With the Modi Government returning to power, expectations of deeper and far-reaching reforms are high across various ministries and departments. The Ministry of Defence (MoD), which has already undertaken a plethora of reforms during the last five years, is expected to walk along the reform path and build on previous initiatives to further strengthen defence preparedness and build a credible defence industrial base.
This Policy Brief outlines 27 reform measures in four broad areas – planning, budget, procurement and Make in India – for the new government’s consideration
In one of the boldest defence reforms in recent history, the first Modi Government had set up in April 2018 the Defence Planning Committee (DPC) under the chairmanship of the National Security Advisor (NSA). The NSA also replaced the Cabinet Secretary as the chairman of the Strategic Policy Group (SPG), one of the three-tier structures of the Prime Minister-led National Security Council (NSC). The purpose of the powerful DPC is to facilitate comprehensive and integrated defence planning, which has been a grey area in the MoD’s planning mechanism since it was put in place in the aftermath of the 1962 war.
With the mandate, inter alia, to articulate a national security strategy, develop a holistic defence plan, keeping in view the critical requirements of the armed forces as well as resource constraints, and prepare a comprehensive R&D and manufacturing plan, the DPC’s role assumes critical importance in bridging the historical shortcomings.
In view of its mandate, the DPC may like to bring out the following:
-- A National Security Strategy articulating the key security challenges and objectives.
-- A truly prioritised and realistic 15-year Long-Term Integrated Perspective Plan (LTIPP) and five-year and Services Capital Acquisition Plan (SCAP), taking into account both inter- and intra-service priorities, to focus on the capability development of the armed forces and meet the requirements of the modern warfare in its various forms.
-- A roadmap for defence R&D and manufacturing to support Make in India and achieve self-reliance in defence procurement.
With a budget of Rs 4,31,011 crore in the Interim Budget 2019-20, MoD accounts for 15.5 per cent of total central government expenditure (CGE). However, a very large portion of this budget is earmarked for manpower costs (Pay and Allowances, and Pensions), which has also witnessed a hefty rise after the implementation of the recommendations of the Seventh Central Pay Commission (CPC) and the One Rank One Pension (OROP) scheme.
As a result, the capital procurement budget, which is critical for defence modernisation, has seen a marked fall in its share in the budget. In fact, spending on modernisation has declined from 26 per cent of the MoD’s expenditure in 2011-12 to 18 per cent in 2018-19
The present Defence Procurement Management System and its structures, consisting of a number of hierarchical organisations – Defence Acquisition Council, Defence Procurement Board and Acquisition Wing, among others – and the Defence Procurement Procedures (DPP), have come a long way since their creation in 2001. The established structures and procedures have streamlined many aspects of acquisition through the periodic revision of the DPP. The organisational structure has, however, remained largely unchanged, and so has the way defence procurement is undertaken as well as the professional competence of those undertaking it.
This unreformed organisational structure has come in the way of efficiency and efficacy of procurement, as observed repeatedly by the Comptroller and Auditor General of India (CAG) in various audit reports. In its eye-opening performance audit report of 2019, which deals with 11 capital acquisition projects of the Indian Air Force (IAF), the CAG has unambiguously pointed out that the existing organisation has “resulted in diffused accountability” as it involves numerous agencies that are accountable to different administrative heads.
Elaborating upon this complex chain of agencies involved, the CAG notes that, on an average, a high value procurement proposal has to pass through 80 members across eight different committees before being sent to the Cabinet Committee on Security. Such a cumbersome committee system with multiple decision points is a perfect recipe for inefficiency and delays
The de-centralised structure has also resulted in two crucial tasks of acquisition – formulation of qualitative requirement (QR) and technical evaluation of equipment - being performed without full regard to the spirit of DPP provisions, leading to complications in the latter stages of procurement. The above-mentioned report of the CAG notes that the QRs, instead of being expressed in broad operational and functional terms, continue to be expressed “in terms of detailed technical specifications, often asking for specific design or technology.”
Providing some crucial evidence in this regard, the report notes that in the case of the Medium Multi Role Combat Aircraft (MMRCA) and Attack Helicopters, the QRs of the IAF contained 660 and 166 parameters, respectively! This, says the CAG, “created bottlenecks during technical evaluation”, as “none of the vendors could fully meet” all the parameters. In fact, the supreme auditor has noted that, in 90 per cent of cases, none of the bids submitted by vendors could meet all the IAF’s QRs.
Furthermore, the auditor also points out that, at times, the QR parameters are “vendors driven”, besides being unrealistic as they could not be met by even some of the biggest defence companies in the world. Such a narrow approach to QR formulation, which is key to determine quality, price and competition, is bound to complicate procurement and derail acquisition.
In a similar vein, the auditor has also pointed out the lack of objectivity and fair play in technical evaluation, citing instances where “equity was not maintained while evaluating the products of different vendors.”
In addition to shortcomings in the formulation of QRs and evaluation process, the acquisition machinery also suffers from lack of professional expertise to undertake the assigned tasks. This is particularly exemplified by the estimation of benchmark prices for assessing the reasonability of bid price.
In the IAF acquisition report, the CAG notes that in 10 projects for which the MoD undertook efforts to estimate the benchmark price, the said price was significantly higher or lower than the bid price in eight cases. In one case, the benchmark price was a whopping 61 per cent lower than the bid price! Such price estimation, obviously, serves very little purpose other than delaying an already complex and time-consuming negotiation process.
In view of the above shortcomings in the acquisition system, the MoD may like to:
-- Explore the possibility of setting up a separate, integrated Department of Defence Acquisition (DDA) by centralising all acquisition related functions including those of QR formulation and trial evaluation, under one administrative head. The DDA may be headed by a dedicated Secretary level official to provide the required authority and importance to the organisation.
-- Set up a dedicated trial command and an integrated QR cell under the authority of the DDA to perform the required task objectively and professionally.
-- Establish a robust costing cell within MoD to assess the reasonability of price bids of vendors and support acquisition decision making.
-- Take steps to professionalise the acquisition staff by providing suitable training on acquisition matters. (end of excerpt)
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