Smoke signals from South Block

by Ajai Shukla
Business Standard, 31st July 07

The smoke signals from South Block are seldom easy to read. But going by two Ministry of Defence (MoD) statements this fortnight, it would appear that, like industrial, financial and labour reform at the national level, the MoD's voyage of reform, too, has run aground on the rocks of the Left Front. On 16th July, Defence Minister AK Antony told a MoD Consultative Committee that public-private sector defence cooperation would not be at the cost of the public sector. And this week, in a published interview, Minister of State for Defence Production, Rao Inderjit Singh has declared that private sector companies have failed to do what it takes to become viable defence producers.

The MoD had announced that credible private defence manufacturers were to be given the status of Raksha Utpadan Ratnas (RuRs), and treated on par with Defence PSUs (DPSUs) and Ordnance Factories (OFs). But two months after the Probir Sengupta Committee recommended a dozen private sector firms for nomination as RuRs, those findings are gathering dust in the MoD. Inevitably, for this government, it has begun to bow to pressures from the public sector, the Left Front and their affiliated trade unions in the public sector, officers within the MoD who benefit from the patronage networks of the PSUs, even from some private companies within the list of RuRs who would like other companies to be excluded from that club. And inevitably, the MoD has chosen the safety of inactivity over the risk of a decision.

Consequently, the Defence Minister packed his bags for J&K and got down to dispensing hazy advice to the army on vacating buildings and orchards, something normally done in the form of a clear written directive to local commanders. But after nine months of relative immobility in Delhi, Mr Antony could be discovering the same truth that guided Mr George Fernandes through five years of the NDA government: rather than putting ones head down and making the difficult decisions of defence production and strategy, it is more convenient to hare off for conversations with jawans on the frontiers.

Going purely by official statements, it would appear that major reform has been underway in the MoD since the Vijay Kelkar Committee presented its recommendations in April 2005. A new defence procurement policy (DPP-2006) was formulated in September last year. The MoD signalled that the private sector would be treated on par with the public sector in arms purchases and offset tie-ups. The software industry was promised even greater benefits. As reported in this paper, the government had decided to provide R&D funding to private sector defence manufacturers for selected projects, a key step for private companies who cannot spare the vast sums needed for R&D that might never translate into firm orders. The Defence Minister then sounded a clear warning to the public sector Ordnance Factories (OFs) at their General Managers' Conference in May this year: reform or risk oblivion. Mr Antony became the first defence minister in recent times to clearly spell out India's threat perceptions; at the Shangri La dialogue, in Singapore, this June, he identified internal unrest as India's greatest concern, more so even than China and Pakistan.

All that promise, however, has not translated into reform. Despite DPP-2006, bottlenecks in procurements starve the military of equipment. The private sector remains a fringe player in defence procurement and offsets. Not one penny in R&D funding has reached a single private defence manufacturer. The MoD's OFs continue to function as South Block's commercially challenged children, granted interest-free capital at the beginning of each financial year and guaranteed uniformed customers for whatever they produce, at whatever price they produce it. (The OFs, astonishingly, complain about not being allowed to make a profit from the defence services). And despite Mr Antony's public realisation that the army is expending more time, equipment, manpower and blood on dealing with internal issues than with warfighting, the MoD procurement department remains single-mindedly fixated on high-cost weaponry for high-intensity warfare than on providing the jawans with the equipment they need everyday: protective equipment like helmets and bulletproof jackets, all-weather combat clothing and boots, reliable communications, and night-vision equipment. This lends credence to allegations that thesimple, low cost necessities provide less opportunity for the kickbacks that accompany most defence deals.

But while Rao Inderjeet Singh questions the private sector's ability, the officer who has been nominated India's next army chief, Lieutenant General Deepak Kapoor has publicly asked why, given India's rapidly developing industrial base, the army should be bound to the DPSUs and OFs. Sharing a platform with the Defence Minister at a meeting of Ordnance Factory GMs, the general has argued for procurement from the open market through open tendering. Revealing that the OFs take 42 months to deliver new orders, even simple requirements like tents and boots, General Kapoor points out that this makes equipment obsolescent even before it enters service.

Six years after George Fernandes announced the entry of the private sector into defence manufacturing, the declarations, recommendations and statements of intent show no sign of translating into investments, R&D, orders and production of defence goods by Indian manufacturers. The public sector continues on lavish life support, while the fledgling private sector has not even made it into the incubator. So if the smoke signals from South Block are being correctly read, New Delhi's growing defence budget only means good times ahead for the global arms majors.