Introduction:
India’s defense procurement process is a critical aspect of its national security strategy, aimed at ensuring the armed forces have the necessary equipment and technology to safeguard the nation. However, this process has been marred by challenges, including unrealistic requirements, delays, and occasional cancellations of Requests for Information (RFIs).
Defence Procurement Procedure:
The Indian defense procurement procedure is a multi-stage process involving various stakeholders. It typically begins with the identification of a capability gap or the need for modernization for combating emerging threats and by critical analysis of the capability of the adversary.
- Acceptance Of Necessity(AoN)
The process starts with “Acceptance of Necessity.” It is a crucial step in the defense procurement process in India. The Acceptance of Necessity is essentially a formal approval granted by the Defense Acquisition Council (DAC). This approval is given after a comprehensive assessment of the operational requirements, feasibility, and financial aspects of a proposed defense acquisition. When the Defense Acquisition Council reviews a proposal for procurement, it considers factors such as the urgency of the requirement, strategic importance, and the availability of funds.
Once satisfied with the necessity and viability of the acquisition, the DAC grants the Acceptance of Necessity, allowing the procurement process to move forward. The General Staff Qualitative Requirements (GSQRs) are typically at the Pre-AoN stages. The formulation of GSQRs involves a detailed assessment of the operational needs, technical specifications, and capabilities required by the armed forces. These requirements are developed in collaboration with the end-users, usually the military units that will use the equipment. The GSQRs serve as a comprehensive set of guidelines and criteria that potential suppliers must meet to fulfill the operational needs of the armed forces.
2. Request for Information (RFI):
The RFI is issued to potential suppliers, outlining the requirements for the desired equipment or technology. It serves as an initial step to gauge(measure) the market and gather information from potential contenders.
3. Request for Proposal (RFP):
Based on the responses to the RFI, the RFP is issued to shortlisted suppliers, providing detailed specifications and terms for the procurement.
4. Technical Evaluation:
The technical aspects of the proposals are evaluated to ensure they meet the required standards and specifications. This is carried out by the Technical Evaluation Committee(TEC). During the trial stage of defense procurement in India, various agencies play pivotal roles in ensuring the thorough evaluation of proposed equipment. The armed forces, in collaboration with agencies such as DRDO, DGQA, and representatives from OEMs/DPSUs, actively participate in meticulously planned trials. These trials encompass diverse parameters, including technical specifications and operational performance. Military personnel offer valuable feedback on usability and functionality, contributing to the refinement of specifications.
5. Contract Negotiation Committee (CNC) Stage
The Contract Negotiation Committee (CNC) stage is a pivotal phase in the defense procurement process, following successful trials. Comprising representatives from the Ministry of Defence, armed forces, finance experts, and legal advisors, the CNC aims to finalize the contract terms with the selected vendor. Key objectives include ToT transfer, offset clause, settling pricing, delivery schedules, and payment terms, addressing concerns from the trial stage, ensuring compliance with procurement guidelines, and rationalizing costs without compromising quality.
6. The Competent Financial Authority (CFA)
The Competent Financial Authority (CFA) Approval stage is a crucial step in the defense procurement process, typically following the Contract Negotiation Committee (CNC) stage. During this phase, the proposed contract, which has been negotiated and finalized by the CNC, undergoes scrutiny and approval from the designated financial authority within the government. The CFA is responsible for assessing the financial aspects of the contract to ensure alignment with budgetary constraints and financial regulations.
7. Contract Award
Represents the formal acceptance of a vendor’s proposal by the government. Following successful negotiations, approval from the Contract Negotiation Committee (CNC), and assessment by the Competent Financial Authority (CFA), the contract is officially awarded to the selected vendor.
Challenges In The Existing Procurement Process
The introduction of defense procurement processes often encounters various challenges and issues that can impact the efficiency, effectiveness, and transparency of the acquisition. Some major problems faced are
- Lack of Clarity in Requirements:
The process of framing General Staff Qualitative Requirements (GSQRs) in defense procurement faces inherent challenges, often characterized by ambiguity and unrealistic expectations. The diverse geographical and operational landscapes of India pose a unique hurdle, as the armed forces seek equipment that can perform uniformly across varied terrains. However, this can lead to complications during the subsequent stages of procurement. The challenge lies in striking a balance between aspirational goals and pragmatic needs, ensuring that the specifications defined in GSQRs are both technologically advanced and achievable within practical constraints.
In P75I project Navy demanded that the submarine should come with proven AIP system. Germany’s ThyssenKrupp Marine Systems (TKMS) could fulfill the requirement. TKMS is known for its expertise in submarine technology, and at the time of your reference, it was the only company with a sea-proven AIP system based on fuel cells. This led to a single-vendor situation, where TKMS was the sole provider capable of meeting the Indian Navy’s specifications for the P75I project.
Encouraging a multi-vendor situation in response to General Staff Qualitative Requirements (GSQRs) is a strategic approach that can bring about several advantages like offering diversified solutions for our defense needs. To address the challenges of ambiguity and unrealistic expectations in GSQRs, a collaborative ecosystem involving extensive research, industry consultation, academia, and robust Research and Development (R&D) efforts is crucial. By engaging diverse stakeholders, including defense experts, technologists, and academia, a more comprehensive understanding of India’s varied terrains and operational needs can be achieved.
