Massive Army, Miniscule Spending

Increasing the Expenditure on Defence Services
The Committee notes that India with its strategic location, with a coastline of about 7,500 km and land borders of 15,000 km of which 3,323 km are with Pakistan and 3,380 km with China, its western, north-western, northern and north-eastern borders remain volatile because of historical as well as strategic reasons and internal security threats, need defence preparedness to be kept consistently at the highest level.

From the data made available to the Committee, it was found that defence expenditure has marginally increased since 2014-15 and when compared to Central Government Expenditure (CGE), the percentage has declined from 13.15 during 2014-15 to 12.20 during 2017-18. Defence expenditure when analysed as a percentage of GDP, in the last few years it has ranged between 2.06 per cent (2014-15) to 1.56 per cent (2017-18).

The Committee noted that the defence expenditure at 1.56 per cent of GDP was at the lowest level since 1962, when India-China war was fought. In the current geo-political scenario, a country of the size of India cannot afford complacency when it is a question of defence preparedness even for a two-front war while retaining its dominance in the Indian Ocean. The Committee therefore, strongly emphasises that allocation of adequate financial resources for defence preparedness both for the current needs and expansion and modernisation plans should be accorded highest priority to enable the services to meet the challenges concerning safety and security of the country.

The Committee expresses its unhappiness that the share of Capital Expenditure as a percentage of the total Defence Services Expenditure is abysmally low and is continuously declining over the years. In the years 2012-13 and 2013-14, the share of Capital Expenditure was 39 per cent in each year, which in the year 2017-18 and 2018-19 came down to 33 per cent and 34 per cent, respectively. What is more worrisome is the situation whereby the procurement has to be adjusted as per the budgetary allocations made by the Government which are not as per the requirements projected as per Long Term Integrated Perspective Plan (LTIPP). It observed that allocations under the capital head are made for procurements for our services, which include defence equipments, weaponry, aircrafts, naval ships, constructing roads and bridges in border areas, etc. and any decrease in capital expenditure has an adverse impact on modernisation process of our forces and tantamount to compromising safety and security of our country.

Nothing concrete has been done for implementation of the strategic partnership model unveiled by the Government in May, 2017, which envisaged private players playing a key role in building military platforms like submarine and fighter jets in India in partnership with major global defence companies

The Committee finds the present situation unacceptable whereby the allocations are not being made as per the LTIPP, thereby defeating the purpose of having long term defence plans. It, therefore, recommends that the capital procurement budget should be in consonance with the projections made by the services as per LTIPP.

The allocations made at the Budgetary Estimates (BE) stage have been consistently reduced at Revised Estimate (RE) level, and even the reduced allocations could not be utilised fully during the years 2014-15 and 2015-16. In this scenario, the Committee was not able to appreciate the remarks of the Secretary, Defence Acquisition, during the course of deposition that they hear from the Department of Defence that the requirement of the forces is very high and the fund allocation to that extent is not there. The Committee, therefore, while recommending for adequate allocations for defence production would like the department to analyse the reasons and take corrective actions to ensure that the resources allocated are fully utilised which would help in getting further higher allocations in the coming years.

Self reliance in defence
During the course of examination, the Committee was apprised by the Department of Defence Production that out of total defence production around 40 per cent is produced indigenously and 60 per cent is imported. The Committee while expressing serious concern over the prevailing situation observed that dependence on foreign suppliers particularly for military hardware not only results in huge expenditure on import of defence equipments but makes the security of the country vulnerable as during emergency situations the supplier may not provide us the required weapons or spare parts.

Nothing concrete has been done for implementation of the strategic partnership model unveiled by the Government in May, 2017, which envisaged private players playing a key role in building military platforms like submarine and fighter jets in India in partnership with major global defence companies.

Shortage of ammunitions
The Committee during the course of examination was apprised by the Ministry of Defence that the shortage strictly in the totality is not there yet there are 10-15 ammunitions where there is shortage and some of them of a critical nature.

Ordinance Factory Boards (OFBs) / Defence Public Sector Undertakings (DPSUs) have achieved some expertise in armaments and weapon manufacturing, although dependency on imported parts and systems is an area of concern. As far as production of armaments by Ordnance Factories is concerned, the dependency on imports with regard to heavy equipment has considerably decreased. For T-90 tanks, the dependency on import has decreased from 40 per cent to 13 per cent as stated by the representative of MoD during the course of evidence. The Committee still feels that more needs to be done to reduce our dependency on imports.

