In a throwback to the past, the Ministry of Defence (MoD) has projected the newly released Defence Acquisition Procedure (DAP) 2020 as the as the harbinger of an Atmanirbhar Bharat in the field of defence production. At the time of writing, the document was yet to be uploaded by the MoD on its website.
Under fabrication for over a year, this magnum opus replaces the previous Defence Procurement Procedure 2016 in the belief that changing its nomenclature would inevitably effect a change in the mindset of the bureaucracy, both in the services headquarters and the MoD.
In an ironic sense it’s the equivalent of rechristening the Bollywood movie Padmavati as Padmavat in order to make it more acceptable and less offensive. This name change not only soothed the frayed nerves of those who considered the biopic an insult to their ancestry, but also assisted it in becoming one of the biggest Bollywood blockbusters in 2018.
Such a transformation is unlikely in the instance of the DAP that is a virtual potpourri of concepts and ideas, many of them regurgitated from previous years. It is a curious and an irrational mix of acquisition policy and procedure, and above all, a crystal ball through which each one can conveniently view the future as they choose.
A similar euphoria
The euphoria is reminiscent of 2012 when the new defence offset guidelines were issued – later incorporated in DPP 2013 – which this time round have been drastically diluted. Government-to-government deals that account for a large percentage of overseas equipment and platform procurements, including acquisitions from the US under its Foreign Military Sales (FMS) scheme, have been excluded from the offsets purview.
It will not be surprising if governments of other supplier countries, under pressure from their own industry, also formulate FMS-like procedure, so that they too get exemption from discharging offsets for Indian purchases, which, in any case, most foreign vendors consider as a tedious and avoidable nuisance.
Similar glee accompanied the promulgation of DPP 2016 which was based on the recommendations of the committee of experts that produced its report after extensive consultation with all stakeholders like the military, industry, think tanks, and associated concerns. Eventually it did little to transform India’s defence industry.
In 2017, the MoD announced its strategic partnership model (SPM) that was hailed as a ‘game changer’ by India’s private defence industry, a policy it was soon to bemoan, as the government opted to include the monopolistic public sector into this arrangement. Three years later no contract has been signed under the SPM.
Starting with just two procurement categories in DPP 2002 – outright purchase and domestic licensed production – the DAP 2020 has added three or four additional ones including ‘buy (global – manufacture in India)’ whose features overlap with at least two already existing categories – ‘buy and make (Indian)’ and ‘buy and make’ – all of which could possibly be combined into one. These categories are expected to proliferate to at least 11 when the document’s final version is confirmed.
New chapters, complex regulations
The expectations that the MoD appears to have is that these new categories, backed by the recent hike in the cap on foreign direct investment (FDI) to 74% via the automatic route, will inspire foreign original equipment manufacturers (OEMs) to relocate, or set up new production facilities to India.
Considering that all foreign investment will now be subject to prior-approval scrutiny, and post-approval review entirely at the government’s discretion, on nebulous grounds of national security, foreign investors may not be as keen to invest in India as the MoD seems to naively believe they would, thanks to the uncertainty the national security angle has introduced in the FDI regime.
The case for FDI under the new policy is further weakened by the embargo imposed on the import of 101 defence items that will come into effect over five years December 2020 onwards. This embargo is likely to be extended to more items, making it incumbent on the MoD to acquire indigenously designed and developed items to meet the military’s multiplying requirements.
In short, the DAP 2020 is attempting to be all things for all people but introduces more complex regulations with the addition of new chapters on acquisition of information and communication technology systems, post-contract management, and leasing which has been resorted to by the MoD even in the past.
Despite the obvious Byzantine procedures outlined in DAP 2020 no one appears to be complaining. The overwhelming sentiment in the industry and the government, on which the former is dependent, is that the shortcomings, if any, will be addressed and rectified in due course. Experience shows it can take abnormally long and can prove costly in the process.
It is routine to blame the rigidity of the complex procurement procedure for this failure, which is why MoD is continually focusing on ‘simplification and streamlining’ the acquisition processes. But that is not the entire truth as the best acquisition policies and procedures can be reduced to naught because of tardy decision-making which is endemic in both the MoD and the military.
All previous DPP editions, 2002 onwards, too were replete with good intentions. All of them provided opportunity to achieve self-reliance through greater involvement of the private sector that emerges as the battle cry of DAP 2020. However, it is incontrovertible that these opportunities to privatise defence production could not be exploited simply because timely and bold decisions were not taken or executed.
It is also unclear if any system is being created to ensure that these roadblocks in the individual acquisition programmes are removed as soon as they appear, and not to let them fester till it becomes incumbent to cancel the programme and return to the drawing board in the seemingly unending game of snakes and ladders.
Lastly, one must remember that DAP 2020, like earlier DPPs, is a compendium of procedures which facilitate acquisition, but cannot enable it unless there is adequate financial backing for all the acquisition programmes that the MoD has been grandiosely projecting.
With a deficit of Rs 1,03,536 crore between what the armed forces had demanded for the current fiscal and what they received, of which Rs 59,417 crore is for capital acquisitions, the current year’s capital budget being just about Rs 3,340 crore more than last year’s allocation, and future allocations being uncertain, it will take more than simulated excitement over DAP 2020 to become self-reliant in defence production.
Amit Cowshish is former financial advisor (acquisitions), Ministry of Defence.