The Ministry of Defence (MoD) recently issued a new set of rules for the procurement of arms, ammunition and other defence related products and services. The rule book, known as Defence Procurement Procedure 2008 (DPP 2008), has revised, among others, the offset policy that was first promulgated in 2005 and subsequently revised in 2006. The revised offset policy which retains the earlier minimum 30 per cent offset requirements in defence imports of Rs. 300 crore or more has added a provision of offset banking, besides enlisting a number of categories of defence products.
Ordnance Factories constitute a major segment of India’s defence industrial set- up, whose other constituents are the Defence Public Sector Undertakings (DPSUs), the Defence Research and Development Organisation (DRDO) and varied Service-specific workshops, repair and maintenance establishments. The gross production of ordnance factories during the year 2005-06 was Rs. 8811.59 crores. Total sales including issues to armed forces and other agencies and civil trade in the same year was Rs. 6891.68 crores. This constitutes approximately 40 per cent of domestic supplies to the armed forces.
In early May 2008 Tata Group of India and Israel Aerospace Industries Ltd (IAI) signed an agreement to establish a joint venture (JV) in India to develop, produce and support defence products such as missiles, unmanned aerial vehicles (UAVs), radars, electronic warfare (EW) systems and homeland security (HLS) systems. The agreement is in sync with Tata’s broader objective of becoming a “lead system integrator” in the Indian private sector, by consolidating its own resources, diversifying into various fields of production and forging partnerships with major global defence companies.
Recent announcements of major arms acquisition programmes by the Indian government must have given a sense of elation to the armed forces, which have been waiting for long for some of this equipment. These announcements also give greater confidence to the nation about the military’s capability to tackle national security challenges. But there are other long term implications of arms procurement largely through import.
The practice of converting defence plans into publicly known defence budget is essentially a practice of democratic governments. One reason for public disclosure of defence spending could be that tax payers expect to know directly or through their representative how much is being spent on national defence and on other sectors of economy which affects their security and welfare. Disclosing the defence budget even to the domestic audience was rarely done in the past. In fact, even today, some major powers do not disclose their defence spending to the world.
Union Budget 2008-09 has allocated Rs. 105,600 crores for India’s Defence. Crossing the one lakh barrier for the first time, and accounting for nearly 14.1 per cent of total central government expenditure, the Defence Budget looks quite impressive (see Box). But when seen in the context of India’s expanding interests, this allocation remains as moderate as ever. Moreover, an in-depth analysis reveals problems in defence and budgetary management, none of which show signs of abating.
“It’s about time that the bureaucrats in the MOD and the military leadership in the Service Headquarters opted not only to do ‘the right things’ but also to do ‘the things right’ in as far as the procurement process is concerned.”
- Defence & Technology, July/August 2007, p. 13.
India opened up its defence industry to the private sector in May 2001, in a move to enhance the country’s ‘defence preparedness’. To give further impetus to this policy, the Ministry of Defence (MoD) came out with new policy measure related to the concepts of private Industry Leaders [or Raksha Udyog Ratnas (RURs)] “Make” procedure, and defence offsets, in its 2006 Defence Procurement Procedure (DPP). With these policy initiatives, the government’s focus seems to have shifted towards the private sector as far as achieving its long-cherished goal of ‘self-reliance’ is concerned.
The Global War on Terror (GWOT), now into its sixth year, has become one of the most expensive wars in American history. GWOT covers three military operations: Operation Enduring Freedom (OEF), which broadly covers Afghanistan but ranges from the Philippines to Djibouti; Operation Noble Eagle (ONE), which is meant to provide better security for US military bases and enhanced homeland security; and Operation Iraqi Freedom (OIF) which began with the build-up of troops for the 2003 invasion of Iraq. The cost of these operations has phenomenally increased over the years.
The latest Comptroller and Auditor General (C&AG) Performance Report on Defence Services (No. 4 of 2007) has once again exposed the problems involved in Indian defence acquisition. The report has been critical virtually of all the processes of the acquisition cycle, from planning to the formulation of Qualitative Requirements (QRs), vendor selection, conduct of trial and evaluations and processes of induction.
India’s Defence Offset Policy 2008
The Ministry of Defence (MoD) recently issued a new set of rules for the procurement of arms, ammunition and other defence related products and services. The rule book, known as Defence Procurement Procedure 2008 (DPP 2008), has revised, among others, the offset policy that was first promulgated in 2005 and subsequently revised in 2006. The revised offset policy which retains the earlier minimum 30 per cent offset requirements in defence imports of Rs. 300 crore or more has added a provision of offset banking, besides enlisting a number of categories of defence products.