India Intelligence Report

 

 

   New Defense Procurement Policy

 

In a radical move to limit number of scandals surrounding defense policy and increase transparency, the Federal Government announced several changes to procurement policy that is expected to reduce delays and eliminate corruption during vendor selection.

 

 

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In a radical move to limit number of scandals surrounding defense policy and increase transparency, the Federal Government announced several changes to procurement policy that is expected to reduce delays and eliminate corruption during vendor selection. Over the next 5 years, India plans to spend Rs.1 lakh crore (USD 27 billion) on defense equipment over the next 5 years and this proactive policy and procedural change is a pleasant surprise and first of its kind in current democratic setup that has almost no political accountability.

There are significant and positive changes being proposed:

  • Cascading taxation will be eliminated on Indian companies wishing to procure foreign technology or develop products indigenously

  • To increase transparency, the Defense Acquisition Council (DAC) will exhibit its requirements in unambiguous terms on the Internet and vendors would be required to register and submit bids online. DAC will also collective review bids and select qualifying equipment. Previously, requirements were a closely held secret and vendors often wined and dined decision makers to find out expected requirements and also elicit information on competing bids.

  • At the review stage, the current system involved secretive meetings alerting vendors of concern areas so they can prepare an adequate response. In the new system, joint meetings with vendors will agree on test criteria ahead of time followed by a joint review of test data.

  • In order to encourage research and development in private sector, the new policy will commission two companies to develop a prototype which one of them will be selected by the defense forces. The Government feels that this step will facilitate seeding of Indian companies and also encourage research and development in defense products. Currently, only Government owned agencies or foreign companies are allowed to bid or compete in defense bids.

The Government will retain its predecessor to “fast track” procurement for critical systems but said that a new “top down” approach will be adopted to weed out frivolous or unnecessary procurement.

Warship building will no allow companies to integrate foreign components with indigenous systems to minimize time and cost overruns in construction.

Claiming to have successfully implemented observations and recommendations by the Central Vigilance Commission and the Comptroller and Accountant-General of India, Defense Minister Pranab Mukherjee said this policy change gave him “great personal satisfactory” as the reform process was initiated by him over 2 years ago. This is perhaps the first time in recent past when politicians have been able to deliver on policy changes effectively.

However, policy and procedural changes alone will not be enough. The Government now needs to ensure that it has enough mechanisms in place that can ensure that these changes, so assiduously created, are not violated and there are stringent punitive barriers that could stop any transgressions.