Governance

Governance : Massive Army, Miniscule Spending

The 29th report of the Estimates Committee that was chaired by veteran BJP MP, Murli Manohar Joshi, raises many alarming questions about India’s defence preparedness. The most severe indictment is that India’s defence budget as a percentage of GDP at 1.56 per cent has fallen to the 1962 levels. The acute shortage of funds for capital acquisition has had a devastating impact on the modernisation of our defence forces. The lack of direction for accelerating strategic partnerships with the private sector, long-drawn procurement policy and delay in the supply of indigenously manufactured weapons systems have further compounded matters for the worse. Excerpts of the observations and recommendations.

indian-army-at-borderIncreasing the Expenditure on Defence Services
The Committee notes that India with its strategic location, with a coastline of about 7,500 km and land borders of 15,000 km of which 3,323 km are with Pakistan and 3,380 km with China, its western, north-western, northern and north-eastern borders remain volatile because of historical as well as strategic reasons and internal security threats, need defence preparedness to be kept consistently at the highest level.

From the data made available to the Committee, it was found that defence expenditure has marginally increased since 2014-15 and when compared to Central Government Expenditure (CGE), the percentage has declined from 13.15 during 2014-15 to 12.20 during 2017-18. Defence expenditure when analysed as a percentage of GDP, in the last few years it has ranged between 2.06 per cent (2014-15) to 1.56 per cent (2017-18).

The Committee noted that the defence expenditure at 1.56 per cent of GDP was at the lowest level since 1962, when India-China war was fought. In the current geo-political scenario, a country of the size of India cannot afford complacency when it is a question of defence preparedness even for a two-front war while retaining its dominance in the Indian Ocean. The Committee therefore, strongly emphasises that allocation of adequate financial resources for defence preparedness both for the current needs and expansion and modernisation plans should be accorded highest priority to enable the services to meet the challenges concerning safety and security of the country.

defence-services-estimatesThe Committee expresses its unhappiness that the share of Capital Expenditure as a percentage of the total Defence Services Expenditure is abysmally low and is continuously declining over the years. In the years 2012-13 and 2013-14, the share of Capital Expenditure was 39 per cent in each year, which in the year 2017-18 and 2018-19 came down to 33 per cent and 34 per cent, respectively. What is more worrisome is the situation whereby the procurement has to be adjusted as per the budgetary allocations made by the Government which are not as per the requirements projected as per Long Term Integrated Perspective Plan (LTIPP). It observed that allocations under the capital head are made for procurements for our services, which include defence equipments, weaponry, aircrafts, naval ships, constructing roads and bridges in border areas, etc. and any decrease in capital expenditure has an adverse impact on modernisation process of our forces and tantamount to compromising safety and security of our country.

Nothing concrete has been done for implementation of the strategic partnership model unveiled by the Government in May, 2017, which envisaged private players playing a key role in building military platforms like submarine and fighter jets in India in partnership with major global defence companies

The Committee finds the present situation unacceptable whereby the allocations are not being made as per the LTIPP, thereby defeating the purpose of having long term defence plans. It, therefore, recommends that the capital procurement budget should be in consonance with the projections made by the services as per LTIPP.

The allocations made at the Budgetary Estimates (BE) stage have been consistently reduced at Revised Estimate (RE) level, and even the reduced allocations could not be utilised fully during the years 2014-15 and 2015-16. In this scenario, the Committee was not able to appreciate the remarks of the Secretary, Defence Acquisition, during the course of deposition that they hear from the Department of Defence that the requirement of the forces is very high and the fund allocation to that extent is not there. The Committee, therefore, while recommending for adequate allocations for defence production would like the department to analyse the reasons and take corrective actions to ensure that the resources allocated are fully utilised which would help in getting further higher allocations in the coming years.

revenue-and-capital-expendiSelf reliance in defence
During the course of examination, the Committee was apprised by the Department of Defence Production that out of total defence production around 40 per cent is produced indigenously and 60 per cent is imported. The Committee while expressing serious concern over the prevailing situation observed that dependence on foreign suppliers particularly for military hardware not only results in huge expenditure on import of defence equipments but makes the security of the country vulnerable as during emergency situations the supplier may not provide us the required weapons or spare parts.

