Graft endemic to MoD system

[Bhadra]

Graft endemic to MoD system

The Indian defence establishment, modelled somewhat on the Soviet system, is a closed universe which does not permit access to any healthy external market forces or influences



New Delhi: Two months ago, at the peak of the 'Tatra gate'/COAS versus MOD imbroglio, I had attempted an analytical understanding of corruption in defence procurements - 'why' does it occur and what is special about it, 'where' does it occur and 'how' does it occur.

Some of those arguments need reiteration and some further peculiarities of the Indian Defence establishment need to be highlighted because corruption is so deeply embedded in the very architecture of the establishment that only a radical redesign can offer a way out. On the question of 'why' I had referred to the 'monopsonistic' (a monopoly on the demand side) nature of the defence market, combined with, paradoxically a limited number of suppliers because of the whimsies and uncertainties of the market. A perverse kind of monopoly therefore prevails both on the demand as well as the supply side leading to an extremely unhealthy buyer seller relationship.

Structure

The Indian defence establishment, modelled somewhat on the Soviet system, is a closed universe which does not permit access to any healthy external market forces or influences. The Defence Empire consists of three distinct Kingdoms each having its own duchies, provinces, satrapies and fiefdoms. These are the Department of Defence, the Department of Defence Production and the Department of Defence Research. Each of these kingdoms has its own, exclusive, 'rent seeking' preserves which it jealously guards. The kingdoms of Defence Production and Defence Research, in particular, control gigantic establishments,-PSUs, Ordnance Factories and Defence Laboratories- all hugely lumpy, capital guzzling investments. The ostensible justification for these monstrously inefficient investments is to achieve some kind of strategic self reliance. Private industry has to be kept away except by way of reluctant ancillarisation and supply of some components - a process which opens up yet another area of rent seeking opportunities.

The Armed Forces work out their present and futuristic requirements, qualitatively (the GSQRs) and quantitatively and communicate these to the Defence Research establishment. The DRDO develops the products to match these requirements. The Armed Forces try out and approve the prototypes or the pilots and then Defence Production comes in to 'designate' one of their units to (a typical Indian usage) 'productionise' the product. The product is inducted into service and everyone lives happily thereafter, until the next product development cycle begins. Because everything is within the confines of the MOD it is supposedly insulated from corrupting influences from outside.
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(Continued)

 

[Bhadra]

Graft endemic to MoD system

Practice shows a perfect perversion of theory. First, each kingdom and each fiefdom within each kingdom has its own bewilderingly complex procedures, and crossing each stage of these designed hurdles requires intermediation, facilitation and payment of 'rent'.

Rent seeking opportunities increase geometrically. By way of illustration, those framing GSQRs do so primarily by drooling over Janes's catalogues and cherry picking specifications from different competing products in the hope that they will achieve the best combination. The smarter international players try to enter at this stage itself to influence the framing of requirements in a way that is favourable to their existing product range or the ones they are developing for the international market. Considerable sums exchange hands at this stage itself.

Process

Once framed and passed on to the Defence Labs the Labs decide which are the parts of technology they themselves will develop, which aspects they will seek technology cooperation with international partners and which parts or components they will fully import and then integrate with the full system (e.g the engine in an aircraft or a tank).

Inevitably, the tendency to reinvent the wheel delays the product development cycle and on the one hand leads to extraordinary pressure from the Armed Forces for imports and on the other ensures that by the time the product is even halfway developed it is already completely out of synch with contemporary technology. Making the product acceptable at this stage again requires heavy intermediation and facilitation, the burden for which is borne by the foreign 'component' supplier.

 

[Bhadra]

Graft endemic to MoD system



The story goes on and on and one can elaborate a hundred different ways in which corruption is guaranteed by the system. What can be done to change this state of affairs? First, devolve and delegate clear and full decision making authority for procurements massively down the chain of command- from the Ministry to the Service Headquarters, from the Service Headquarters to the Commands and so on. Restrict the role of the Ministry to procurement of major weapon systems and platforms. Second, simplify procedures dramatically, moving from administrative controls and restrictions to budget based methods of control.

Need

Third, enhance the level of discretion available to the decision makers rather than reduce or constrict it. There is no substitute for trust. Trust a group of wise and professionally competent men to weigh the pros and cons of each option and take a decision they feel is in the best interests of all stakeholders. Guarantee them complete protection from any allegations of misuse of trust. Four, distinguish between middlemen/agents who perform a genuine service for the supplier and the deal fixers, and give the former legal recognition and allow them free and easy access to the buyers/decision makers. Five, make a transition from engineering solution based specifications to critical performance parameters. Six, integrate the Departments of Defence Production and Defence Research with the Department of Defence and privatise the Defence PSUs, the Ordnance Factories and the Defence Labs by converting them into widely held public limited companies answerable to their shareholders for performance.

While this may appear too radical an agenda, the point is that the kind of changes in procurement policies and systems that have been attempted so far have managed to achieve the impossible - deterred the honest from taking any decision and paralysed the system and paradoxically, substantially increased the opportunities for the dishonest to eke out his 'rent' from a vast new range of hurdles which a supplier has to go through to secure business. Only radical reform can break this deadlock.

Source:

India Today - Breaking News from India, World, Business and Politics

 

[Ray]

Even rats smell BIG money!

 

[Bhadra]

Recommendations:

First, devolve and delegate clear and full decision making authority for procurements massively down the chain of command- from the Ministry to the Service Headquarters, from the Service Headquarters to the Commands and so on

Restrict the role of the Ministry to procurement of major weapon systems and platforms. Second, simplify procedures dramatically, moving from administrative controls and restrictions to budget based methods of control.


Third, enhance the level of discretion available to the decision makers rather than reduce or constrict it. There is no substitute for trust.

Four, distinguish between middlemen/agents who perform a genuine service for the supplier and the deal fixers, and give the former legal recognition and allow them free and easy access to the buyers/decision makers.

Five, make a transition from engineering solution based specifications to critical performance parameters.

Six, integrate the Departments of Defence Production and Defence Research with the Department of Defence and privatise the Defence PSUs, the Ordnance Factories and the Defence Labs by converting them into widely held public limited companies answerable to their shareholders for performance.


what say Ray Sir and other experts specially the DODOs and PSU walas?