On the Threshold of a New Procurement Regime

The task force set up by the Ministry of Defence (MoD) to review the acquisition system appears to have submitted its report. Of the several recommendations the task force would have made, one made the headlines on July 21: defence procurement should be handled by the military brass, ministers should stay out of defence deals, and an external procurement agency should be set up to handle procurement and focus on indigenization.1 This is indeed an extraordinary recommendation.

Some other recommendations of the task force have also been reported: identification of areas for strategic partnership with the private sector; limitation of liability for the private sector executing defence projects; tax incentives for ‘Make in India’ projects; sharing of MoD’s testing facilities with the private sector on payment; export permission to those holding industrial license; and, permitting Indian companies to join hands with foreign companies for high value strategic projects.

Most of these recommendations make eminent sense but it will require a lot of ingenuity to work out the modalities of implementing them. Take, for example, the recommendation that an external agency should handle procurement and indigenization. Many issues, such as the composition of the agency, its charter and accountability will need to be resolved before it is set up. Otherwise, this agency will virtually supplant the ministry as well as end up facing some of the same problems that are presently being faced in various acquisition programmes.

A whole range of issues crop up in the course of procurement. These have operational, legal, financial, and even political, implications. Take, for example, single vendor situations. Though there is no absolute bar on going ahead with procurement in such situations, MoD is known to be extremely wary of doing so. What will the agency do when faced with such situations?

Or, consider the issue of allegations of corruption cropping up at some crucial stage of procurement. Presently, in such situations, MoD takes up the matter with the Ministry of Law, Central Bureau of Investigation and the Central Vigilance Commission. The proposed external agency will obviously be in no position to enter into consultation with these bodies and, in any case, doing so might defeat the very purpose of ensuring expeditious procurement.

The government will have to lay down clear and detailed guidelines for dealing with such situations, without which the external agency handling procurement might eventually be left with no option but to go back to the government for directions. This is, however, not a plea against creating an external agency for handling procurement but a pointer to the kind of work that would need to be done to make the proposed system work.

The recommendation that ministers should stay out of defence deals and that generals be allowed to take a call is baffling, apart from being extraordinary. It is baffling because the existing system is itself largely driven by the services and not administered by ministers. It will require a lot of inventiveness to execute this idea of keeping ministers out of the loop.

All decisions concerning the acquisition of capabilities required by the armed forces and the specifications of the equipment, weapon systems and various other platforms are taken almost exclusively by the services even now. Procurement proposals are initiated by the Service Headquarters concerned and considered by the Services Capital Acquisition Categorisation Committee (SCAPCC) and the Services Capital Acquisition Categorisation Higher Committee (SCAPCHC), both of which are a part of Headquarters Integrated Defence Staff. These committees have representation from various departments but are headed by three-star officers from the services.

The proposals cleared by these committees go to the Defence Procurement Board (DPB) and the Defence Acquisition Council (DAC). While these two bodies are headed by the Defence Secretary and the Defence Minister, respectively, vice-chiefs are members of the former and the latter has no less than the service chiefs as members. It is doubtful if any decision has ever been taken by these bodies against the wishes of the service chiefs and vice-chiefs, and at the behest of the minister.

In any case, these bodies merely accord the Acceptance of Necessity (AoN) which, in fact, is an approval-in-principle to commence the tendering process. Services play a critical, though not exclusive, role at all subsequent stages from drafting of the Request for Proposal (RFP), technical evaluation, field trials, staff evaluation to the penultimate stage of contract negotiation.

The civilian interface at these stages could be eliminated but the external agency will have to create necessary infrastructure to carry out these functions, including field trials, unless this activity continues to be with the armed forces. In either case, the time required for carrying out field trials, which is enormous in most of the cases, will not get abridged.

The procurement system could possibly be purged of political and bureaucratic intervention till the stage of contract negotiation. But what about the final financial approval? As of now, the services enjoy financial power to sanction acquisition proposals up to INR 150 crore. Beyond this, and up to INR 500 crore, the financial power is exercised by the Defence Minister. Proposals up to INR 1,000 crore require approval of the Finance Minister, and those beyond that limit go to the Cabinet Committee on Security.

Full financial power will have to be delegated to the service chiefs, or someone down below in the hierarchy, because that is the only way the political and bureaucratic interface can be eliminated altogether. As a logical consequence of this, the services and the outside agency handling acquisitions will have to deal directly with the Comptroller & Auditor General, the Standing Committee on Defence, the Central Bureau of Investigation and the Central Vigilance Commission.

Incidentally, one of the main reasons why procurement cases run aground is the formulation of impractical qualitative requirements (QR). It needs recalling that over a period of 18 months up to March 2012 as many as 41 Requests for Proposal (RFP) of one particular service fell through because of QR-related problems. The other two services may be better off in this regard. But as long as even one of the three services suffers from QR-related problems some way out would need to be found to ensure that the proposed external agency does not end up dealing with the consequences of ill-formulated QRs.

If the main idea behind the proposed recommendation is the elimination of the civilian interface, an easier way out could be to make the Services Headquarters fully responsible for the entire process from identification of the need to according financial approval for signing the contracts.

Again, this is not a plea against the creation of an external agency but to suggest that there is a need to consider how this mechanism will play out. Unless the task force has already gone into it and suggested the modalities of implementing the proposal, this could turn out to be a tricky issue.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India

• 1. Many Pubby ‘Let Defence Buys Only be a General Affair, says Panel’, The Economic Times, New Delhi July 21, 2015