP. The number of categories should be reduced to three – ‘Buy and Make’, ‘Buy (Global)’ and ‘Buy (Indian)’. ‘Buy and Make’ should continue to imply purchase of part requirement from a foreign vendor and production of the balance quantity under licence in India. ‘Buy (Global)’ should cover all cases involving outright purchase of the complete requirement from foreign or Indian vendors. All other cases should be categorised as ‘Buy (Indian)’ with the stipulation that the indigenous content should be more than 50 percent. It should be left to Indian vendors to determine whether to develop the equipment by themselves or to join hands with foreign partners for technology infusion. MoD should be happy as long as the equipment performs as per the required parameters and is supplied in time. In both the cases, indigenous technological competence will get a boost.

Development of ‘Strategic, Complex and Security Sensitive Systems’ should continue to be undertaken by Defence Research and Development Organisation as per their procedure and funding norms, as hitherto fore.

Upgradation of Human Resource

Howsoever perfect the policies and the procedures may be; the results achieved depend on the level of competence and diligence of the functionaries implementing them. As pointed out by CAG, defence acquisition is ‘a cross-disciplinary activity requiring expertise in technology, military, finance, quality assurance, market research, contract management, project management, administration and policy making’. It is a well recognised fact that a defence procurement regime needs expertise in over 22 disciplines.

Unfortunately, MoD has totally neglected this vital aspect by following a system of posting non-specialist personnel for three-year tenures. The acquisition functionaries are drawn from the three services, the civil bureaucracy and the defence finance. They are not selected for any particular expertise or qualifications or displayed flair. For them, acquisition duties are like any routine assignment. Worse, they are given no special training. Most unfairly, they are expected to ‘learn on the job’ by trial and error method. In the absence of necessary competence, most functionaries are wary of taking decisions and consider it prudent to play safe by letting the matters drift.

MoD must pay attention to improving the quality of the acquisition staff by meticulous selection, proper training and longer tenures. Further a system of accountability should be introduced to make the functionaries liable for their acts of omission and commission in the performance of designated duties. As defence procurements affect country’s defence preparedness, no laxity and misdemeanor should be tolerated.

Reforms in Offset Policy

The defence offset policy was first incorporated in DPP in 2005. Although it has undergone a number of changes since then, the basic contours of the policy remain unchanged. MoD has been repeatedly claiming that it wants to move cautiously and hence is wary of making radical changes. Seven years is a long period to gain experience and fine-tune the policy. Any further delay is going to prove detrimental to Indian interests as the current dispensation has failed to take full advantage of India’s huge leverage to kick-start development of indigenous defence industry.

While keeping the offset threshold at the current levels of Rs 300 crores, offset percentage should be increased from the current 30 percent to 100 percent, as is the trend world-wide. Even the European Defence Agency accepted an upper cap of 100 percent in the voluntary Code of Conduct on Offsets adopted at Brussels on 24 October 2008. Transfer of technology should be made the preferred mode of fulfilling offset obligations. Multipliers must be introduced to provide incentive to foreign vendors to offer offsets in the areas of India’s choosing. Simultaneously, the present policy on Foreign Direct Investment (FDI) in Indian defence sector (with 26 percent cap and numerous restrictive provisions) needs a relook. FDI cap should be technology-centric and flexible in its application.

The Way Forward

A defence procurement system is a management process by which a nation provides effective, affordable and timely defence systems and equipment to its armed forces. However, there are no standard templates. All countries have different threat perceptions, geo-strategic objectives, state of indigenous industry, dependence on imports and availability of resources. Therefore, they have to evolve their own distinct procurement systems. India is no exception. It must strive to perfect its system for optimum results.

The Defence Minister has been publicly expressing his concern at the non-performance of the current procurement regime and repeatedly urging for major reforms. The primary objective of India’s defence procurement regime should be to ensure that the armed forces get ‘the latest equipment in the required time frame and at best value for money’. This implies technology, speed and cost-effectiveness. The stated objective cannot be achieved without carrying out radical reforms and injecting professionalism in the whole process.

All procurement cases of the last ten years, both successful and aborted, should be diligently documented, studied and key findings extracted for collation and drawing lessons. An endeavour should be made to identify the following:-

• · Impediments that inhibit procurements through open competition and ways to remove them.

• · Factors that hinder expeditious progress of procurement proposals and measures needed to overcome them.

• · Steps needed to boost indigenous defence production.
  

