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Keynote Address at National Seminar on Defence Acquisition

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  • Hon'ble Defence Minister, Shri A.K. Antony
    October 27, 2009

    It is a pleasure to inaugurate this seminar on Defence Acquisition being organised by IDSA on the vital subject of defence acquisition. Our Defence Forces require timely and cost-effective acquisition of defence equipment to enable them to meet any challenge to the country’s security.

    Defence equipments are technology-intensive, involving heavy investments. Moreover, equipments remain in the inventory for a long time. Acquisition of defence equipments requires expertise in diverse fields, from technical to administrative, such as military, technology, industry, market research, contract management, project management, administration and policy making. Defence acquisition is therefore a time-consuming and a complex process.

    India has emerged as a large defence market. This is evident from the fact that we have made a provision for approximately US $8.5 billion for capital acquisition in our Defence Budget for the current financial year. Over the next five to six years, the total budgetary provision is likely to reach US $50 billion. Impressive as it may sound, the challenge it poses to the acquisition functionaries is equally enormous. If we are to effectively meet this challenge, we must adopt a holistic approach towards defence acquisition, right from the planning stage, to final disposal of weapon system without compromising transparency, fairness and probity at any level.

    We have set up the Integrated Defence Staff (IDS) to strengthen the planning process in acquisition. The mandate of the IDS is to formulate integrated perspective plans spread out over a period of time. These integrated plans are crucial for time-bound and cost-effective acquisition of weapons and platforms required by our Armed Forces. The various tasks of acquisition, production and Research and Development are supervised by different agencies such as Defence Acquisition Council, Defence Production Board and Defence Research and Development Board.

    Defence Procurement Procedure (DPP) is central to our acquisition process. Besides institutional mechanisms, we have revised our capital procurement procedures from time to time. Earlier, the Defence Procurement Procedure was revised every two years. We have now decided to do it on an annual basis, with a view to keeping it abreast with the requirements of changing times and to infuse the lessons learnt through our experience.

    We have tried to establish a rule-based procurement system, in which each of the procurement case has to be processed through a set of pre-defined steps, starting from the definition of systems’ requirements, to post-contract management. These steps are elaborated in great detail in successive DPPs, including the DPP 2008.

    DPP 2008 has been in vogue since last September. We have laid special emphasis on greater transparency and speed in defence acquisition in DPP-2008. After its promulgation, all Requests for Proposals (RFPs) must now include broad details of the trial methodology to enable the vendors to understand the modalities by which their products will be evaluated, at the outset. Besides, directions to vendors during the course of trials and the results of evaluations along with reasons for disqualifications, if any, are to be communicated in writing and placed on record. To expedite acquisition, extension for submission of technical and commercial offers against the RFP have now limited to only eight weeks.

    We have, as per out resolve to revise the DPP annually, reviewed the DPP and are ready to promulgate DPP 2009 w.e.f. November 01, 2009. The current review is primarily focussed on two essential areas of promoting and facilitating wide participation of defence industry and enabling transparency and integrity in all acquisitions.

    Under the current procedure in ‘Buy & Make’ cases, RFP is issued only to foreign vendors who are required to transfer technology to an Indian defence industry, called Production Agency (PA). This does not promote setting of joint venture or co-production arrangements in India by big foreign OEMs [Original Equipment Manufactures]. In order to obviate the above shortcoming, a new category – “Buy & Make (Indian)” is being introduced, which allows issue of Request for Proposal to Indian Industries having requisite financial and technical capabilities to absorb technology and undertake indigenous manufacture. The new procedure will be akin to the existing “Make” procedure, with a vital difference that the production and development by Indian Industry will be through transfer of technology and not through research and development. This is primarily aimed at encouraging pro-active participation by the Indian Industry who could establish JV/production arrangements with any foreign manufacturer. The needs of the Services will be shared with capable Indian firms who in turn would submit a roadmap for development and production of a particular item over its life cycle.