- Delays During The Trial and Evaluation Stage:
The submission of incomplete or inaccurate information by vendors, coupled with delays in offering equipment for trials, and failure of the systems during trail and other technical issues constitutes a significant challenge in the defense procurement process. These issues can create substantial setbacks, impacting the overall timeline and effectiveness of the acquisition.
Dhanush, a domestically developed 155 mm towed howitzer, aimed at modernizing the Indian Army’s artillery, has faced multiple setbacks in user trials, revealing defects in the muzzle brake, loading system, and ammunition, raising concerns about safety and reliability. Additionally, allegations of using substandard and counterfeit parts, including Chinese bearings, have led to a Central Bureau of Investigation (CBI) probe, caused delay in the program.
Delays in offering equipment for trials, on the other hand, impede the timely progression of the procurement cycle, introducing uncertainties and prolonging the armed forces wait for enhanced capabilities. Enhanced communication and collaboration between procurement authorities and vendors can streamline these stages, encouraging a more efficient and faster defense procurement.
The prolonged technical evaluation timeline of 4 months and the extended 11-month duration for trial testing, often stretching into years, highlights the challenges posed by the lack of adequate test facilities and laboratories in the country. Testing across diverse terrains, essential for evaluating the adaptability and effectiveness of defense systems, adds complexity to the process. The critical objective of ensuring that the systems pass all required parameters across varied terrains necessitates thorough and time-consuming assessments. These challenges result in delays in defense procurement, hindering the timely acquisition of essential capabilities for the armed forces.
To overcome this, there is a pressing need for strategic investments in establishing advanced test facilities, collaboration with research institutions and industry partners, and leveraging simulation technologies. This not only expedites the evaluation process but also bolsters the country’s self-reliance by fostering indigenous testing capabilities, ultimately addressing the longstanding issue of prolonged delays in defense acquisitions.
- The Abrupt Cancellation Of Projects
The abrupt cancellation of projects, even after undergoing the entire rigorous procurement process, introduces a significant challenge and raises concerns about continuity and stability in defense acquisitions. Instances like the cancellation of the Medium Multi-Role Combat Aircraft (MMRCA) deal, where the Rafale had been chosen, and the Airbus A330 MRTT program for air-to-air refuelers, which Airbus had secured twice, disrupt not only the established procurement pathway but also impact the strategic planning of the armed forces. Such cancellations result in wasted time, resources, and investments made by both the government and the vendors. They also contribute to uncertainties within the defense industry and may deter potential future participants in defense procurement.
The MMRCA (Medium Multi-Role Combat Aircraft) deal, initiated in 2007, aimed to supply 126 multi-role combat aircraft to the Indian Air Force (IAF) to bridge the gap in its inventory. Despite its strategic importance, the deal encountered significant obstacles and delays during final negotiations. Issues such as pricing, the offset clause demanding 50% investment in the Indian defence sector, and concerns regarding production in India led to complications. The production aspect involved the vendor ensuring quality and timely delivery of 108 aircraft manufactured by HAL, a state-owned company. Ultimately, due to these challenges, the deal was scrapped, leading to the issuance of a fresh Request for Proposal (RFP) in 2018.
Allocating contingency funds within the defense budget to factor in potential increases in cost, inflation, exchange rate fluctuations, technological upgrades, cost escalations, unforeseen testing, or production challenges, is an effective strategy to execute the projects. By planning for these variables, defense procurement projects can be better equipped to navigate uncertainties and mitigate the risk of project cancellations due to unforeseen cost-related issues. The defence budget for FY 2024-25, Rs 1.72 lakh crore – 27.67% of total defence budget – allocated for capital acquisition, 4.72% more than FY 2023-24.
- Bureaucratic Delays
Bureaucratic delays within the defense procurement process often stem from intricate administrative procedures, hindering the expeditious execution of tasks. Red-tapism exacerbates the delays by imposing excessive and unnecessary regulations, creating bureaucratic bottlenecks that impede swift decision-making. Lack of accountability within the system allows inefficiencies to persist without consequences, further contributing to delays. Additionally, a pervasive lack of urgency among involved entities can result in complacency, slowing down critical stages of the procurement cycle. Short-sighted vision regarding strategic needs may lead to indecision or changes in priorities, disrupting the procurement roadmap. The involvement of multiple agencies, while essential for comprehensive evaluations, can sometimes lead to coordination challenges, elongating the timelines and exacerbating the complexity of the procurement process.
There is a pressing need for comprehensive scrutiny and reform of the defense procurement process in India, and this could be facilitated by institutions like Niti Aayog. In-depth assessments should involve insights from industry experts, service members, and key stakeholders. Encouraging active participation from the private sector is essential, and fostering a level playing field between private enterprises and defense Public Sector Undertakings (PSUs) is crucial for promoting competitiveness. Such an approach not only stimulates innovation but also encourages cost-effective solutions to meet the dynamic requirements of the armed forces. By leveraging the expertise of the private sector and creating a more competitive environment, the defense procurement system can enhance efficiency, transparency, and the overall effectiveness of acquisitions, aligning with the broader goals of modernizing India’s defense capabilities.
