IDSA COMMENT

An American Solution to India’s Defence Acquisition Problem?

October 8, 2010

The strategic bonhomie between two countries is perhaps best reflected in their defence cooperation, and more prominently in defence trade - one way or the other - of state-of-the-art weaponry. Going by this, the strategic relationship between India and the US is so far at its best. Since the 2005 joint declaration of India-specific civil nuclear energy cooperation, New Delhi and Washington have signed or are negotiating a wide range of low- to high-value defence items, including INS Jalashwa (US$44 million), six UH-3H Sea King helicopters (US$39 million), six C-130J Hercules military transport aircraft (US$0.9 billion), 24 Harpoon Block II naval surface missiles ( US$ 170 million), eight P-8I maritime reconnaissance aircraft (US$2.1 billion), 10 C-17 Globemaster III aircraft (US$5.8 billion), 145 M777 155mm Light-Weight Towed Howitzers (US$647 million), and the recent Javelin Anti tank Guided Missiles (price and quantity not disclosed). A closer look at these acquisitions would reveal that most of them are through the US’s Foreign Military Sales (FMS) route, which, unlike the direct commercial sales route, is undertaken through negotiations between governments. India’s increasing reliance on the FMS route is however indicative of its desperation to bridge the gaps in its defence preparedness and at the same time shows the weakness of the Defence Procurement Procedure (DPP), a handbook of the Indian Defence Ministry, which devotes a substantial portion intended to facilitate multi-vendor participation in arms contracts.

Since the Bofors scandal erupted in the eighties, the MoD has struggled to put up a set of guidelines to streamline its arms acquisition. The first set of guidelines which came in 1992 in the form of a document known as DPP-1992 has undergone several revisions. DPP-2008, the latest comprehensive compendium in the series with further amendments brought in 2009, lays down a host of procurement categories and also the precise acquisition functions to be carried out by concerned agencies within stipulated financial powers and time-frame. Unfortunately, however, the guidelines, despite their nearly two-decades of evolution, have not fully succeeded in expediting arms acquisition. There have been numerous cases where crucial acquisition proposals have been cancelled mid-way and retendered thereafter, with some having witnessed the process being repeated several times without success. As a consequence, the Defence Ministry has surrendered, year after year, a hefty amount of its procurement budget to the exchequer, and more importantly the country’s defence preparedness has remained at a below-desired level. From a statistical perspective, in the last 10 years or so, the cumulative surrender of funds under the capital expenditure amounts to a whopping Rs. 45,550 crore, with the year 2008-09 witnessing the highest amount of surrender at Rs. 7,088 crore.

As has been reported by various agencies like the Comptroller and Auditor General of India and the Parliamentary Standing Committee on Defence, defence preparedness, in terms of providing the armed forces with equipment and support services, has been at a sub-optimum level. The Army, for example, is short of even some basic items such as bullet proof jackets and night-vision devices. Moreover, it has not been able to procure a single artillery gun since the Bofors guns were last inducted. The Air Force, which operates a lesser number of aircraft than officially mandated, is also short of radars for its surveillance and counter measures. The Navy, whose present warship strength is less than the sanctioned level, is facing a severe crisis in its most potent force multipliers: submarines. The serious delay in new induction combined with the obsolescence of earlier inducted submarines has left the Navy facing the prospect of over two-thirds of its submarines going out of service by 2012.

The under-optimum defence preparedness has led the Defence Ministry to resort to a frantic search for immediate solutions. The Fast Track Procedure (FTP), which was incorporated for the first time in DPP-2002, and meant to reduce the procurement time cycle to 12 months (in contrast to the up to three years under the normal procurement cycle) by bypassing certain steps has however proved futile, with the evidence suggesting much longer delays. This has led to the resort to the last available immediate solution, i.e., Government-to-Government negotiation, which is otherwise reserved for procurements “necessitated due to geo-strategic” considerations. With the procurement cycle less cumbersome, much faster and more importantly less controversial, the FMS route is viewed by the Ministry of Defence as the best solution to meet the urgent requirements of the armed forces. From the cost point of view the FMS option is easily saleable, as New Delhi is required to pay only 3.8 per cent more than the price that the US government pays to its own contractor for a specific weapon/system (the additional cost is meant to “cover the cost of administering the program”).

Under the seemingly advantageous FMS route lie at least three weaknesses. The first and foremost is the failure of DPP’s normal and elaborate procedure in expediting acquisition proposals in a time-bound manner, forcing the government to resort to the FMS. Second, in a competitive contract in which suppliers from various countries participate, India has much more liberty of imposing its own conditions as to how and where it wishes to use an imported defence item. In a FMS contract, India is susceptible to accepting the stringency of US laws – the end-use monitoring agreement being one - as it is more interested and desperate to get the equipment in the quickest possible time. Thirdly, from the cost point of view, the FMS does not necessarily guarantee the benefit of a competitive contract and the resultant price.

The above weaknesses do not however mean that India should forgo the FMS option altogether. For genuine strategic reasons and for immediate operational needs, the Indian government has all the rights to negotiate with its foreign counterparts. This does not mean, however, that FMS should become the default option for procuring items that are not being expedited through the normal DPP procedures.