Nothing concrete has been done for implementation of the strategic partnership model unveiled by the Government in May, 2017, which envisaged private players playing a key role in building military platforms like submarine and fighter jets in India in partnership with major global defence companies.

defencce-expenditure-as-shaShortage of ammunitions
The Committee during the course of examination was apprised by the Ministry of Defence that the shortage strictly in the totality is not there yet there are 10-15 ammunitions where there is shortage and some of them of a critical nature.

Ordinance Factory Boards (OFBs) / Defence Public Sector Undertakings (DPSUs) have achieved some expertise in armaments and weapon manufacturing, although dependency on imported parts and systems is an area of concern. As far as production of armaments by Ordnance Factories is concerned, the dependency on imports with regard to heavy equipment has considerably decreased. For T-90 tanks, the dependency on import has decreased from 40 per cent to 13 per cent as stated by the representative of MoD during the course of evidence. The Committee still feels that more needs to be done to reduce our dependency on imports.

Acquisition/ upgradation for IAF
The Committee understands that a large proportion of our defence hardware has served its useful life cycle and now need to be replaced urgently. From the information given in Annual Report 2016-17 of the Ministry of Defence, it is noted that the IAF is on a trajectory of modernisation. The draft Defence Production Policy 2018, speaks about reducing current dependence on imports and to achieve self-reliance in development and manufacture of various weapon systems and platforms, which includes fighter aircrafts, medium lift and utility helicopters.

‘Why can’t our defence manufacturers produce a decent rifle?’

In an exclusive interview to gfiles, Chairman of Parliament’s Estimates Committee, Murli Manohar Joshi, highlights the urgent steps needed to boost India’s defence preparedness in context of the report published by the committee that has pointed out serious flaws in the country’s defence sector. He spoke to Vivek Mukherji

Could you provide some historical context to India’s defence planning?
During the initial years after independence, the guiding philosophy for defence was ‘arms in war, farms in peace’. I think, this was the initial error and an incorrect understanding. That did not help us in having a very long-term view of India’s security. Personally, I feel that, in the beginning defence and development were two different things and we made a mistake there. We should have combined the two. Going back to 1965, I started raising the issue of ‘development through defence’. As a student of science, I understand that today’s defence requires a lot of scientific inputs that a country can use. I believe that historically, our scientists and industrialists suffered from a handicap because there was no marriage between defence and development.

So, you are saying that today’s problems in India’s defence preparedness are due to the lack of a long term vision?
For both defence and development, a country needs a long term vision. If you are talking of development today, you have to think of 50 years ahead. For example, in 1947 India’s population was 30 crore, but today it’s one billion plus 30 crore, therefore, if you plan now on the lines of 1947, it’s not going to work. Similarly, in defence planning the entire nature has changed—the nature of warfare has changed, the technology has changed. It’s no longer just a territorial war, it’s also an economic war, it’s cyber war etc. Therefore, the concept of defence itself is much wider now.

murli-manohar-joshiThe report talks about the importance of Long Term Integrated Perspective Plan (LTIPP), which should the guiding principle for defence planning. What are your thoughts on that?
For a long term integrated plan to work, you need to have a holistic picture. It’s just not about integrating the army, navy and air-force, it’s also about integrating technology, it’s also about integrating the tooth and the tail, which in turn is about integrating with the general economy of the country. A long term integrated plan cannot be implemented by adopting a fragmentary approach.

The report highlights a sliding ratio between revenue and capital expenditure. Today it’s about 65:35, which means not enough resources are available for buying new equipment and weapons. How do you look at this scenario?
In the case of armed forces (army, navy and air-force), active life of every individual doesn’t go up to 65. For those who are in the active field, there are so many constraints: some of them after reaching a certain age become unfit to meet the challenges of soldiering in harsh conditions, some leave the service after getting injured, etc. So, there is always a big churn where a large number of people retire from the armed forces and an equal number of people have to be inducted to keep the headcount intact. This leads to a huge strain on the pension funds. And now it constitutes a big component. That’s why you have this 65:35 ratio. No doubt, this is a big challenge for military planners because at the same time you have to maintain sufficient number of fighting-fit manpower to meet the threats posed by two hostile neighbours. Similarly, you have to maintain enough manpower to guard your coasts, because the extended maritime zone also needs to be protected.

