Indian Army: Need to Change with Times

Indian Army: Need to Change with Times

Major General Mrinal Suman

It is an often repeated truism that militaries are conservative by nature. According to popular perception, conservatism has two connotations. One, it shows belief in the value of established and traditional practices, considering them to be sacrosanct and essential for the continued sustainment of the organisation.

The second connotation, in popular perception, is identified with obscurity, stagnation and aversion to modernism. Some go to the extent of accusing the conservatives of ‘living in the past’ and considering change to be an act of sacrilege, bordering on subversion of an organisation’s traditions and history.

Many can challenge the above proposition on the grounds that the Indian army thrives on well-evolved conventions, customs and precedents; and that nothing should be done to disturb them. But traditionalism is not antithesis of modernism. An organisation can be conservative in adherence to its cherished value-system and yet be receptive to the inflow of innovative ideas for its continued progress.

As regards the human resources, the Indian army is undergoing major transition on account of three issues. One, modern soldier is much better educated. Having been exposed to electronic media, there has been a discernible increase in his awareness level and expectations. He is intensely conscious of his self-respect and deeply resents any threat to it.

Two, with an increase in the education level of soldiers’ wives; many are highly qualified and gainfully employed. They prefer to stay at one place for the sake of their career and children’s education rather than moving with their husbands on frequent transfers. Resultantly, soldiers are deprived of family support in times of emotional disturbances; stress tending to become distress.

Three, soldiers are financially far more comfortable today, both on account of better pay/allowances and wives’ income. Consequently, there has been a discernible increase in their aspirations.

Three issues need immediate attention.

a)   Delineation of Perks

Perk (an abbreviation of perquisite and defined as a special privilege) is by far the most abused term in the army. It is also the cause for many ills that afflict the army. In the services privilege means a dispensation that 'helps an officer in the discharge of his official duties more efficiently'. There is no other connotation of the term. A privilege cannot be made a smoke screen to misappropriate government/regimental resources.

For example, a commander has the privilege to use the vehicle that is mechanically most reliable as he must not get stranded on road. However, it is not a privilege either to decorate it extravagantly with regimental funds or to earmark a fleet of vehicles for his personal and family use. As the subordinates are far more discerning these days, they view any transgression adversely and resent it. Many units have undergone unpleasant experiences on these accounts.

Although the norms regarding the scope and extent of the service perks are well established for every rank/appointment, there may be occasions when reservations may crop up. In such cases, informal approval of the next higher authority must be obtained as a matter of abundant caution. No officer can ever decree as to what his privileges are.

b)   Upholding Dignity of Soldiers

Today’s soldiers are far more sensitive about their sense of pride and self-esteem. They find ‘unsoldier-like’ jobs to be demeaning and dehumanizing. When forced, many feel debased, degraded and humiliated.

As it is, soldiering is stressful. Humiliation and stress make a lethal combination, resulting in a ‘pressure cooker effect’. In the case of soldiers, it blows the safety valve that unit cohesion and military training provide, thereby threatening well being of the organisation.

The institution of ‘Sahayak’ (orderlies) has outlived its relevance and has become a key cause for disaffection amongst the troops. Most soldiers abhor these duties and consider them to be degrading. They have to be ordered, coerced and threatened. The warning signs are ominous and the army must discard it at the earliest. As an immediate step, no ‘Sahayak’ should be allowed in the stations where families are permitted to stay.

Similarly, soldiers resent being detailed to cut grass or sweep roads or maintain golf courses and other facilities. Moreover, they do not like to be seen by the public doing such duties.

All tasks related to the maintenance of cantonment facilities should be outsourced to civilian service providers who are better equipped and are also more cost effective. This single step will increase soldiers’ level of job satisfaction considerably and improve their public image. Further, outsourcing will allow additional uniformed personnel to focus on training and assigned military missions. The time has come for the army to explore outsourcing with an open mind. However, it has to be a phased and carefully calibrated process.

c)    Revisiting the Concept of Family Welfare

Nothing is more feared and abhorred by the soldiers than the institution of family welfare centres. Considering them to be of utter nuisance value, many units prefer field tenures to escape them.

