Consequent to the recommendations of the Public Accounts Committee (PAC), the Ministry of Defence (MoD) issued detailed guidelines for capital acquisitions and the first Defence Procurement Procedure (DPP) came into being in February 1992. However, it suffered from some major deficiencies which affected its implementation. As recommended by the Group of Ministers constituted in the wake of the Kargil conflict, a fresh and far more comprehensive DPP was issued in December 2002.

With a view to streamline the process, DPP 2002 has been subjected to seven major reviews during the last 13 years. Unfortunately, all review committees restricted themselves to suggesting procedural changes only. They lacked courage to suggest radical overhaul of the system, fearing its outright rejection by the decision makers. No holistic study of all facets of the defence procurement regime has ever been undertaken. No serious thought has ever been given to providing an impetus to indigenous production. Resultantly, we have acquired the shameful tag of being the largest importer of conventional weapons in the world.

Therefore, constitution of an expert committee under Dhirendra Singh in May 2015 was viewed with considerable optimism. The committee was tasked to evolve a policy framework to facilitate ‘Make in India’ in defence manufacturing and align the policy evolved with DPP 2013. It was also asked to suggest requisite amendments in DPP 2013 to remove the bottlenecks in the procurement process and to simplify/rationalise various aspects of defence procurement. The committee submitted its report to MoD recently.

The committee’s recommendations are three-pronged: achievement of ‘Make in India’ mission streamlining of the procurement process; and strengthening of the indigenous defence manufacturing base through the integration of the private sector. A number of measures have been suggested to create a genuine level playing field for both the public and the private sectors. Further, the committee has desired that Indian manufacturing industry be assured of a fair treatment vis-à-vis the global players.

Recommendations of the committee can be grouped under four subheads: conceptual ladder for ‘Make in India’ mission; amendments to DPP 2013; integration of the private sector; and supplementary issues. Their salient aspects have been discussed hereunder.

For ‘Make in India’ Mission

Being one of the key terms of reference, the committee has spent considerable effort in suggesting a road map to achieve the envisaged objective of ‘Make in India’. A conceptual ladder has been evolved to represent progressive development of competence level in the defence industry, from the very basic level of repair and maintenance to the level of acquiring ability to design, develop, manufacture and test systems/equipment. Different stages in the ladder have been well correlated with various categories of the capital procurements as obtaining today. It is an innovative suggestion.

The report rightly cautions that ‘Make in India’ campaign should not be allowed to degenerate into ‘Assemble in India’ programme. To prevent falling into such a trap, it suggests higher indigenous content across all defence purchases and upgradation of in-service equipment under the ‘Make’ category. The committee is of the view that the indigenous content in the procurements should be increased from the current levels of about 35 per cent to nearly 70 per cent in a phased manner.

The committee feels that by encouraging Indian industry to undertake upgradation of in-service systems, the process of familiarisation by the industry with the technologies, operating environment as well as user requirements can be accelerated. It suggests ‘Industry in the Lead, Defence Research and Development Organisation (DRDO) as a Partner’ model for quicker and more efficient realisation of the objectives. If considered necessary, a foreign technology partner could also be considered.

Although small and medium enterprises (SMEs) are universally accepted as engines that drive technological progress in all industrial sectors, their importance in the defence sector gets further enhanced due to the fact that defence industry is highly technology-intensive. As SMEs lack resources to compete with big players, the committee has suggested hand-holding by the government. It wants MoD to make necessary finance available to them on easy terms.

The committee has made two suggestions to improve the functioning of the public sector entities. First, it has reiterated the often heard demand for the corporatisation of the management structure of the Ordnance Factory Board. Secondly, the committee has recommended that the four shipyards under MoD be merged into one corporate entity, retaining the yard facilities in their present geographical locations but working under one single management.

Suggested Amendments to DPP 2013

The committee has made a number of recommendations with respect to the provisions of the procurement procedure. As DPP keeps referring to the term Indian vendor recurrently, the committee felt the need to define the term in unambiguous terms to avoid misinterpretations and confusion. According to the committee, the essential ingredient of the criterion is the controlling stakes of the Indian entity except cases where the foreign direct investment (FDI) above 49 per cent has been allowed to an entity for a particular defence product and the entity is competing for the supply of that product.

The report rightly cautions that ‘Make in India’ campaign should not be allowed to degenerate into ‘Assemble in India’ programme. To prevent falling into such a trap, it suggests higher indigenous content across all defence purchases and upgradation of in-service equipment under the ‘Make’ category.