So some of the problems you mention are legacy issues.
Yes, there is historical aspect to it. Besides the problem of Pakistan, there is the Tibet issue. I don’t know how it happened; otherwise it could have been a buffer zone. The coming of the Dalai Lama to India has in a way created a permanent tension with China, if not outright hostility. Then you have to guard against ingress of people from lesser developed countries on our borders. Given that India’s security issues is a multi-faceted problem. Therefore, you have to mop up resources. And of course, all governments need to indulge in populism to some extent, which cannot be wished away, because at the end of the day, the reality is that people don’t vote for a politician who just talks of logic and sense. For a government to remain in the saddle, it has to be appealing to the masses though either props or sops. Therefore, coming back to my original point that there has to an integrated vision in all spheres of nation building of which defence is an integral part, which should be evolved through national consensus that looks ahead over a period of, say, 50 years. Unfortunately, at the moment, I don’t find an integrated long term vision in the discourse of any political party.

The report is quite critical about the fact that India’s defence expenditure as a percentage of GDP has gone down during the tenure of the present government. How do you react to that?
You have to interpret it in a slightly broader sense. Defence expenditure as a percentage of GDP has been declining for quite some time now. It’s not peculiar to this government. Also, the fact is that the GDP has expanded. So, in absolute terms it has increased, but when you compare it in percentage terms, it shows a decline. The report simply points out that this absolute number should be a little more.

For the period that the report deals with, the Finance Ministry and the Defence Ministry was headed by the same person. Does it mean that whatever the Defence Ministry proposed, the Finance Ministry disposed?
The general rule is that in the government, what the right hand does, the left hand doesn’t know and vice versa. The principle of bureaucratic functioning is that it’s highly compartmentalised. So, the Finance Ministry will look at a problem only from its perspective, while the Defence Ministry has a different approach to a problem, which is more expenditure driven. It has been like this for a long time, and just not peculiar to this government. Defence has been saying all along that we are handicapped due to insufficient allocation of funds, and that’s true, while finance has been saying all along that we are giving you more than our capacity to spend, which is also true. This kind of a situation can be avoided only through integration of different functions of the State and different arms of the State. In my opinion, we need a radical change in the mindset with which we perceive defence.

Another critical aspect that the report highlights is that defence manufacturing India suffers from serious flaws. For example, Mazagaon Docks Limited (MDL) takes 50 percent more time than global norms to deliver ships and some DPSUs have not been able to service orders placed in 2004. How do you react to this?
The findings are based on the replies provided by the manufacturers or the Defence Ministry. Each unit has some problem or the other. For example, in the case of MDL, the deliveries have been affected due to supply of materials due to procurement issues. Therefore, procurement, manufacturing and demand have to be streamlined. That is a big problem and has to be sorted out as quickly as possible. For a number of years, the Ordinance Factories operated in silos, the Ordinance Factory Board behaves like a high-powered board that treats it factories as it fiefdom. There should have been a more open policy for indigenous manufacturing. The private sector could have been allowed into defence manufacturing long time ago. If ordinary people in Bihar are manufacturing rifles and copies of AK-47, why can’t our defence manufacturers produce a decent rifle, especially, when the talent is available right at the doorsteps? To turnaround indigenous defence manufacturing we need to change the way of our thinking and a national consensus needs to emerge from within among the various political and economic thinkers.

Further the procurement for various aircraft and helicopters is underway, inter-governmental agreement for procurement of 36 Rafale aircraft from France has been signed on 23 September, 2016; C-130J has already been inducted and the delivery of balanced aircraft is likely to be completed by July 2017; delivery of AH 64E Apache Attack Helicopters and Chinook Heavy Lift Helicopters is expected to be completed by March 2020. Besides Mirage 2000 and MiG-29 aircraft upgrade is under progress and few upgraded aircraft have already been operationalised.