    In ensuring transparency and enhanced awareness in the Indian industry we will prepare a public version of the 15 years Long Term Acquisition Plan of the Armed Forces. This will be placed on MoD website and shared with the industry associations to create requisite awareness amongst them. This would help Indian Industry to work out the technological requirements and build in-house capabilities in order to meet the future defence requirements. I am sure that the Industry will respond positively to this proposal. In addition, we have made mandatory issue of Request for Information (RFI) on MoD website in all acquisition cases. To enable participation of the representatives of Industry in defence acquisition planning we will henceforth invite representatives of Industry for consultations and presentations in high level procurement meetings before a decision is taken on the source and methodology for procurement of defence weapons and equipments.

    To enhance probity in defence procurement deals, we propose to enhance the role of Independent Monitors, to scrutinise complaints with regard to violations of Integrity Pact which is a binding agreement prohibiting corruption in defence deals. In order to facilitate discharge of offset obligations an enabling clause to permit change of offset partner in exceptional cases has also been incorporated. The offset provisions for the option clause has been amplified to state that the offsets will not be applicable in cases where the same was not included in the original contract. I am hopeful these changes will bring in greater degree of probity in the procedure and also encourage domestic defence industry to develop.

    Defence acquisition, as I mentioned earlier, is a complex process. Despite several institutional and procedural improvements, some problems continue to occur. These are manifested in time and cost overruns of some of our important acquisition projects. This is not at all desirable and needs to be rectified. We need to undertake all the necessary reforms to further improve the acquisition system.

    We need a robust acquisition system to ensure that Defence Procurement Procedures are fully understood and adhered to in letter and spirit. At this point of time, I wish to highlight a few priority areas of defence acquisition which should be discussed at this seminar. The first relates to capability definition and QR formulation. We must ensure that QR formulation is done in a manner that fulfils the end user’s basic requirements. At the same time, it should also encourage widest possible competition. It is only through competition that we can ensure the maximum value for our money. It is important to have broad-based and realistic QRs that would lead to multivendor competition.

    The second aspect relates to technical and commercial aspects of evaluation. These stages often take the maximum time in completion of the acquisition cycle. We need to ensure that these vital stages are completed not only in a fair, objective and transparent manner, but within the stipulated timeframe.

    Let met touch upon the all-important goal of self-reliance. No major power in the world today can do without a strong defence industrial base. Given India’s growing status and international profile, the need to develop a strong defence industrial base is stronger than ever before. Our acquisition system should work in such a way that our defence enterprises, both in the public and private sector, become truly world class. They must engage in a health competition and make India truly self-reliant in defence production. Presently, we are importing about 70 per cent of our defence equipment requirements from foreign countries. This heavy dependence on import makes us vulnerable. We cannot and must not allow this to happen.

    To reverse this situation, we have opened defence production to private sector and incorporating “MAKE” procedure and offsets policy in our DPP. We want our industry to play a more substantial role in defence production. Under the “MAKE” procedures, Indian companies can play a lead role in design and development of total systems. Defence Ministry has made a provision for bearing about 80 per cent of developmental cost incurred by Indian companies, in design and development of proto-types, when selected under “Make Procedure”.

    The offset policy is expected to bring in nearly $10 billion worth of offsets by the end of the current plan period. The offset policy has been designed to help our domestic defence industry to cope with the complex job of defence production and to partner with international defence companies. We need to ensure that the full advantage of the measures we have taken, benefit our indigenous industry. This will not only provide us with a stronger defence production base, but also economic benefits, in terms of higher industrial production and more jobs for our youth.

    There are several other issues that need exhaustive deliberations. Some of these issues are - logistics management, life cycle cost, project management, and contract and post contract management. We need to develop efficiencies in these crucial areas also.

    I am confident that today’s deliberations will significantly contribute to our efforts at developing a more sturdy and efficient acquisition system. I urge all the participants to discuss all relevant issues in a free and frank manner to promote a better understanding and resolve problem areas.

    I wish the Seminar all success and look forward to any suggestions that you may offser to bring about an improvement in the acquisition system.