Finally, defence procurements cost a country dear, as considerable resources have to be diverted from social welfare schemes to defence. Therefore, it is incumbent upon all functionaries to ensure that the defence funds are expended most diligently and efficiently. It is commonly said that an efficient acquisition system can affect a saving of up to 15 percent of the capital expenditure. With India’s shopping list of close to 120 billion dollars in the next few years, the savings could be of the order of 18 billion dollars – a whopping amount by all standards.

Indo-US Military Trade: A Decade of Wasted OpportunitiesIndo-US Military Trade: A Decade of Wasted Opportunities

Major General Mrinal Suman, AVSM, VSM, PhD

US readiness to sell AN/TPQ-37 Fire Finder counter-battery artillery radar sets to India in 2002 marked the beginning of a new chapter in the Indo-US military cooperation. Although the said deal was worth only USD 150 million, it was touted as a breakthrough of strategic proportions. Simultaneously, a Security Cooperation Group (SCG) was constituted to coordinate and expedite defence deals. Within a period of less than ten years, India has emerged as the third largest buyer of US arms. In the fiscal year ending September 2011, India signed contracts worth USD 4.5 billion. Only Afghanistan (USD 5.4 billion) and Taiwan (USD 4.9 billion) were ahead of India. It is estimated that the total value of contracts inked between the US and India during the period 2003-11 exceeds USD 12 billion.

Some of the major contracts pertain to the sale of the USS Trenton (now INS Jalashwa) amphibious troop carrier ship, P-8I maritime patrol aircraft, C-130J Hercules aircraft and C-17 Globemaster transport aircraft. In addition to some repeat orders, negotiations are under way for the purchase of 155MM Ultra Light Howitzers and Javelin antitank guided missiles. At the face of it the list appears quite impressive. However, all is not well with the current equation between India and the US – both sides are dissatisfied at the current pace of progress of military trade. Despite regular SCG meetings, the relationship has not acquired the required degree of maturity and mutual comfort.

Indo-US military deals are characterised by three significant features:-

• All sales so far have been through government to government deals. US companies have not been able to win any major order in open competitive environment. In the case of Medium Multi-Role Combat Aircraft (MMRCA) deal, both the US companies Lockheed Martin (F-16) and Boeing (F-18) failed to make the grade in technical evaluation and got eliminated.
• Sales are limited to the equipment in which the US is an undisputed leader. In other words, India approaches the US Government only when it has no alternate procurement source available to it, thereby indicating a certain degree of compulsion in approaching the US.
• No deal carries transfer of technology provisions. All are pure cash and carry sales. This is not a healthy sign, especially as Indian policy makers keep asserting that they are seeking production-partnership in military deals.

It has been a long, arduous and somewhat exasperating journey for both sides. The initial euphoria has given way to a degree of despondency. The anticipated influx of high-tech US equipment to replace ageing Soviet-era military hardware is yet to take place.

Both sides continue to profess their abiding interest in furthering the process and strengthening the bond. India covets a vast array of high-tech US weapons and is ready to pay hard cash for it. On the other hand, the US appreciates India’s needs and is amenable to the sale of latest weaponry. It trusts India with the safeguarding of its exclusive technology. If that be so, the pace of cooperation should have been much faster. Most observers are intrigued by the reasons for a lack of dynamism in Indo-US defence equipment trade. This article endeavours to identify issues that are responsible for the current state of drift and slow pace of progress.

To start with, there is a need to look at the US defence sales policies and India’s defence procurement regime. It is only then that the degree of their mutual incompatibility and resultant incongruities can be comprehended.

Salient Features of the US Defence Sales System

The US is the largest arms exporter in the world. Military hardware is sold either through government to government deals (Foreign Military Sales) or directly by the manufacturing companies through Direct Commercial Sales. The US Government also sells stocks held in excess of the requirements of the US forces at highly reduced rates (5 to 50 percent of original cost) to select countries. Whatever be the mode of sale, all exports are subjected to a rigid licencing regime.

FMS cases are of three types – ‘Defined Orders’ are meant for specific weapon systems, ‘Blanket Orders’ are to cover follow-on support and ‘Cooperative Logistics Supply Support Arrangement’ enables a buyer nation to invest in the US Supply System with access to the US defence stocks. India has been purchasing major equipment from the US under FMS (Defined Orders) route.

FMS route is generally preferred in respect of the items which have already been inducted in the US forces. The buyer country gets the benefit of the US experience as regards logistic support, training and operational exploitation. In the case of complex systems, buyer country gets them fully integrated and configured. Further, these items carry sovereign guarantees, assured after sale support and are sold at the rate at which they had been purchased for the US forces, albeit with additional handling charges.