No welfare activity is ever carried out. Instead, a parallel command hierarchy has proliferated to satisfy the ego of commanders’ wives. They meddle in official matters and move around in army vehicles with staff officers in toe. Two photographs that have gone viral on the net are highly worrisome. One shows a formation commander’s wife holding ladies’ conference in the operations room while the other one shows a unit commander’s wife sitting in the commanding officer’s chair and addressing unit ladies.

With increased levels of education and awareness, soldiers’ wives have become highly conscious of their self-worth. They find welfare meets to be wasteful, humiliating and hurtful experience.  They dislike being treated like ignorant nitwits. Most have to be coaxed or cajoled to attend. There are also reports of some being coerced under the threat of their husbands’ career.

Many cases of indiscipline owe their origin to cases of mistreatment (real or perceived) in welfare meets. Such meets are considered by many to be the breeding ground for dissentions in the army and a major contributory factor in generating disaffection in many units.

Hence, the very concept of family welfare needs a fresh look. Concomitantly, there is a need for the wives of the senior officers to be conscious and cognizant of the sensitivities of soldiers and their wives.

 

Therefore

The above issues have the potential of being volatile in nature and consequences. It is essential that the army remains in-sync with the emerging changes and modulates its man-management practices accordingly. As stagnation means certain decay, a vibrant organisation like the Indian army must adopt the philosophy of progressive conservatism. It implies adoption of progressive ideas and practices while preserving past ethos, beliefs, morals and work-culture.*****

Agents in Defence Deals: Time to Revisit the Convoluted Policy

Agents in Defence Deals: Time to Revisit the Convoluted Policy

(Published in FORCE Nov 14)

Major General Mrinal Suman

Agents are omnipresent in all trade transactions the world over. They perform many useful functions, like bringing buyers and sellers together; assisting in negotiations; and providing post-contract services. However, their role in defence deals has been a subject of intense debate in India for the last four decades now. Interestingly, with the sole exception of the Ministry of Defence (MoD), all other government departments in India have been regularly dealing through agents, with their functioning duly regulated.

As per the common usage, an agent is a person who has the authority to perform certain actions on behalf of the entity he represents. Over a period of time, true nuance of the taxonomy has got blurred, especially in the shadowy world of the defence deals. Now, the term agent is synonymously used with words like middlemen, intermediary, liaison-man, delegate, go-between, consultant and the much vilified broker.   

  

Whatever be the nomenclature, all intermediaries strive to serve the key purpose of facilitating trade transactions. However, based on the nature of functions performed, they can be categorised into the following broad groups:-

·     Brokers – they act as intermediaries between buyers and sellers. Their role is limited to bringing buyers and sellers together. Thereafter, it is for them to get into direct negotiations, both on technical and financial issues. Brokers charge pre-fixed commission for their efforts. However, some brokers do undertake to negotiate buying and selling on another's behalf as well.     

·    Agents – they are authorised representatives of the vendors whose primary responsibility is to act as their liaison personnel. They work on regular salaries or on retainer-ship basis. Their engagement with the vendors is either term-based or deal-based. They get rewarded with bonus if they perform well.

·   Middlemen – they are intermediate traders/merchants between producers and buyers. Normally, they function on ‘no success, no fee’ basis. Their strength lies in their ability to swing contracts in favour of their patron companies, both by fair and unfair means. As they know the vulnerabilities of the system, they exploit them cleverly through networking and inducements. They charge commission as a percentage of the value of contract they manage for their vendors – bigger the pie, bigger the commission. Although they function as simple commission agents, they masquerade as socio-commercial facilitators or power-brokers.

Although employment of agents in defence deals is proscribed at present, it is learnt that the Indian government is planning to revisit the policy. 