It was observed that as per the standard norm at any time, there should be 70 per cent serviceability of aircraft. But the Committee, during the course of evidence was apprised that the availability/serviceability was 60 per cent.

The Committee noted from the Annual Report 2016-17 that current lot of Su-30 MKI aircraft are being manufactured in HAL through Transfer of Technology (ToT). With regard to Tejas, the first fighter squadron of the IAF with LCA Tejas aircraft has been formed on July 1, 2016. The Ministry of Defence apprised that an investment of around Rs. 15,000 crore is estimated to be made in the next five years towards enhancing production rate of LCA Tejas from 8 to 16 aircraft.

One of the expert who deposed before the Committee was all in appreciation for the indigenous production of Tejas and was of the view that Tejas product can be the bulk aircraft for Indian Air Force. The Committee would like the government to take all the desired initiatives for increasing the production rate of LCA Tejas by HAL not only for our Services but also for exports to other countries.

The Committee noted that on the one hand, the Secretary, Defence Production, during the course of deposition has stated that HAL have already got the orders of 40 Tejas and another 83 would be sufficient for next 25-26 years, HAL in response to queries raised during the informal discussion with them during the study visit stated that the firm orders to HAL would be liquidated by 2020-21.

The IAF is using Pilatus PC-7 aircraft for basic training purpose and 75 of these aircraft are directly procured from OEM. Further requirement of basic training is proposed to be met by HAL’s indigenously designed basic trainer aircraft HTT-40. Defence Acquisition Council (DAC) has cleared the procurement for 70 aircraft for IAF. The production of these aircraft is expected to commence during 2019-20.

For the advance training, IAF is using Hawk aircraft which is manufactured by HAL under Transfer of Technology from BAE System. HAL has so far supplied 82 Hawk aircraft to IAF and 17 Hawk aircraft to Indian Navy. Quotation has been submitted by HAL for additional requirement of 20 Hawks for IAF. Also, Navy has initiated action for 12 more Hawk aircraft for which HAL has submitted a budgetary quote.

The Committee was apprised that a total 16 Dhruv helicopters have met with accidents. The reasons for these accidents as brought out in the report of Court of Inquiry (CoI) have been mainly attributed to human error and environmental factors.

Shortage of Night Vision Equipment
As per the status of Night Vision Equipment as stated by the Ministry of Defence in respect of Indian Army, as on date the holdings of night vision equipment vis-à-vis authorisation are ranging from 70 per cent to 80 per cent. The deficiencies are due to routine discard for which procurement cases are actively being processed. The Committee was further apprised that a contract for the procurement of night vision Goggles for C-130 Aircraft has been signed on 16.09.2016. It was also found that third-generation night vision devices like Electro Optical Fire Control System (EON-51) and Stabilised Optronic Pedestals (SOP) have been fitted on Indian Navy Ships. The Committee while taking note of the importance of Night Vision Equipment for military operations, would like to stress for taking the desired initiatives to meet the deficiencies.

Ordnance Factory Boards
The turnover of the OFBs during 2015-16 was Rs. 1,4158 crore, which is proposed to be increased to Rs. 20,000 crore in three years. With regard to modernisation of OFB, the Committee fund that Rs. 2,956 crore were spent during 11th Plan and during 12th Plan, the amount spent on modernisation increased to Rs. 8,635 crore, i.e., which is nearly three times increase from the spending during the 11th Plan.

During the course of examination the Committee was apprised about the major challenges before the OFBs such as non-uniform demand from armed forces and security forces, uneconomic quantities to be produced to meet strategic needs, difficulties in entering into long-term agreement with dedicated vendors and low scale of production which does not attract the vendors to respond to LTE/OTE.

