Hundred Days of Governance: Drift in Defence Matters Continues

Hundred Days of Governance: Drift in Defence Matters Continues

(FORCE Oct 14)

Major General Mrinal Suman

A span of 100 days is too short a period for an objective appraisal of the performance of a government. However, initial indicators do reveal the direction in which the new dispensation plans to move and inter-se importance being assigned to various challenges facing the nation. Unfortunately, there is little to cheer the hearts of those who are concerned about the security of the nation. Worse, the new government has not been able to appoint a full time Defence Minister. The drift continues unabated.

The country was expecting Prime Minister Modi to initiate dynamic changes in the defence regime to make it more responsive to the emerging geo-strategic milieu, both in our immediate neighborhood and in the global arena. All hopes have been belied. Not a single measure has been initiated so far to rid India’s higher defence management of the incapacitating stranglehold of the bureaucracy – no Chief of Defence Staff, no integration of servicemen in the ministry, no institutionalised arrangement for the evolution of strategic policies, no joint commands and no reforms of public sector undertakings. It is business as usual.

Most observers attribute Modi’s neglect of defence matters to his past inexperience. He is more comfortable with the issues in which he excelled as a Chief Minister, and defence was not one of them. He is yet to demonstrate his ability to grasp the minutiae and intricacies of security imperatives. Leaving aside a few decisions to promote indigenous defence production, he has shown no concern for the issues that impact national security. As the subsequent discussion will show, the report card of the Modi government falls much short of promises and expectations. Some of the major issues have been discussed here.

Revisiting the Policy on Foreign Direct Investment

On 26 August 2014, the government raised the Foreign Direct Investment (FDI) limit in the defence sector from 26 per cent to 49 per cent through approval route, subsuming the 24 per cent cap for portfolio investment. Whereas the 49 per cent cap is a composite limit for all kinds of foreign investments, portfolio investment cannot exceed 24 per cent of the total equity of the investee or the joint venture company.

It was also declared that the Cabinet Committee on Security could allow FDI beyond 49 percent in proposals that entail infusion of ‘modern and state-of-the-art technology’. However, this provision appears to be a stratagem to silence critics who wanted higher FDI cap as no guidelines have been issued and no rules have been framed.

Although the policy initiative fell short of the expectations, it did show government’s intent to open the defence sector to foreign investments. It was also a tacit admission of the utter failure of the decade old policy of 26 percent cap. India received paltry USD 5 million of FDI inflow in defence manufacturing during the last decade.

FDI limit determines the degree of control a foreign partner can exercise over the joint venture.  It also indicates right to pass resolutions; both ordinary (passing of accounts, approving dividend levels and appointing directors) and special (buy back of shares, diversification and merger/amalgamation). Leaving aside a proportionate increase in the repatriable profits, there is little difference between FDI limits of 26 percent and 49 percent. A partner with 26 or 49 percent holding can stall passage of special resolutions but cannot block ordinary resolutions. In both the cases, effective control remains with the indigenous company and the foreign partner has no say in the day-to-day functioning.

Foreign vendors want FDI cap to be raised to 51 percent or more to enable them to exercise control over the joint venture.  In other words, raising of FDI limit from 26 to 49 percent is a half-baked measure whose effectiveness remains suspect as foreign manufacturers may be reluctant to share their technological expertise unless given effective control. Apparently, the government succumbed to the pressure of selfish entities and missed a rare opportunity to open the defence sector to foreign investment.

Promotion of Indigenous Production and Integration of the Private Sector

The Ministry of Defence (MoD) issued a global Request for Proposal (RFP) on 08 May 2013 to the manufacturers of transport aircraft for the procurement of transport aircraft to replace the ageing fleet of AVRO 748 aircraft. The proposal entailed procurement of 16 aircraft off-the-shelf from a foreign vendor and manufacture of 40 aircraft in India with complete transfer of technology to an Indian private sector entity (Indian Production Partner). Exclusion of Hindustan Aeronautics Ltd (HAL) from RFP was a deliberate decision as it is already overloaded with orders and is not in a position to accept additional work.