Indian Policy: a Saga of Indecisiveness

It was in 1974-75 that the Public Accounts Committee (PAC) first examined the involvement of Indian agents and payment of agency commission to them in all import transactions. As a follow-up of the recommendations made in the 160^th Report of PAC (1974-75), an Inter-Ministerial Working Group was set up in June 1975. Director General Revenue Intelligence was its convener. 

The recommendations of the Working Group, as accepted by the government, were contained in the directive issued by the Department of Supply vide their letter No.P.III-3(5)/76 dated the 19 July 1976.

After a gap of more than a decade, exhaustive policy guidelines, titled “Indian Agents of Foreign Suppliers – Policy on”, were disseminated by the Ministry of Finance in January 1989. These instructions were primarily applicable to civil imports. It mandated compulsory registration of all agents. All cases of agency arrangements and the amount of commission payable were to be brought on record to prevent leakage of foreign exchange. More importantly, due to India’s unhealthy foreign-exchange position, all agency commissions were required to be paid in Indian rupee.

 

To prevent evasion of taxation, all particulars relating to agency commission had to be reported to the Enforcement Directorate. Suitable clauses for the enforcement of the disclosure provision and penalty for breach/default had to be incorporated in all contracts. As is apparent, the basic thrust of the government’s directive was to prevent leakage of foreign exchange and to ensure taxation of agency commission.

Taking into account peculiarities of defence imports, MoD considered it essential to regulate the functioning of defence agents through registration and close monitoring. Accordingly, it issued ‘Supplementary Instructions in Respect of Defence Purchases’ vide letter No.2250 – A/JS (O)/89 dated 17 April 1989.

However, in the wake of Bofors and other scams, public opinion turned hostile towards agents. It was felt that the middlemen had played a major role in vitiating the environment. Resultantly, the government felt compelled to debar them in early 2001.

Thereafter, MoD decided to take a fresh look at the entire issue of allowing employment of agents. Recommendations were sought from the Central Vigilance Commission (CVC) and the Comptroller and Auditor General of India. CVC strongly recommended that defence agents be officially permitted with due registration to ensure transparency and promote probity.  

Evolution of a Convoluted and Dissuasive Policy

After due deliberations, MoD accepted the fact that agents do perform useful functions. Simultaneously, it was felt that their functioning needed stricter regulation to prevent them from influencing official machinery. Detailed guidelines were issued vide letter No. 3(2)/PO (Def) 2001 dated 02 Nov 2001. These instructions were made applicable to the three services, the Coast Guard and all subordinate agencies under the administrative control of MoD.

As per the said guidelines, an individual, a partnership, an association of persons, a limited company (private or public) could be appointed as agent, who is either paid a retainer or is reimbursed his expenses or paid commissions or a combination of either, on completion of a specified obligation by a foreign supplier. It had to be an open and declared representation, along with a simultaneous commitment about observance of prescribed guidelines/norms by the foreign firm as well as its agent.

Further, a foreign firm wishing to appoint an Indian agent had to formally inform MoD and furnish in full details of the business entity to be so engaged; previous professional background; details of the nature of business undertaken by the agent since establishment; agent’s permanent income-tax account number; details of bankers within and outside the country; and attested photo copies of all agreements with the principal, including supplementary agreements and terms relating thereto.

Oddly, MoD reserved the right to decline to accept the agent (either proposed or already registered) without assigning any reason and the said supplier was obliged to replace him.

As regards payment of commissions, only openly declared payments as per the contract terms were allowed. For that, nature of services to be rendered by an agent and the commission payable to him had to be unambiguously reflected in the contract. Even the scale of commission payable had to be as per the guidelines approved from time to time by MoD. All particulars relating to agency commission were to be reported to the Enforcement Directorate to prevent leakage of foreign exchange and tax evasion.

Though the above policy was issued in 2001, no agent came forward for registration.  Mistakenly, MoD assumed that the agents preferred to work in a covert manner and were unwilling to do above-board business. It failed to recognize the fact that the guidelines issued by it were too intrusive in nature, thereby transgressing professional privacy and infringing upon economic confidentiality. Information sought spanned the complete gamut of an agent’s past business activities, current professional dealings and the financial profile. Even details of his Indian and foreign bankers had to be intimated. Additionally, a foreign supplier had to find and engage an agent who was acceptable to MoD.