Major-General-BC-KhanduriStrengthening DPSUs
With the objective of achieving self-reliance in defence production, the DPSUs which include the Ordnance Factories have been continuously modernising and upgrading their capabilities and expanding their product range. DPSUs, through in-house research and development initiatives, have developed a large number of products and produced equipment through transfer of technology. However, due to high dependence on external content, low percentage of value addition in the DPSUs, low labour productivity and high production costs, the DPSUs have not been able to meet the defence requirements of the country. Moreover, delays on the part of foreign suppliers also lead to cost and time overruns in the development of weapon systems.

For example, the manufacturing of warships and submarines in Mazagaon Dockyard Limited (MDL), in the past, got delayed because foreign suppliers did not supply vital components in time. The Committee was informed that to overcome the shortcomings observed during the earlier built ships and also to improve the productivity and reduce the build periods, development of weapons and sensors is being expedited through DRDO and DPSUs through various routes such as ‘Buy and Make’, ‘Buy and Make (Indian)’ and ‘Make’ acquisition process.

Gaps between orders received and delivery scheduled
From the data made available, the Committee found that the overall value of production of 10 DPSUs, which include OFBs, has increased from Rs. 4,1047.74 crore during 2013-14 to Rs. 54132.36 crore during 2016-17. However, the data of performance of individual DPSUs indicates that in MDL and Garden Reach Shipbuilders & Engineers (GRSE), the value of production has decreased from Rs. 4,169.64 crore and Rs. 1707 during the year 2015- 16 to Rs. 3,510 crore and Rs. 936.70 crore during 2016-17 respectively.

While noting that harnessing the potential of the private sector, using its management, scientific and technological skills may be key to achieving total self-reliance, the Committee found that there is no existing mechanism to facilitate public-private partnership in the defence sector

The Committee further found that the percentage achievement with regard to supply of ammunition to the army by the OFB has been stated by the Ministry as 93, 98 and 91 per cent during the years 2014-15, 2015-16 and 2016-17 respectively. However, the overall data of indent for 2014-19 has been stated to be Rs. 26, 475 crore against which delivery made till March, 2017 has been shown as Rs. 12,919 crore, which do not commensurate to the percentage achievement that has been stated as more than 90 per cent.

One of the experts drew the attention of the Committee towards long time taken for production of destroyers by MDL, which takes almost five years, whereas the same kind of vessels can be produced in 2-2.5 years in Asia and globally. In this context, the Department of Defence Production has apprised the Committee that due to the several productivity measures undertaken recently by MDL, the average build period is expected to come down from earlier 88 months (P15A Destroyers) to 72 months (P15B Destroyers).

The existing procurement system for advanced weapons involves three stages. The first stage is the issue of Request for Proposal (RFP) and second stage is that of field trials. The second stage takes considerable time—sometimes up to two years for completion of trials. The third stage which requires caution and diligence is the most difficult stage of contract negotiation stage making procurement and acquisition of defence hardware a long drawn process where there is involvement of a large number of stakeholders.

The introduction of the DPP 2016 tries to redress the situation. The Committee feels that with proper advance planning the time taken during the first and second stages could be substantially reduced, which would address the issue of shortage of required defence hardware with the defence forces.

The allocations made at the Budgetary Estimates (BE) stage have been consistently reduced at Revised Estimate (RE) level, and even the reduced allocations could not be utilised fully during the years 2014-15 and 2015-16. In this scenario, the Committee was not able to appreciate the remarks of the Secretary, Defence Acquisition, that the requirement of the forces is very high and the fund allocation to that extent is not there

Partnership with private sector
As per Stockholm International Peace Research Institute (SIPRI) data, India’s share in global arms imports during 2012-16 is 12.8 per cent. In order to achieve maximum self-reliance in the defence sector, the Government has provided incentives to private sector under the Make in India programme. It has allowed 100 per cent FDI in defence sector—while up to 49 per cent FDI will be under automatic route, FDI above 49 per cent will be through the government route where it is likely to result in access to modern technology. Further as per the draft DPP Policy 2018, FDI regime in defence would further be liberalised and FDI up to 74 per cent under automatic route would be allowed in niche technology areas.