The programme was considered to be an ideal platform for the integration of the private sector and the development of alternate facilities for aerospace manufacture. Credit goes to Antony for such a dynamic decision and providing an opportunity to the private sector to prove its manufacturing prowess.

Threatened by the entry of the private sector into its monopolistic domain, HAL cleverly converted the above proposal into a private sector versus private sector duel. A sustained media campaign was undertaken to play up imaginary security concerns. The subterfuge proved effective and Antony failed to muster adequate courage to counter opposition. Submission dates were extended and the proposal was consigned to the cold storage.  

It goes to the credit of the Modi government that it has decided to revive the proposal, thereby demonstrating its resolve to co-opt the private sector in its quest to achieve self-reliance in defence production. It is a praiseworthy decision.  

Similarly, the government has refused to give in to the pressure exerted by the Cochin Shipyard Limited for permission to participate in the Rs 25,000 crore contract to construct four landing platform docks for the Navy. Sticking to the earlier decision, only private sector shipyards are being allowed to submit bids.

As per the reports appearing in the press, India is likely to change the mode of acquiring Naval Multi-Role Helicopters. Instead of buying fully built-up machines from abroad as planned earlier, tenders may be issued to Indian vendors for manufacture in India with foreign collaboration and technology transfer. It will be another major step to promote indigenous defence industry. In another landmark decision, import of artillery guns has been deferred. Instead, both the public and the private sectors have been invited to demonstrate performance of their locally-manufactured artillery guns.

The above initiatives are bold and path-breaking for the country. In case the indigenous companies, especially in the private sector, make a success of the opportunities, sky will be the limit for their participation in defence production.

Rationalisation of Policy on Blacklisting of Vendors

India’s defence procurement regime is known for its strange contradictions. On one hand, every major procurement contract gets mired in the allegations of wrongdoings, euphemistically known by the interesting taxonomy of ‘speed money’. On the other hand, the government tries to demonstrate ‘zero tolerance’ for corruption by blacklisting the involved vendors.

Interestingly, every act of blacklisting does more harm to the Indian security interests rather than the erring company’s commercial interests. As most major defence companies produce a large array of equipment, blacklisting in one contract has a cascading effect on all other purchases as well. Floating of tenders afresh entails major delays and cost overruns.

Under the contractual provisions of the procurement procedure, MoD can take a number of actions in case any vendor is proved to be guilty of violation of probity norms. However, jurisprudence demands that punishment be commensurate with the degree of misdemeanor. Therefore, it is a prerequisite to determine the seriousness of the alleged transgression and award punishment accordingly. In addition, before deciding on the quantum and nature of punitive action, likely fallout on India’s own interest must always be taken into account.

When the current government took over, three major foreign manufacturers were under close scrutiny for alleged transgressions – Finmeccanica, Israel Aircraft Industries and Rolls-Royce. Having suffered the adverse effects of banning Bofors, HDW and Denel, it was feared that their blacklisting would stall all the programmes in which the said companies were involved.

The new government seems to have realised the futility of acting in haste. On 26 Aug 2014, a well thought through order was issued in the case of Finmeccanica. The government decided not to impose a blanket ban on Finmeccanica and its subsidiaries but opted for a graduated-cum-selective approach, thereby safeguarding India’s interests.

All on-going contracts with Finmeccanica will be allowed to continue. Contracts in which the Finmeccanica companies are sub-contractors will also remain unaffected. Cases in which Finmeccanica has emerged as the lowest bidder (but contract not signed) will be put on hold till further orders. However, all Finmeccanica firms stand debarred from participating in any new defence tender where more than one vendor exists outside the group.

The new government deserves credit for realising that blacklisting is a serious matter and should always be the last option. The objective of the punitive action should be to send a strong message that imposes caution on the environment and acts as a deterrent to the delinquent elements.

Continuance of Bureaucratic Stranglehold

It was hoped that Modi would be able to initiate wide ranging changes to improve India’s combat and strategic prowess. Much to the disenchantment of the security experts, the government has singularly failed to initiate any reforms in the functioning of MoD. Not a single step has been taken in that direction. The new political leadership appears to have no control whatsoever. The bureaucracy continues to rule supreme through its vice-like grip to ensure status-quo.