Considering the above, the committee has suggested that the definition of Indian vendor should read: “For defence products requiring industrial licence, an Indian entity/partnership firm, complying with, besides other regulations in force, the guidelines/licensing requirements stipulated by the Department of Industrial Policy and Promotion as applicable. For defence products not requiring industrial licence, an Indian entity/partnership firm registered under the relevant Indian laws and complying with all regulations in force applicable to that industry”.

Another key recommendation pertains to the current provision of DPP 2013 wherein report of the Technical Evaluation Committee is approved at the Vice Chief/Deputy Chief/Director General level in the concerned Service HQ and forwarded to DG Acquisition for acceptance. The same procedure is followed in the case of the Staff Evaluation Report. The committee is of the view that once the above two reports are approved at senior levels in the Service Headquarters, there should be no need for their ‘acceptance’ by MoD. It is a welcome suggestion and will not only avoid duplication of effort but also inject an element of trust.

Some of the other major changes recommended by the committee in DPP 2013 are as follows:

• Validity period of Acceptance of Necessity (AoN) for ‘Buy (Indian)’, ‘Buy & Make’ and ‘Buy (Global)’ be reduced to six months as Services Qualitative Requirements (SQR) for such cases are finalised prior to the accordance of AoN.
• With a view to lend rationality, clarity and transparency to the process of categorisation of capital acquisition proposals, defining attributes of each category should be incorporated in DPP.
• The Defence Procurement Board (DPB) should be authorised to approve minor deviations in SQR which do not materially alter the character of the request for proposals (RFPs) in terms of capability being sought, associated deliverables or have major commercial implications.
• The minimum threshold of the percentage of indigenous content for ‘Buy (Indian)’, ‘Buy & Make (Indian)’ and ‘Make’ categories should be revised to 40, 60 and 40 per cent respectively. Further, there should be a biennial upward revision of indigenous content across the board.
• Retraction of RFP in cases where a single vendor situation develops after technical evaluation of the bids should be avoided in ‘Buy (Indian)’ and ‘Buy and Make (Indian)’ cases, since the commercial quotes would have been submitted earlier in a competitive environment.
• ‘Performance Based Logistics’ should be preferred over ‘Annual Maintenance Contract’ model.
• ‘Total Cost of Acquisition’ model should be adopted for all platforms/systems where major elements of cost are quantifiable and verifiable, either on time basis or on running-hour basis.
• Contents of ‘Technology Perspective and Capability Roadmap’ should be more specific as regards the nature of equipment/systems that would be required to be inducted/upgraded during the next 15 years.
• Details of all schemes included in five-year Services Capital Acquisition Plan should also be shared with the industry.

Encourage Open Registration

The committee was asked to peruse draft policy on employment of agents by foreign vendors. Accepting the need to regulate the functioning of agents, the committee has concurred that the process of registration should be considerably simplified to encourage open registration. As engagement of agents by foreign vendors could either be omnibus for all their products in the region or for handling specific RFP, guidelines must cater for both the situations. To avoid any ambiguity in interpretation, uniformity of the texts of all clauses pertaining to agents in DPP must be ensured.

Debarment Must Take National and Public interests into Account

The committee was also asked to peruse the draft policy on debarring vendors for alleged misdemeanours. It concurred with the underlying philosophy that misdeeds of an entity or its employees should not be visited on the equipment/system/platform which had been carefully chosen by the Services following the prescribed procedure. Further, pragmatism demand that the issue of putting on hold, suspension and debarment of the entities be decided taking national and public interests into account.

Integration of the Private Sector

While stressing the need to integrate the private sector in the defence industry, the committee has recommended a number of measures for the provision of level playing field to the private industry vis-à-vis the public sector and the foreign vendors.

The Kelkar Committee had propounded the concept of nominating select private sector industrial entities as Raksha Utpadan Ratna (RUR), to be treated at par with the public sector for all defence equipment purposes. Somewhat on similar lines, the Dhirendra Singh Committee feels that the strength of private industry can be harnessed only through well defined partnership models, depending upon the strategic needs, quality criticality and cost competitiveness. It has suggested the creation of three types of partnership models with the private sector.

‘Strategic Partnership’ Model: For platforms of strategic importance, ‘Strategic Partnership’ model has been suggested. It aims to create capacity in the private sector on a long-term basis; over and above the capacity and infrastructure that exists in the public sector. The primary focus of strategic partners would be to support sustainability and incremental improvements in capability of platforms through technology insertions over their lifetimes. The committee has identified six segments for the purpose – aircraft; warships; armoured fighting vehicles; complex weapon systems that rely on guidance; C4ISTR (command, control, communication, computers, intelligence, surveillance, target acquisition and reconnaissance); and critical materials.