Acquisition/ upgradation for IAF
The Committee understands that a large proportion of our defence hardware has served its useful life cycle and now need to be replaced urgently. From the information given in Annual Report 2016-17 of the Ministry of Defence, it is noted that the IAF is on a trajectory of modernisation. The draft Defence Production Policy 2018, speaks about reducing current dependence on imports and to achieve self-reliance in development and manufacture of various weapon systems and platforms, which includes fighter aircrafts, medium lift and utility helicopters.

Further the procurement for various aircraft and helicopters is underway, inter-governmental agreement for procurement of 36 Rafale aircraft from France has been signed on 23 September, 2016; C-130J has already been inducted and the delivery of balanced aircraft is likely to be completed by July 2017; delivery of AH 64E Apache Attack Helicopters and Chinook Heavy Lift Helicopters is expected to be completed by March 2020. Besides Mirage 2000 and MiG-29 aircraft upgrade is under progress and few upgraded aircraft have already been operationalised.

It was observed that as per the standard norm at any time, there should be 70 per cent serviceability of aircraft. But the Committee, during the course of evidence was apprised that the availability/serviceability was 60 per cent.

The Committee noted from the Annual Report 2016-17 that current lot of Su-30 MKI aircraft are being manufactured in HAL through Transfer of Technology (ToT). With regard to Tejas, the first fighter squadron of the IAF with LCA Tejas aircraft has been formed on July 1, 2016. The Ministry of Defence apprised that an investment of around Rs. 15,000 crore is estimated to be made in the next five years towards enhancing production rate of LCA Tejas from 8 to 16 aircraft.

One of the expert who deposed before the Committee was all in appreciation for the indigenous production of Tejas and was of the view that Tejas product can be the bulk aircraft for Indian Air Force. The Committee would like the government to take all the desired initiatives for increasing the production rate of LCA Tejas by HAL not only for our Services but also for exports to other countries.

The Committee noted that on the one hand, the Secretary, Defence Production, during the course of deposition has stated that HAL have already got the orders of 40 Tejas and another 83 would be sufficient for next 25-26 years, HAL in response to queries raised during the informal discussion with them during the study visit stated that the firm orders to HAL would be liquidated by 2020-21.

The allocations made at the Budgetary Estimates (BE) stage have been consistently reduced at Revised Estimate (RE) level, and even the reduced allocations could not be utilised fully during the years 2014-15 and 2015-16. In this scenario, the Committee was not able to appreciate the remarks of the Secretary, Defence Acquisition, that the requirement of the forces is very high and the fund allocation to that extent is not there

The IAF is using Pilatus PC-7 aircraft for basic training purpose and 75 of these aircraft are directly procured from OEM. Further requirement of basic training is proposed to be met by HAL’s indigenously designed basic trainer aircraft HTT-40. Defence Acquisition Council (DAC) has cleared the procurement for 70 aircraft for IAF. The production of these aircraft is expected to commence during 2019-20.

For the advance training, IAF is using Hawk aircraft which is manufactured by HAL under Transfer of Technology from BAE System. HAL has so far supplied 82 Hawk aircraft to IAF and 17 Hawk aircraft to Indian Navy. Quotation has been submitted by HAL for additional requirement of 20 Hawks for IAF. Also, Navy has initiated action for 12 more Hawk aircraft for which HAL has submitted a budgetary quote.

The Committee was apprised that a total 16 Dhruv helicopters have met with accidents. The reasons for these accidents as brought out in the report of Court of Inquiry (CoI) have been mainly attributed to human error and environmental factors.

Shortage of Night Vision Equipment
As per the status of Night Vision Equipment as stated by the Ministry of Defence in respect of Indian Army, as on date the holdings of night vision equipment vis-à-vis authorisation are ranging from 70 per cent to 80 per cent. The deficiencies are due to routine discard for which procurement cases are actively being processed. The Committee was further apprised that a contract for the procurement of night vision Goggles for C-130 Aircraft has been signed on 16.09.2016. It was also found that third-generation night vision devices like Electro Optical Fire Control System (EON-51) and Stabilised Optronic Pedestals (SOP) have been fitted on Indian Navy Ships. The Committee while taking note of the importance of Night Vision Equipment for military operations, would like to stress for taking the desired initiatives to meet the deficiencies.