While noting that harnessing the potential of the private sector, using its management, scientific and technological skills may be key to achieving total self-reliance, the Committee found that there is no existing mechanism to facilitate public-private partnership in the defence sector. Moreover, the strategic partnership model formulated for defence production does not specify a clear role for major defence PSUs. There seems to be a total lack of coordination among the government agencies in so far as integrated approach to public-private partnership in defence sector is concerned.

Performance of DRDO
The Defence Research and Development Organisation (DRDO) is the premier institution in defence research in the country with more than 50 laboratories, 5000 scientists and 20,000 other scientific, technical and supporting personnel and a budget of about Rs. 13,600 crore which is about 5.5 per cent of total defence budget.

One of the expert who deposed before the Committee was all in appreciation for the indigenous production of Tejas and was of the view that Tejas product can be the bulk aircraft for Indian Air Force. The Committee would like the government to take all the desired initiatives for increasing the production rate of LCA Tejas by HAL not only for our Services but also for exports to other countries

Against this background, the Committee are surprised to note that the country has to depend on foreign suppliers not just for sophisticated weapons but also for basic defence armaments and that DRDO has not been able to meet nation’s expectations. The 2015 report of C&AG that an examination of 14 mission mode projects, carried out by DRDO laboratories, revealed that all projects failed to achieve their timelines and the probable date of completion (PDC) was extended many a times.

These mission mode projects include the crucial S-band surveillance system ‘Rohini’ radars, secure video and fax communication between airborne platforms and ground station ‘Meghdoot’ and electronic warfare suit for the modified MIG-29 fighters. A high-powered committee constituted by the Ministry of Defence, which reviewed the functioning of DRDO, said that at least 11 laboratories of the DRDO need to be closed down or amalgamated and its “non-core” research activities stopped.

Defence Preparedness for Future Wars
There has been a fundamental change in the nature of modern warfare. Apart from maintaining a massive conventional arsenal, countries also need to prepare for future wars. Future warfare is headed towards cyber warfare, drones, automated warfare systems, stealth technology and precision guidance. The foundation of such warfare systems are information technology and artificial intelligence.

One of the experts drew the attention of the Committee towards long time taken for production of destroyers by MDL, which takes almost five years, whereas the same kind of vessels can be produced in 2-2.5 years in Asia and globally

However, the Committee feels that the country needs to invest more resources on getting ready for futuristic warfare and also leverage its capabilities in information technology for this. The Committee, therefore, recommends that the Government may take steps for constituting an institutional arrangement to oversee the state of preparedness of the country in futuristic warfare.

Adequate flexibility should be introduced in the system to leverage our capabilities, including those existing in private sector, in other related sectors such as space technology, information technology and artificial intelligence for preparation relating to futuristic warfare.

indian-armyContract Writing
Entering into contract with foreign governments and foreign defence suppliers is a highly specialised job. The Committee was apprised by the Ministry of Defence that as per standard composition of Contract Negotiation Committee (CNC), Acquisition Manager, Technical Manager, Finance Manager, Advisor Cost along with representatives of DGQA/DGAQA/DGNAI, user departments and SHQs are nominated in CNC. The expert who deposed drew attention to the lack of expertise in writing contracts due to which the foreign suppliers are able to take advantage of loopholes and maximise their profits and, at the same time, adversely affect our interests.

It has specifically been mentioned that when the aircraft is manufactured under ToT, OEMs do not provide ToT for critical and high-end technology items. The aforesaid contention of HAL clearly indicates need for making our contract writing system more professional so as to fully protect the interest of Services/country.

The Committee, therefore, feels that a dedicated team of personnel who have sufficient expertise in contract writing, particularly in defence acquisitions, is the need of the hour. Accordingly, it recommend that the ministry may take steps to create a team of skilled personnel with adequate training for writing contracts in the defence acquisitions. gfiles end logo

(Note: The observations and recommendations of the report have been edited for brevity)

GOVERNANCE / Defence / Report / VIVEK MUKHERJI
VOL. 12 | ISSUE 7 | OCT 2018
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