India’s pragmatic policy on arms procurement Editorial 3rd Oct'20 LiveMint

India’s pragmatic policy on arms procurement Editorial 3rd Oct'20 LiveMint

India's dependence on defence imports:

• No country has ever grown into a credible military power without a robust defence industrial base of its own.
  
  
• India, unfortunately, still relies to a large extent on imported equipment for its armed forces, a dependence that has persisted in spite of various efforts.
  
  
• One of the issues that caused trouble to many defence deals is the offset policy under earlier Defence Procurement Procedure (DPP).
  
  

 

What is the offset policy?

• The offset clause requires a foreign vendor to invest a part of the contract value in India.
  
  
• The stated intent of our offset policy, in place since 2005, was for us to get back into the country, a good part of every foreign contract awarded India.
  
  
• So, it required foreign suppliers to invest 30% of the value of every deal above Rs 2,000 crore back into India.
  
  
• It was expected that the offset clause requirements will be met by their creation of local supply networks by the equipment manufacturers.
  
  
• This was expected to create a production base and generate jobs.
  
  

Problems with the offset policy:

• Today, it is amply clear that the idea did not achieve much.
  
  
• Not turning into reality: As a recent report by India’s Comptroller and Auditor General (CAG) pointed out, of the offsets worth Rs 19,000 crore expected till December 2018, only Rs 11,396 crore had shown up.
  
  
• Prince inflation due to offsets: Another problem has been the inflation of costs by vendors to cover their offset commitments, thus pushing up our acquisition bills.
  
  
• Vulnerable to corruption: The biggest issue with the 30% offset stipulation was that it made all major arms deals vulnerable to corruption. Bribes could be disguised as sub-contracts for favoured firms. 
  
  

 

New defence acquisition procedure (DAP) 2020:

• At the end of September 2020, the Indian Defence Minister unveiled a new defence acquisition procedure (DAP 2020) to replace norms issued in 2016.
  
  
• Focus on self-reliance:
  
  
• The new rules were inspired by the country’s goal of self-reliance.
  
  
• To this end, several categories of arms would now be reserved exclusively for “Indian vendors", defined as firms that are owned by resident citizens with foreign equity participation no greater than 49%.
  
  
• Domestic-input stipulations for imports:
  
  
• Since sophisticated weaponry would still need to be sourced from overseas, the revised policy introduces a new purchase category.
  
  
• Under this, an acquisition from a foreign supplier must entail technology transfer and local manufacturing.
  
  
• Indigenization of inputs must be worth at least half the contract’s value.
  
  
• Domestic-input stipulations have been upped across other categories, too.
  
  
• Dropping offsets in government-to-government deals:
  
  
• In DAP 2020, the offset clause has been removed in government-to-government deals and single vendor deals.
  
  
• The move to drop the mandatory “offset clause" has provided much relief to defence acquisition officials, as it had complicated our defence purchases and acted as a drag on technology upgradation.
  
  
• By removing offset clause, DAP 2020 made acquisition smoother:
  
  
• Our armed forces deserve the equipment they demand without any delays caused by a complex acquisition processes.
  
  
• Thus, a clean purchase process with no offset strings attached, like the DAP 2020 has provided for, would lower the risk of big deals getting trapped in scandals at the cost of national defence.
  
  
• DAP 2020 has also enabled leasing:
  
  
• The DAP 2020 also provides for the option of leasing defence equipments.
  
  
• While India has leased military equipment in the past, it has generally been through the government-to-government route, but now the process will be more open.
  
  
• It will allow the government to hire equipment from either domestic or foreign vendors.
  
  
• This will be useful for military equipment not used in actual warfare, like transport fleets, trainers, simulators etc.
  
  
• This is another welcome that provides flexibility in acquiring defence equipment, and will will significantly help in bringing the costs of procurement down.
  
  

 

Conclusion:

• As geopolitical tensions in Asia rise, the threats faced by our country add urgency to the cause of defence preparedness.
  
  
• While India has always advocated dialogue as a means to resolve international disputes, it should nevertheless be prepared to rapidly deploy high-end hardware in case of an emergency.
  
  
• India will require a variety of weapons to stave off various forms of external aggression, and DAP 2020 is a good forward looking policy in this regard.
  
  

 

Importance:

GS Paper III: Defence & Security