Prospective agents’ disinclination for registration can be attributed to their apprehension that the information sought for registration was too invasive and could be used by different government agencies to harass them, drag them into rancorous inquisitions and protracted court cases. Old cases could be opened to settle political scores. They also feared that the loss of anonymity would render them vulnerable to extortion demands, both by the political parties and the underworld.

Accepting the total failure of the above policy, the Defence Procurement Procedure – 2006 (DPP-2006) effectively ruled out any role for agents. Under the mandatory Integrity Pact, sellers were forbidden to appoint agents and pay any commission. In addition, they had to assure access to their books of accounts in case the government suspects a breach of the said undertaking. The embargo continues to date.

Agents are Ubiquitous

There is no doubt that it is always preferable to do business directly without the intercession of middlemen. But that is well nigh impossible in international deals. Challenges get compounded in the case of the defence systems as they are not marketed openly. Details regarding their availability, performance characteristics and cost are not obtainable readily. Agents carry out scan of the world market through their vast network and gather necessary information.

Knowledgeable agents can also provide useful inputs to the services as regards the latest technological advancements in various weapon systems and their likely availability in the world market. Such inputs can be of immense help in the formulation of qualitative requirements. Further, agents can provide details of indicative cost of proposed acquisitions and support services to help preparation of realistic budgetary estimates.

Field trials in India are carried out over varying terrain and different climatic conditions. Foreign suppliers need local help to import, maintain, transport and position their equipment for trials as per the given schedule. Agents provide invaluable help in this regard. Agents also help resolve irksome issues that crop up during protracted contractual discussions and pave the way for negotiating a mutually acceptable contract.

As local agents have a permanency of business interests for future opportunities, they provide constructive help in resolving post-contract performance and warranty issues. Most importantly, agents enhance the quality of after-sales support. It is much easier to contact an Indian agency for engineering support and back-up service than to approach the foreign vendor located abroad.

The recent initiatives like the ‘Make in India’ campaign and increased upper limit of Foreign Direct Investment in the defence sector will need active participation of agents to be successful. All prospective foreign investors will need local agents to identify and advise them about Indian vendors of the industries with envisioned prospects. They will also be required to arrange meetings and briefings.

Similarly, the defence procurement procedure mandates that all contracts over Rupees 300 crores must necessarily have an offset obligation equal to 30 per cent of the contract value. It is well nigh impossible for a foreign vendor to identify programmes/fields to fulfill his obligation and to select suitable Indian industrial partners for the purpose. He has to take the help of local agents who are well conversant with the available opportunities.

Conclusion

The government admits that the agents cannot be wished away. Even the erstwhile Prime Minister Man Mohan Sigh accepted their inescapability. The government knows that banning and shunning them will force them to go underground and function in a covert manner. Whereas most bureaucrats realize the usefulness of agents as an effective interface with the suppliers, they are wary of the unscrupulous agents who attempt to corrupt the environment and bring disrepute to the regime.  

It is indeed an intractable dilemma for MoD. It knows that agents are indispensable and them to function in a well regulated and transparent manner – but does not know how to proceed ahead. More so as the issue has acquired political overtones and the government is sure to get flak if it allows agents.

Unfortunately, agents in defence have come to be seen as unethical manipulators. “It appears that the Indian Government thinks very poorly of defence agents. Even the tone and tenor of the policy convey the impression that agents are a necessary evil needing to be kept on a tight leash lest they pollute the environment”, commented a foreign supplier.

There may be some undesirable elements amongst the agents; it is unfair to paint all with the same brush. A vast majority is functioning as per the laws of the land. Just because the agents try to earn money by promoting their principals’ products does not make them unscrupulous and ignoble. They are not in business for charity. It is time that both the government and the public change their attitude towards agents.