‘Development Partnership’ Model: This model has been proposed for cases where quality is critical and vendor base is very narrow. Given the quality criticality of the product required, the number of such partners in any particular area (equipment/system) would depend upon the size of the market but would typically be limited. Many ‘Development Partners’ could aspire to attain the status of ‘Strategic Partner’, depending upon their core competence and capacity. It would be a ‘fluid’ space which the industry can navigate by building their competence, capacity and quality of the product.

The ‘Competitive Model’: This model is akin to the traditional concept as is in force at present. All products that are outside the purview of strategic and development partnerships would fall in the competitive category.

In addition to the above mentioned partnership models, the committee has recommended the following measures to assist the private sector:

• Grant of exchange rate variation protection to Indian vendors.
• Making available government’s proof firing ranges and trial avenues to private players on payment basis.
• Rationalisation of taxes, levies and duties.
• Grant of benefits of ‘deemed exports’ for transactions with respect to offset contracts arising from ‘Buy (Global)’ category cases.
• Grant of incentives for R&D and infrastructure investments.

Supplementary Issues

The committee has offered a number of interesting recommendations that fall outside the purview of DPP. After carrying out a scan of the acquisition structures evolved by the developed nations, the committee has reached the conclusion that India needs a separate organisation to promote indigenous defence industry and manage defence acquisitions.

Citing the successful models of the Departments of Atomic Energy and Space, the committee has suggested creation of a distinct organisation under MoD with sufficient authority and flexibility. It could either be an attached office or an autonomous entity; but should preferably be located away from MoD as the defence security zone leads to severe limitations of access.

The committee concurred with the underlying philosophy that misdeeds of an entity or its employees should not be visited on the equipment/system/platform which had been carefully chosen by the Services following the prescribed procedure

Further, the committee has stressed the need to inject professionalism in India’s acquisition regime. With a view to equip the workforce with requisite skills in diverse fields (appreciation of technology, trial procedures, commercial negotiations and legal issues in contractual matters, estimation of costs, financing structures, project management and data analysis), the committee has suggested institutionalised training at induction level and through career for all stakeholders. It advocates evolution of a tiered system of educating the workforce with all functionaries getting longer tenures.

The committee is of the opinion that acquisition functionaries are wary of taking bold decisions as they dread being subjected to subsequent inquests. It has suggested that an environment of confidence should be built to provide a safety net to the acquisition officials. Four suggestions have been made by the committee. One, Technical Oversight Committee should be retained to ascertain adherence to the laid down procedure during the technical evaluation phase for select cases. Two, the concept of Eminent Persons Group should be reintroduced to examine observance of all prescribed processes and procedures in the course of commercial negotiations for acquisition proposals in excess of Rs. 300 crore and any other case recommended by DPB. Three, a system of Ombudsman should be set up for advice as regards grant of technical/commercial deviations and for post-contract consultations. Finally, it has been suggested that the Comptroller and Auditor General should carry out concurrent/pre-audit of major defence negotiations and contracts.

As the proposed offset policy permits three routes for the discharge of offset obligations (direct offsets, technology transfer and skill development), the committee has suggested laying down of separate guidelines for the committees managing the three avenues. After perusing the draft offset policy, the committee feels that the ongoing offset contracts as well as those in the pipeline should be allowed to run their course under the provisions of earlier DPPs. Further, the committee has sought incentives for SMEs. More importantly, it cautions that the new offset policy should be outcome-oriented rather than process-oriented.

Conclusion

MoD deserves credit for making the report public. It is a path-breaking initiative. However, expectations from the Dhirendra Singh Committee were very high, especially due to the reputation of its Chairman. It was expected to suggest radical measures to overhaul the current acquisition dispensation which has been a total failure. Sadly, all hopes have been belied. It has turned out to be a routine periodical review of DPP – a damp squib.

The report is symptomatic of the bug of consensus that afflicts all Indian policy initiatives. It appears that the committee asked every stakeholder to make its submissions on the issues that impact it. Needless to say, every stakeholder has tried to ensure that his turf remains inviolate. Any committee that tries to accommodate all interest groups can never be objective in its report. Most disappointingly, the Dhirendra Singh Committee report is more ‘status-quoist’ than reformist; and that is its biggest limitation.

Finally, although expert committees are constituted for well thought-through and holistic specialised guidance, it is for the serving officials to accept or reject the recommendations. If the past experience is any indicator, MoD will accept only those recommendations that suit it and strengthen its stranglehold on the acquisition regime. All ‘uncomfortable’ suggestions will be consigned to the dustbin. For example, corporatisation of the ordnance factories will remain a pipe dream and DRDO will continue to evade accountability.