Defense Industry - Part 6 - In Conclusion

So, what are the next steps forward? What has happened is history, you can’t change the past, but we can plan for the future.

The most important steps are simple and 3.

1. A vision of what India should be in terms of defense preparedness by 2050
2. A clear defence procurement procedure that is time bound with short term and long-term   objectives clearly spelt out.
3. A bipartisan, multi-party involvement in matters concerning defence and foreign policy so   that either of these don’t get sacrificed at the altar of political expediency. This should be like the red line of no negotiation endorsed and announced to the country by all political parties  jointly.

While the first and third points are not in the realm of this article, the second deserves some attention.

As was explained in the beginning, defense procurement is a different animal all together. It cannot be approached just like you would the purchase of an everyday use item. Some ideas to streamline this procedure are as follows.

1. Make the so-called agents – legally acceptable.  Define who can be an agent, decide when and how a retired officer from the armed forces can be involved in a deal. Make these public and a study of how this works in USA/ UK/ France etc can help frame the systems here better.
2. Make decisions time bound.
3. Differentiate between commoditised purchases and technological purchases.
4. The commoditised items will find multiple vendors and based on a minimum acceptable criterion can be thrown open to more bidders. Here you can even insist on local manufacturing.  Also get rid of the socialistic mindset of giving maximum opportunity. Like a tender which is valued at say 10 Cr is thrown open to even bidders who have done not more than 1 or 2 Cr biz in the past. They cannot handle a 5 to 10 times growth suddenly and it is such folks that end up bidding the lowest and finally cause delay, failure etc. 
5. When it comes to technological purchases, in the short run, convert every deal into a government to government deal to reduce the whole risk of scandals and the losing bidders scuttling the deal.
6. Last but not the least - get rid of this small is beautiful, SME mindset. SME's cannot be the engines of growth, technology etc in this sector. Instead encourage innovation, support individual entrepreneurs who bring technology or ideas to the table by giving them "independence" but supporting them with funds, coverage of risk etc. This way they may still be the so called SME but they will still focus on cutting edge technology and innovation rather than get into panic mode of "no cash to pay salary" because a project got delayed or an order cancelled or like what happens very often - no tenders this year.
7. While there can be civilian oversight on procedures and systems to be followed, giving a civilian administration the leadership and power to decide high technology defense purchases is a travesty of justice. 

Items 6 above is a real and present danger even for large companies that you have cases of a company that did say 25 Cr topline in one year, 150 Cr topline the next and then back to 20 Cr the year after. God help the employees in such companies and more so the management and if you think such a  management will be looking at innovation and technology - you need men in white coats and a padded cell.

There will other deals which fall between the two and here the approach must be different.

1. Have subject area experts hired from the industry to assist the purchasing decision so that they can bring their technical and other knowledge to help the user units in taking better decisions. The men in uniform unlike the civilian decision makers often know what they want, know what exists, but may not always be able to technically understand subjects adequately enough. Ensure that these external advisers are under strict confidentiality agreement and will not be allowed to meet/interact with bidders or even know their names. Any transgression must be dealt with ruthlessly so that no adviser would dare play mischief. These advisers would be hired on a need basis and not as a permanent employee. For example, where metallurgy or software is involved you can have experts from a Tata steel, Infosys etc kind of organisations seconded for a period to assist in a particular deal.
2. Don’t try to divide a need between as many big bidders as there are likely to be, just because you want everyone to benefit. Instead encourage Indian industry to form consortium's and jointly develop/offer solutions that we need. Instead give different industry giants different requirements so that there is a force multiplier effect. For example, the Futuristic Infantry Combat Vehicle has been in discussion for more than a decade now – read link in previous section.
3. It is ridiculous that for such a complex project there are multiple vendors like you were buying a car or bus. Also, a project such as this needs intimate knowledge of metallurgy, composites, armaments, software, automotive, electronics etc and any one company will not have all this. Instead the approach should have been to get all the potential bidders to supply concept papers and ideas, then force a consortium led by maximum 2 companies and then ensure that BOTH consortia follow the same basic technical requirements so that in the end the army does not end up with 2 totally different animals.
4. This may sound like eliminating competitive bidding or even official cartelisation but let’s see the economic impact. The so-called price difference between two bidders would be in single digit percentages. But the resultant delay would be in multiples of double-digit percentages. The delay in the FICV project in decision making over 10 years means that even at nominal inflation of 4% the cost would have gone up by 40%.  Following the same process to buy uniform clothing in a highly technical project like the FICV for example is self-defeating and costly. 
5. Once this is done there should be no changes in requirements though there can be minor improvements. Often what happens is that a project starts with wanting a bicycle to ride to office and somewhere along the way this becomes a bus to ferry people to the next town. A 10 Cr 2 yr project becomes a 1,000 Cr 20 year project and it never gets done. Any changes should be version 2, 3, 4 in future.
6. Embed an auditor to do real time audit of every project so that 5 years down the line he doesn’t evaluate the past with current knowledge and then show off his superior intelligence by pointing out deficiencies which then result in a scam even in a perfectly honest deal.
7. Today the propensity is to drag a project for years because everyone thinks that he or she is not contributing unless they bring some change. This attitude must go. Time/ Cost must be non-negotiable aspects in every major deal and liquidity damages is NOT the answer. The vendor alone cannot be penalised for delays. The purchasing team must also get “punished”. With such an approach the govt can do 3 to 5 projects in the same amount of money they spend for one project.

When an ISRO can do wonders by sending a satellite to Mars in their first attempt and also allowed the luxury of failure there is no reason why others in the defense sector cannot do so. India has the talent, capability and attitude to show results but when the attitude and approach is about a “level playing field” results are not possible. When sending a solider to war you pick the fittest, fastest, toughest and don’t talk of a level playing field by selecting the weak, infirm in the name of opportunity, equality etc. Similarly, this same approach must be followed when developing a solution for the armed forces, selecting vendors and only then success is assured.

It is 2020 and if such an approach were to be kick started today, it would still take 10 to 15 years for the results to show and hopefully by 2030/2035 India can have conventional deterrent that is in line with its size and economic might. In the ultimate analysis the entire military system is a deterrence and it’s the economic strength that’s important. But without this deterrence economic growth is also not possible.

Also hopefully the readers now understand the challenges and pitfalls in matters defense and in future reactions in public to such issues would be less jingoism and more pragmatism.