MoD must encourage overt functioning of agents by facilitating their registration through a simplified procedure. The provisions should neither be too invasive nor intimidating. It will be ideal to adopt the same procedure as is followed by the other government departments. If agents can function in a regulated manner in other strategic sectors like power and oil, there is no justification for singling out defence contracts.

Finally, it is really strange that MoD fears that its officials are predisposed to dishonesty and can be easily corrupted by the wily agents. Such an approach shows a total lack of confidence in the integrity of the government functionaries. Further, it puts the entire onus of keeping the transactions ‘clean’ on the agents. The agents must not be allowed to entice the ‘gullible and naïve’ government officials, lest they fall prey to the temptations. It is indeed a sad reflection of the government’s appalling distrustfulness of its own functionaries.*****  

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.*****  

Dismal State of the Indian Defence Industry: Challenges for the New Government

Dismal State of the Indian Defence Industry: Challenges for the New Government

 (FORCE May 2014)

                                                                                                             Major General Mrinal Suman

Indisputably, India’s defence industry is in a pitiable state. India is the largest buyer of conventional weapons in the world. Even after 67 years of Independence, India continues to remain wholly dependent on the imported defence systems. Despite repeated assertions in quest of self-reliance, India’s dependence on imported defence equipment has increased from the earlier 70 percent to close to 75 percent now. Worse, the indigenous production of the balance 25 percent is limited to the assembly of imported sub-assemblies and manufacture of low-tech components. While the indigenous defence production is languishing, the armed forces continue to suffer shortage of critical defence systems.

Since the inception of the Defence Procurement Procedure (DPP) in 2002, India has been revising it biennially, but the much touted reforms have been limited to the rationalisation of some clauses. Similarly, all expert committees constituted to suggest reforms have also limited themselves to minor procedural changes. No serious thought has been given to providing an impetus to the indigenous production.

The current dispensation has been an unqualified failure. The new government will have to initiate bold, drastic and innovative measures to kick-start the indigenous defence industry. Six key areas that need urgent attention have been highlighted in this article. 

1. Need for Structural Revamp  

As regards provision of the required defence equipment to the armed forces, two basic imperatives cannot be ignored. One, acquisition of defence systems is intrinsically interlinked with the development of the indigenous defence industry. Therefore, there has to be a single agency to oversee the complete gamut of related activities. The present system of the Acquisition Wing and the Department of Defence Production (DDP) handling acquisition and production functions respectively can never deliver.

Two, planning and implementation functions are distinctly different. They demand dissimilar but highly focused treatment. Therefore, they must be segregated. Planning functions should primarily be performed by officials and military leaders who possess necessary understanding of the national security issues. On the other hand, implementation functions must be entrusted to professionals who are fully conversant with modern technologies and are aware of the latest management tools and techniques to administer multi-faceted and multi-agency programmes. 

A multi-disciplinary and broad-based Defence Perspective Planning Council (DPPC) should be constituted as the highest policy making body to handle all planning functions. Its role should include identification of the capability gaps, approval of 15-years Long Term Integrated Perspective Plan and 5-years Services Capital Acquisition Plan. It should be empowered to approve changes in the acquisition procedures, grant deviations from the laid down policies and accord approval to invoke the Fast Track Procedure.

For executive functions, a Defence and Aerospace Commission should be established to implement perspective plans approved by DPPC. It should be the nodal agency to oversee the complete defence acquisition process and the development of the indigenous defence industry. Highly successful models of the Atomic Energy Commission and the Space Commission can be replicated, albeit with due changes.  

Chairman of the Commission should be a distinguished person who is known to possess competence to synergise, harmonise and administer complex programmes involving multiple agencies. He should be given the rank of Minister of State to authenticate his status.

The Defence and Aerospace Commission should be tasked to handle all activities pertaining to the production, acquisition and export of all defence systems/equipment. While promoting the development of the indigenous defence industry, the Commission will have to ensure that all approved procurement proposals are implemented within the specified timelines, satisfying all performance parameters and obtaining best value-for-money for the country.