- Offset Clause
When foreign companies win contracts to provide defense equipment to India, they’re supposed to invest some money back into the country under the offset clause. However, CAG report found that one of these companies, Dassault Aviation, didn’t fully deliver on its promise to share technology with our Defense Research and Development Organisation (DRDO). Also, only a tiny bit (3%) of the money they said they would invest was done by 2019, and they plan to finish the rest by 2024. The Defense Acquisition Procedure (DAP) of 2020 empowers the Ministry of Defence to impose penalties, fines, or even suspend and blacklist non-compliant companies. This is to make sure these companies follow through on their commitments.
- Dependency On Imports
Dependency on imports of weapons causes delay in acquisition. For example the S400 systems delivery, in 2018 India inked a $5.43 Billion Dollars with Russia for five S400 systems. The first system was delivered on 2021 and til now we have received three such systems and timeline was to receive rest of systems by the end of this year, but this has delayed due to ongoing conflict. According to the Parliamentary Standing Committee on Defence, the Indian Air Force (IAF) has communicated to the committee that a significant project has been halted due to the ongoing conflict. The IAF stated that a major delivery scheduled for this year will not be fulfilled, and they have officially informed the committee in writing about their inability to complete the delivery. This is such one example there are many instances where delays has been noticed.
- Lack Of Indigenous Capability
The Tejas program faced several delays due to ambitious GSQRs, which demanded state-of-the-art technologies and features such as fly-by-wire, composite materials, digital cockpit, beyond-visual-range missiles, and an indigenous power plant, most of these technologies have been developed except the engine. The requirements, however, did not take into account the capability and resources of the organization that was working on the project. Developing our indigenous engine was pretty ambitious. But these ambitions were not backed by adequate funds for R&D, and testing systems. For example, the fly-by-wire technology of Tejas was tested in the US on an F16, and the Kaveri engine was sent to Russia for testing causing a lot of delays in the overall program. The Kaveri engine program has been put in cold storage for more than a decade now.
The budgetary allocation to Defence Research and Development Organisation (DRDO) has been increased to Rs 23,855 crore in FY 2024-25 from Rs 23,263.89 crore in FY 2023-24. Of this allocation, a major share of Rs 13,208 crore is allocated for capital expenditure. This will help strengthen the DRDO in developing new technology. Allocation to Technology Development Fund (TDF) scheme stands out to be Rs 60 crore which is especially designed for new start-ups, MSMEs and academia for developing niche technology in the field of defence in collaboration with the DRDO. The announcement regarding a Rs one lakh crore corpus for Deep Tech for long term loan to tech-savvy youth/companies and the tax advantage to the start-ups expecte to further boost innovation in the defence sector.
DAP 2020
In this context government introduced the new Defence Acquisition Plan 2020. The DAP 2020 introduces several new features and reforms to the previous defense procurement procedure (DPP) 2016. Some of the key changes are:
– A new category of Buy (Global – Manufacture in India) has been added, which allows for the import of up to 49% of the contract value, while the rest has to be manufactured in India by an Indian vendor.
– A new provision of leasing has been introduced, which enables the armed forces to acquire assets for a specified period without owning them. This can reduce the capital expenditure and maintenance costs, and provide flexibility and operational readiness.
– A new chapter on information and communication technology (ICT) has been added, which covers the acquisition of software and hardware related to cyber security, artificial intelligence, big data, cloud computing, etc.
– A new chapter on post-contract management has been added, which deals with issues such as warranty, performance based logistics, product support, etc.
– A new procedure for urgent operational requirements has been introduced, which allows for faster procurement of essential items in case of emergencies or unforeseen situations.
– A new provision of offset banking has been introduced, which allows foreign vendors to accumulate credits for future offset obligations by investing in India’s defense sector.
– A new mechanism of indigenization of imported spares has been introduced, which encourages the development of indigenous substitutes for imported components and parts.
– A new category of strategic partnership model has been operationalized, which enables the participation of private sector companies in the manufacture of major defense platforms such as fighter jets, submarines, helicopters, etc.
The DAP 2020 is expected to boost the Make in India initiative and enhance the self-reliance and competitiveness of the Indian defense industry. It also aims to ensure transparency, accountability and fairness in the acquisition process and deliver quality products to the armed forces in a timely manner.
Also Read, Tejas MK1 Vs Tejas Mk1A: Sharpened claws
Conclusion
In conclusion, safeguarding India’s security in a current geopolitical landscape and the presence of nuclear-armed neighbors necessitates the commitment of equipping the armed forces with modern, state-of-the-art weapons to ensure combat preparedness in the face of aggression becomes paramount. The government should strive to make strategic investments in cutting-edge weaponry that not only enhances deterrence capabilities but also ensures a robust offensive posture. To achieve self-reliance, encouraging indigenous research and development becomes imperative, encouraging innovation and reducing dependence on external sources. In this pursuit, a forward-looking and comprehensive modernization strategy will not only fortify national security but also position India as a resilient and technologically advance force on the global stage.