Modi has failed to tame the obdurate bureaucracy. In early June, well after the swearing-in of the Modi government, bureaucrats filed an affidavit in the Supreme Court castigating a member of the cabinet for his allegedly ‘illegal and extraneous decision’. It was the first ever occasion in the Indian history that the government indicted its own minister in a court of law with obnoxious expletives. It is apparent that the bureaucrats did not consider it necessary to consult the Defence Minister.

Despite loud declarations by the ruling party of its empathy for the soldiers, MoD continues to file cases against all judicial verdicts that go in favour of soldiers, ex-soldiers, war-widows, soldiers’ families and even war casualties. India must be the only country in the world where the government fights legal battles against the soldiers whose welfare is its prime responsibility. What a dubious distinction! The political leadership remains a powerless spectator as bureaucracy rules the roost.

Soldiers Feel Letdown

Over the last two decades, the growing adversarial relationship between the government and the soldiers (including ex-servicemen) has been a matter of grave concern for all those who are concerned about the morale of the Indian military. Of late, an impression has been gaining ground that the government has become apathetic towards the soldiers. As military is an instrument of the government, it defies logic that a government lets itself be seen as an adversary of its own constituent, thereby denting the morale of the services.

Modi came as a ray of hope for the soldiers. En-block support extended by 50 lakh strong military community and their family members was a major factor in the unprecedented victory of his party. Soldiers expected Modi to deliver on his promises. Unfortunately, he has frittered away all the goodwill and support that he had garnered by assiduously cultivating the soldiers and ex-soldiers. Even the die-hard opponents of BJP had never expected such a short honeymoon.

The way a government cares for its ex-servicemen has a profound effect on the morale of the serving soldiers. Shabby and apathetic treatment meted out to ex-servicemen by an ungrateful government can never motivate a soldier as he sees himself as an ex-serviceman of the future. He starts entertaining doubts about government’s sincerity in fulfilling its commitments to him after superannuation.

Grant of OROP was considered to be the litmus test of Modi’s sincerity in fulfilling pre-election promises. Modi promised OROP and not sham-OROP, whose definition is being reinvented by the bureaucrats. To almost all soldiers, both serving and retired, it is a breach of faith – a promise broken and a ‘great betrayal’. They feel let down. Modi will do well to remember that credibility once lost is difficult to redeem. BJP will rue its ill-advised act of neglecting soldiers and reneging on its promises.

Finally

Modi surprised all by giving the additional charge of the defence ministry to Finance Minister Jetley. His decision can be faulted on three grounds. One, Jetley has little time to spare for the defence ministry. As he cannot study matters in depth, he has to give decisions on the basis of the notes put up by the bureaucrats. Resultantly, bureaucrats are running the show. Two, Jetley is not known for any special knowledge of the security matters. As the leader of opposition in the upper house, he rarely participated in serious debates on security matters.

Finally, Jetley has been a part of the ‘Delhi Durbar’ for far too long. He is comfortable with the status quo.  It is unfair to expect him to take bold decisions and risk his own comfort level. According to a member of a veterans’ organisation who was present at a meeting called by Jetley, “It was sad to see the Defence Minister letting the bureaucrats run the show. He showed no courage or interest to oppose their negative tactics.” Jetley did irreparable damage to the credibility of the Modi government by asking the veterans to lower their expectations. He would not have dared to say so while seeking votes.

To sum up, achievements of the Modi government in the field of security matters have been highly mediocre. Antony-era was often ridiculed for drift, non-performance and policy-paralysis. Well, the current dispensation is no better. Not a single measure of consequence has been initiated so far. Inertia, lethargy, lassitude and complacency continue to dog MoD, as before. It is time Modi steps in to arrest the rot, lest the history remembers him as a leader who promised a lot but achieved little to enhance India’s defence potential. That shall be unfortunate for India as he is considered to be the last hope.*****