For each procurement proposal, the Commission should debate, analyse and determine the route that should be adopted – outright import or indigenous development or a combination of the two. Factors like quantity, economic viability, urgency, criticality, indigenous capability and acceptable timelines would be the key deciding factors. However, technical evaluation and field trials should continue to be held under the aegis of the respective Service Headquarters as hitherto fore.

2. Modernisation of the Public Sector and Integration of the Private Sector

DDP was set up in 1962 in the Ministry of Defence (MoD), in the aftermath of the Chinese aggression to create a self-reliant and self-sufficient indigenous defence production base. Unfortunately, it has turned out to be the biggest impediment and is mainly responsible for the current deplorable state of the indigenous defence industry.

DDP failed to appreciate the fact that both the public and the private sectors constitute a nation’s defence industry. It assumed the mantle of being the god-father of the defence public sector units and concentrated on perpetuating their monopoly. Consequently, DDP faced internal contradictions in its role; leading to acute conflict of interest with ensuing subjectivity and impropriety.

DDP is guilty of shielding an inefficient public sector whose proverbial complacence is solely due to their conviction that DDP would force the services to buy whatever they produce. All ploys are tried to ensure regular flow of orders to the public sector units. The private sector is kept at bay through cleverly introduced provisions of nominating public sector units for major contracts. Thus, the nation remains deprived of the technological prowess acquired by the private sector and its enormous potential remains untapped.

MoD has to realise the fact that both the public and the 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. While the public sector possesses huge infrastructure, trained manpower and considerable experience in systems integration with imported technology, the private sector excels in innovative management, marketing and financial skills.

Four measures need to be taken on priority. One, DDP should be abolished and a Department of Defence Industry be created in its place. It should look after the interests of the defence industry as a whole and not be biased in favour of the public sector units. A level playing field should be provided to all companies. Two, MoD should shed control of all public sector units to other ministries. Three, all ordnance factories should be corporatised, as recommended by the Kelkar Committee. Four, working with an open mind, MoD should explore all viable avenues such as formation of consortia, joint ventures and public-private partnership for optimum results.

3. Supporting Innovations and SMEs

It is a well-established fact that any country that neglects innovations is doomed to become a technology-laggard. Innovation is considered to be a dynamic catalyst to growth. It implies an active and exploratory drive that seeks to better existing products, processes (including services) and procedures for more effective results. Neglect of innovations means stagnation, languishment and decay.

In the case of defence systems, innovations acquire added criticality. As continuous upgradation of defence equipment through the application of innovative solutions is of vital importance, an open architecture which allows ‘plug and play’ is considered essential to ensure seamless incorporation of evolving technologies for defence systems.

Unfortunately, India has failed to assign due importance to the promotion and development of a culture of innovations. Despite having a plethora of defence laboratories and public sector entities, not a single innovative idea or technology solution has been generated through indigenous efforts during the last six decades. The Global Innovation Index 2013, issued by the reputed business school INSEAD, places India at 66^th rank in the world. Most distressingly, instead of improving, India’s position has been sliding – 41^st in 2009, 56^th in 2010 and 62^nd in 2011.

Whereas most defence contractors are simply systems integrators; small and medium enterprises (SMEs) drive innovations and are rightly called ‘the engines that spearhead technological advancement’. Although Indian SMEs have been supplying sub-assemblies and components to the public sector entities for decades, they produce low-tech items and continue to be peripheral players. Their technological competence has not kept pace as they have never been encouraged to invest in developing newer products or carrying out pioneering innovations. Resultantly, very few SMEs have acquired competence to develop, manufacture and upgrade defence systems.

Being small players with limited resources, SMEs cannot thrive on their own. They lack adequate financial endurance for long term sustainment and find investment risks to be dissuasive due to the uncertainties of the defence business. As they operate in niche segments, economies-of-scale is also a matter of serious concern for SMEs. Therefore, they need governmental support and hand-holding. It is for MoD to create a favourable ecosystem that is conducive to the promotion of new initiatives in defence systems to keep pace with cutting-edge technologies.