Ordnance Factory Boards
The turnover of the OFBs during 2015-16 was Rs. 1,4158 crore, which is proposed to be increased to Rs. 20,000 crore in three years. With regard to modernisation of OFB, the Committee fund that Rs. 2,956 crore were spent during 11th Plan and during 12th Plan, the amount spent on modernisation increased to Rs. 8,635 crore, i.e., which is nearly three times increase from the spending during the 11th Plan.

During the course of examination the Committee was apprised about the major challenges before the OFBs such as non-uniform demand from armed forces and security forces, uneconomic quantities to be produced to meet strategic needs, difficulties in entering into long-term agreement with dedicated vendors and low scale of production which does not attract the vendors to respond to LTE/OTE.

While noting that harnessing the potential of the private sector, using its management, scientific and technological skills may be key to achieving total self-reliance, the Committee found that there is no existing mechanism to facilitate public-private partnership in the defence sector

Strengthening DPSUs
With the objective of achieving self-reliance in defence production, the DPSUs which include the Ordnance Factories have been continuously modernising and upgrading their capabilities and expanding their product range. DPSUs, through in-house research and development initiatives, have developed a large number of products and produced equipment through transfer of technology. However, due to high dependence on external content, low percentage of value addition in the DPSUs, low labour productivity and high production costs, the DPSUs have not been able to meet the defence requirements of the country. Moreover, delays on the part of foreign suppliers also lead to cost and time overruns in the development of weapon systems.

For example, the manufacturing of warships and submarines in Mazagaon Dockyard Limited (MDL), in the past, got delayed because foreign suppliers did not supply vital components in time. The Committee was informed that to overcome the shortcomings observed during the earlier built ships and also to improve the productivity and reduce the build periods, development of weapons and sensors is being expedited through DRDO and DPSUs through various routes such as ‘Buy and Make’, ‘Buy and Make (Indian)’ and ‘Make’ acquisition process.

Gaps between orders received and delivery scheduled
From the data made available, the Committee found that the overall value of production of 10 DPSUs, which include OFBs, has increased from Rs. 4,1047.74 crore during 2013-14 to Rs. 54132.36 crore during 2016-17. However, the data of performance of individual DPSUs indicates that in MDL and Garden Reach Shipbuilders & Engineers (GRSE), the value of production has decreased from Rs. 4,169.64 crore and Rs. 1707 during the year 2015- 16 to Rs. 3,510 crore and Rs. 936.70 crore during 2016-17 respectively.

The Committee further found that the percentage achievement with regard to supply of ammunition to the army by the OFB has been stated by the Ministry as 93, 98 and 91 per cent during the years 2014-15, 2015-16 and 2016-17 respectively. However, the overall data of indent for 2014-19 has been stated to be Rs. 26, 475 crore against which delivery made till March, 2017 has been shown as Rs. 12,919 crore, which do not commensurate to the percentage achievement that has been stated as more than 90 per cent.

One of the experts drew the attention of the Committee towards long time taken for production of destroyers by MDL, which takes almost five years, whereas the same kind of vessels can be produced in 2-2.5 years in Asia and globally. In this context, the Department of Defence Production has apprised the Committee that due to the several productivity measures undertaken recently by MDL, the average build period is expected to come down from earlier 88 months (P15A Destroyers) to 72 months (P15B Destroyers).

The existing procurement system for advanced weapons involves three stages. The first stage is the issue of Request for Proposal (RFP) and second stage is that of field trials. The second stage takes considerable time—sometimes up to two years for completion of trials. The third stage which requires caution and diligence is the most difficult stage of contract negotiation stage making procurement and acquisition of defence hardware a long drawn process where there is involvement of a large number of stakeholders.

The introduction of the DPP 2016 tries to redress the situation. The Committee feels that with proper advance planning the time taken during the first and second stages could be substantially reduced, which would address the issue of shortage of required defence hardware with the defence forces.

