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.