4. Flexible FDI Policy

No issue concerning self-reliance in defence production and modernisation of the armed forces has been subjected to as intense a debate as the question of Foreign Direct Investment (FDI) in defence. The current FDI policy was promulgated in 2001 with an upper limit of 26 percent. However, foreign investors have given it a cold shoulder. There has been negligible inflow of funds during the last 12 years.

FDI is a need based concept. The host nation needs funds and technology for its accelerated growth while a foreign investor is guided purely by economic considerations. Therefore, most consider the policy with 26 percent FDI limit and associated restrictions to be highly dissuasive. For, no foreign investor is going to part with his closely guarded technology unless he has adequate control over the enterprise. The host nation’s policy must provide sufficient autonomy. Excessive bureaucratic control is resented by foreign investors as they feel stifled.

FDI is not just a question of getting funds, but access the latest technologies as well. FDI pre-supposes a long term commitment and lasting relationship between the foreign and the local entity. FDI sets in motion a chain reaction wherein FDI upgrades local technology which, in turn, attracts more FDI with higher technology and the cycle goes on. This is of vital importance to the defence sector which is highly capital intensive and undergoes rapid obsolescence of technology.

MoD has opposed all proposals to increase the FDI cap on the ground that the ownership of core strategic industries like defence must always remain under Indian control. Apprehensions are being expressed that foreign investors may close production and deny supplies to the armed forces during warlike emergencies.

There cannot be a more specious argument. No foreign vendor will ever risk his total investment by such a hostile move. In any case, factories cannot be shut and shifted at a short notice. As a matter of abundant caution, the Government can reserve the right to take over critical industries under certain extraordinary circumstances of national emergencies. An enabling provision can be incorporated in the licence.  Most nations that allow 100 percent FDI follow the same route.

Most importantly, a vast range of items (from mundane low-tech articles to high-tech systems) fall under the taxonomy of defence industry. It is patently incorrect to apply a single FDI cap to all of them. Therefore, India should adopt a flexible and technology-specific FDI policy. Upper cap should be determined on the basis of nature, level, depth and exclusivity of the technology involved.

Proposals that entail infusion of frontier and cutting edge technologies should be allowed FDI up to 100 percent. An upper limit of 74 percent should be accepted for joint venture proposals that promise transfer of technologies that are not available commonly. Similarly, FDI caps should be fixed at 51 and 49 percent in cases that bring in high technology. The current cap of 26 percent should be retained for proposals with commonplace low technologies. 

As prospective investors are guided purely by economic considerations, they carry out a comparative appraisal of all likely destinations to identify the best option available to them to earn optimum returns. Therefore, if India is serious about attracting FDI in defence, it has to position itself as the most lucrative FDI destination.

5. Simplification of the Offset Policy

India announced its intent to demand offsets against defence procurements in early 2005. Products and services eligible for discharge of offsets relate to defence, internal security and civil aerospace. Services mean maintenance, overhaul, upgradation, life extension, engineering, design, testing of eligible products and related software or quality assurance services with reference to the indicated eligible products and training. The first offset contract was signed in 2007. The policy has undergone a number of revisions. The latest policy, called the Defence Offset Guidelines (DOG), came into effect from 01 August 2012.

Offsets worth 21 billion dollars are expected to flow into India during the next 10 years. However, offsets do not come for free as foreign vendors have to incur additional expenditure to fulfill their obligations. It is seen that offsets generally result in cost escalation by 10 to 20 percent. It is a huge cost penalty. Hence, offsets make sound business sense only if the trade-off results in extraordinary economic or technological gains.

To upgrade indigenous technological base, the powerful leverage of offsets can be used to obtain technologies that industrially-advanced countries are unwilling to sell. However, India’s experience of the past few years has been highly disappointing. No benefits have been drawn from the offsets received to develop a vibrant defence industrial base.