Once a requested sale is cleared by the US Government, the buyer nation is required to submit a Letter of Acceptance (LOA) along with the initial advance. Every LOA includes Standard Terms and Conditions as dictated by the US laws for acceptance by the buyer. It contains provisions regarding liability, discrepancy reporting and monitoring of equipment usage. A legal contract is signed thereafter. The US Government may supply the item from its own existing stocks or procure it afresh from the producer. One of the major benefits of FMS route is a total absence of middlemen. Being government to government transactions, they remain ‘clean’ and do not invite adverse publicity. For India, this is an important issue.

Attributes of the Indian Defence Procurement Process

Initially promulgated in 2002 for outright purchases, India’s Defence Procurement Procedure (DPP) has undergone five revisions and its scope has been enlarged to include indigenous development of defence equipment. DPP aims to ensure expeditious procurement of the approved requirements of the Indian armed forces in terms of capabilities sought and time frame prescribed by optimally utilising the allocated budgetary resources. Demonstration of the highest degree of probity and public accountability, transparency in operations, free competition and impartiality has been made a corner stone of the procedure.

The acquisition process is divided into planning and procurement stages. On receipt of a procurement proposal from the concerned Service Headquarters (SHQ), Ministry of Defence (MoD) examines its necessity to accord necessary approval and earmark required budgetary support. Procurement stage commences thereafter.

The sponsoring SHQ evolves Qualitative Requirements (QR) of the equipment sought. QR are minimum military requirements that are essential to the task/tasks to be performed by the equipment being procured. All known vendors are invited to submit their technical and commercial proposals. Technical evaluation (including field trials) identifies vendors whose equipment is considered acceptable for procurement. Contract is signed with the lowest bidder amongst the technically successful vendors.

The above process has the following four key essentials:-

a) Need based procurement as per the parameters specified by the services.
b) Maximum competition through invitation to all known vendors.
c) Technical evaluation to validate performance claims.
d) All vendors who meet QR are considered at par and the lowest bidder is declared the winner.

The Incompatibilities

Following are the fundamental incompatibilities between America’s FMS and India’s DPP:-

• DPP mandates procurement on the basis of QR that reflect Indian military’s requirements in terms of capability desired with minimum required verifiable functional characteristics. On the other hand, FMS offers equipment that has been developed as per the specifications provided by the US armed forces. In other words, India has to accept equipment that may not fully satisfy its QR but carry many unusable high-tech features.
• FMS implies single-source procurement and hence, precludes competition. On the other hand, DPP wants maximum competition to be generated. It considers single-vendor purchases to be the last resort.
• FMS exports carry contractual obligations as mandated by the US laws that are heavily loaded in favour of the US Government. For a buyer country, it is purely a ‘take-it or leave-it’ option. It can neither negotiate contractual provisions nor seek price rationalisation. On the other hand, DPP directs that a duly constituted Contract Negotiation Committee (CNC) should safeguard Indian interests through diligent negotiations.
• Whereas DPP seeks unencumbered procurements, FMS sales are governed by ‘Golden Sentry’ End Use Monitoring (EUM) programme that covers the complete spectrum of all activities from shipping, receiving, use and final disposition. It is generally called ‘cradle-to-grave’ monitoring.

It is apparent that India opts for FMS route only in respect of high-tech systems, which no other nation possesses or is ready to offer.

Reasons for Sluggish Progress

It will not be correct to assume that incongruities between DPP and FMS are the only reasons for sluggish progress in Indo-US military trade. The following issues also merit discussion:-

• Divergence of Objectives

Sale of weapons is a major strategic and foreign policy tool of the US through which it seeks to develop close military-to-military relationship with recipient countries. India is no exception. The US wants a deeper bonding with India to help it achieve its strategic objectives in East and South East Asia region. For that, it aims at building the military interoperability between the two countries through deeper geo-strategic alliance.

Although the irksome issue of End Use Monitoring appears to have been satisfactorily resolved, the US continues to urge India to sign ‘Logistics Support Agreement’ and ‘Communications Interoperability and Security Memorandum of Agreement’. Both the agreements are considered as essential prerequisites by the US before it agrees to sell sensitive equipment with advanced technologies.
On the other hand, while valuing close relationship with the US, India is wary of getting drawn into an exclusive defence embrace. It appreciates US willingness to sell high-tech defence systems to it, but expects this seller-buyer relationship to be based on an even keel, without any strings attached. More so as India pays full market price for every item it buys with no subsidies or concessions. Additionally, India cherishes its time tested association with Russia and does not want to weaken it.