Partnership with private sector
As per Stockholm International Peace Research Institute (SIPRI) data, India’s share in global arms imports during 2012-16 is 12.8 per cent. In order to achieve maximum self-reliance in the defence sector, the Government has provided incentives to private sector under the Make in India programme. It has allowed 100 per cent FDI in defence sector—while up to 49 per cent FDI will be under automatic route, FDI above 49 per cent will be through the government route where it is likely to result in access to modern technology. Further as per the draft DPP Policy 2018, FDI regime in defence would further be liberalised and FDI up to 74 per cent under automatic route would be allowed in niche technology areas.

One of the expert who deposed before the Committee was all in appreciation for the indigenous production of Tejas and was of the view that Tejas product can be the bulk aircraft for Indian Air Force. The Committee would like the government to take all the desired initiatives for increasing the production rate of LCA Tejas by HAL not only for our Services but also for exports to other countries

While noting that harnessing the potential of the private sector, using its management, scientific and technological skills may be key to achieving total self-reliance, the Committee found that there is no existing mechanism to facilitate public-private partnership in the defence sector. Moreover, the strategic partnership model formulated for defence production does not specify a clear role for major defence PSUs. There seems to be a total lack of coordination among the government agencies in so far as integrated approach to public-private partnership in defence sector is concerned.

Performance of DRDO
The Defence Research and Development Organisation (DRDO) is the premier institution in defence research in the country with more than 50 laboratories, 5000 scientists and 20,000 other scientific, technical and supporting personnel and a budget of about Rs. 13,600 crore which is about 5.5 per cent of total defence budget.

Against this background, the Committee are surprised to note that the country has to depend on foreign suppliers not just for sophisticated weapons but also for basic defence armaments and that DRDO has not been able to meet nation’s expectations. The 2015 report of C&AG that an examination of 14 mission mode projects, carried out by DRDO laboratories, revealed that all projects failed to achieve their timelines and the probable date of completion (PDC) was extended many a times.

These mission mode projects include the crucial S-band surveillance system ‘Rohini’ radars, secure video and fax communication between airborne platforms and ground station ‘Meghdoot’ and electronic warfare suit for the modified MIG-29 fighters. A high-powered committee constituted by the Ministry of Defence, which reviewed the functioning of DRDO, said that at least 11 laboratories of the DRDO need to be closed down or amalgamated and its “non-core” research activities stopped.

Defence Preparedness for Future Wars
There has been a fundamental change in the nature of modern warfare. Apart from maintaining a massive conventional arsenal, countries also need to prepare for future wars. Future warfare is headed towards cyber warfare, drones, automated warfare systems, stealth technology and precision guidance. The foundation of such warfare systems are information technology and artificial intelligence.

However, the Committee feels that the country needs to invest more resources on getting ready for futuristic warfare and also leverage its capabilities in information technology for this. The Committee, therefore, recommends that the Government may take steps for constituting an institutional arrangement to oversee the state of preparedness of the country in futuristic warfare.

Adequate flexibility should be introduced in the system to leverage our capabilities, including those existing in private sector, in other related sectors such as space technology, information technology and artificial intelligence for preparation relating to futuristic warfare.

Contract Writing
Entering into contract with foreign governments and foreign defence suppliers is a highly specialised job. The Committee was apprised by the Ministry of Defence that as per standard composition of Contract Negotiation Committee (CNC), Acquisition Manager, Technical Manager, Finance Manager, Advisor Cost along with representatives of DGQA/DGAQA/DGNAI, user departments and SHQs are nominated in CNC. The expert who deposed drew attention to the lack of expertise in writing contracts due to which the foreign suppliers are able to take advantage of loopholes and maximise their profits and, at the same time, adversely affect our interests.

One of the experts drew the attention of the Committee towards long time taken for production of destroyers by MDL, which takes almost five years, whereas the same kind of vessels can be produced in 2-2.5 years in Asia and globally

It has specifically been mentioned that when the aircraft is manufactured under ToT, OEMs do not provide ToT for critical and high-end technology items. The aforesaid contention of HAL clearly indicates need for making our contract writing system more professional so as to fully protect the interest of Services/country.

The Committee, therefore, feels that a dedicated team of personnel who have sufficient expertise in contract writing, particularly in defence acquisitions, is the need of the hour. Accordingly, it recommend that the ministry may take steps to create a team of skilled personnel with adequate training for writing contracts in the defence acquisitions.

(Note: The observations and recommendations of the report have been edited for brevity)