All nations seek offsets that are in consonance with their national needs – either to meet an urgent economic need or to fill a critical technology void. It is not the type of offset but its relevance that matters. Therefore, offsets must be need-based and not availability-based. Shockingly, India has abrogated the right to select methodology, fields and offset programmes in favour of the vendors, thereby rendering India’s needs inconsequential. As is expected, foreign vendors opt for programmes that cost the least and are easy to fulfill – India’s needs do not matter to them at all.

Penchant for preferential treatment of the public sector has made MoD promulgate a highly complex and convoluted offset policy. Instead of having a single policy for the transfer of technology (ToT) to all Indian entities, MoD has created exclusive provisions for the public sector and the Defence Research and Development Organisation (DRDO).

For example, government institutions/establishments and DRDO are allowed to receive equipment and/or ToT from foreign vendors for augmenting capacity for research, design and development; training; and education. This facility has not been extended to the private sector. Similarly, DOG stipulates that ToT to Indian enterprises must be provided without licence fee and there can be no restriction on domestic production, sale or export. However, there are no such stipulations in the case of receipt of technology by the government entities.

It is rightly said that ‘unmonitored offsets are unimplemented offsets’. As India lacks a credible verification mechanism, it is an open invitation to unscrupulous foreign vendors and their dishonest Indian partners to collude and cheat the country by presenting exaggerated claims. MoD has no option but to accept their claims at their face value. 

It will not be incorrect to state that India’s defence offset regime is in a total mess. DOG suffers from major infirmities and can neither contribute to the growth of indigenous industry nor provide long term economic benefits. There is an urgent need to take a fresh look at all facets of the policy. 

6. Training and Accountability of the Workforce

No reforms can yield results unless the concerned functionaries are trained and equipped to translate progressive policies into tangible actions on ground. Sadly, the thrust so far has been on policy revisions and procedural reforms only, whereas mediocrity of the workforce has been one of the primary reasons for the non-delivery.

Promotion of indigenous defence industrial capability and management of defence acquisitions are multifaceted processes and are highly specialised activities needing extraordinary professional skills and unique attributes. Unfortunately, officers on routine postings are being asked to handle these functions. They are not selected on the basis of any demonstrated flair or talent or expertise.

Worse, all civil servants and service officers feel that they can carry out any job assigned to them. They believe that their initial training and subsequent exposure equip them to shoulder any responsibility. Resultantly, they do not strive to educate themselves. Equally worrisome is the fact that there is a complete absence of the concept of accountability in the current dispensation. With assured career progression, it is always considered safer not to take a decision rather than take one and risk being held accountable for the same. Inaction never gets punished.

It is time that India pays attention to the quality of the workforce and takes concrete steps to improve it. Delays due to deliberate dithering should never be condoned. Additionally, any functionary who vacillates in taking decisions as per the powers delegated to him should be considered unworthy of that appointment.

Finally

Continuance of the current status quo is in the interest of all the beneficiaries, and most unfortunately, they are the ultimate decision-makers. As supremacy of personal interests over national interests is the hallmark of the Indian governance, MoD refuses to acknowledge the fact that the current regime is an utter failure. Regrettably, MoD is living in a denial mode with ostrich-like mindset. Unless existence of severe infirmities is accepted, reforms cannot be initiated. Therefore, despite incontrovertible effectiveness and practicality of the recommended six measures, the next government would need to muster great courage to counter bureaucratic inertia to change and break free of deep-seated prejudices to implement them.

In the past, all review panels and expert committees have dealt with reforms in a piecemeal manner, concentrating mainly on irksome policy provisions and streamlining procedures. No holistic, comprehensive, dispassionate and objective exercise has ever been undertaken to identify intricate interplay of dynamics of domain interests and conflicting attitudes that defeat all attempts at improving the system. Lack of courage to undertake radical overhaul of the regime have been making the government officials flounder in the labyrinths of bureaucratic indecision while the armed forces and the country continue to suffer. *****