• Baggage of History and Trust Deficit

It is a fact that the past track record of the US does not inspire confidence. India is wary of the US laws which impose sanctions even on purely commercial transactions. Having suffered earlier, India is unwilling to have the threat of unilateral abrogation of agreements impinge on its freedom to take decisions in its national interests. Lack of credibility of the US commitments has made India realise the perils and uncertainties of US obligations. When questioned at Aero India 2005, the Defence Minister identified the lack of reliability of supplies to be the primary stumbling block in enhanced Indo-US military trade.
It is also a well known fact that Indian military leadership carries deep-seated suspicions about US reliability as a supplier especially in times of conflict. Indifferent after sales support for equipment like Weapon Locating Radars has further reinforced the above apprehensions. It must be admitted in support of the US functionaries that they appreciate Indian misgivings and try their best to allay all fears. However, they express their helplessness in view of the US statutes.

• Technology Transfer and the US Licencing Regime

All US military sales are governed by Arms Export Control Act and Foreign Assistance Act. All requests are examined, reviewed and validated for their compliance with the US laws and to ascertain whether the requesting country is eligible for the receipt of the said technology or not. Licencing procedure in respect of items categorised as Significant Military Equipment (SME) is more tedious. SME is an item designated in the International Traffic in Arms Regulation that warrants special export controls because of its capacity for substantial military utility.

The US licensing system is not only rigid and time consuming but also a little unpredictable. US companies are hesitant to submit their bids as they are not confident of getting export clearance in the time available.

As stated earlier, no agreement for the transfer of military technology has been signed so far. It is a sore point with India as it wants to develop indigenous defence industry through infusion of technology and joint ventures.

• Attitudinal Problems

The US is undoubtedly the sole super power and a technology powerhouse. Unfortunately, many US functionaries tend to hurt the sensitivities of others through their condescending attitude. They fail to appreciate the difference between military sales and military aid. Virtually every single clause of the US drafted contract reads like an undertaking being extracted from a helpless buyer.

India’s insistence on field trials to validate performance parameters is seen as an affront. Many US functionaries are convinced that any equipment that has been inducted in the US forces ought to be good enough for India. Very unfairly, a buyer’s right to assure himself and indemnify his interests is totally disregarded.

Sense of shock, hurt and incredulity that the US displayed at the elimination of F-16 and F-18 fighters from MMRCA competition is symptomatic of their haughty and somewhat disdainful mindset. It was hard for them to believe that any country can have the temerity to reject their much-vaunted machines.

The Way Forward

India acknowledges the technological superiority of the US weapon systems and wants to develop and produce them through joint ventures. It seeks partnership and not seller-buyer relationship. However, India must appreciate that being a global power, US has a different perspective of world issues. It wants to safeguard its knowledge-superiority and prevent proliferation of critical technologies. Therefore, US laws concerning export of weapons are extremely comprehensive.

India should not let the baggage of the past blinker its vision of the future. There has been a distinct realisation amongst the US law makers that unilateral abrogation of sovereign agreements harms their credibility and shows them as unreliable partners.

On the other hand, the US authorities have to be careful of Indian sensitivities. They must change their condescending attitude. Many US observers express surprise that India shows intolerance for even minor defaults by the US companies in fulfilling their contractual obligations whereas other foreign vendors are dealt with more indulgently. There may be some truth in these allegations. The fact of the matter is that most Indians have an emotional bonding with the US due to the presence of a large Indian diaspora in the US. Resultantly, their expectations from the US tend to be unrealistically high and their non-fulfillment leads to disappointment. On the other hand, relationship with other countries is more formal and restricted to government to government contacts.
Both sides should strive to draw benefits through bilateral or even multi-lateral consortiums. Co-development and co-production should be the objective, with shared costs and export potential. India has a huge pool of technical manpower and IT professionals. It will help India graduate from the present position of being a supplier of components to the level of a systems integrator. Due to the cost advantage, it can become a global hub for outsourcing of weapon systems.

Building up relationships between nations is an arduous, excruciatingly slow, challenging and convoluted process. In the case of Indo-US dealings, the burden of long periods of non-engagement and past misapprehensions makes the task more onerous. Only a mutually beneficial association based on commonality of interests and realistic expectations can prosper. No unequal or one-sided relationship can ever be long lasting. Both sides must understand each other’s concerns and try to address them. Spirit of accommodation should be the ruling mantra.