By Vivek Rae, former director general of India’s defense procurement board
There has been renewed vigor in the Indian defense establishment since the inauguration of the Narendra Modi government in May. This started with a more liberal policy on foreign direct investment (FDI), which increased the cap from 26 percent to 49 percent, and also allowed FDI beyond 49 percent in cases that allow access to state-of-the-art technology.
In those cases, the policy allows foreign companies to set up base in India and relaxes the stipulation that management of the applicant company be in Indian hands. While the liberalized FDI regime is welcome, results have not yet been seen and further liberalization of the policy may be required in 2015.
Over the past six months, the Defence Acquisition Council (DAC) has approved proposals in the range of US $12 billion to $15 billion, including long pending proposals to build six new submarines and procure artillery guns. These decisions have generated optimism in Indian private industry. However, considerable time will elapse between DAC approval, issue of a request for proposals and finalization of contracts. It would be another three to five years before investment begins to materialize.
One of the major gaps in India's defense procurement policy regards the suspension and debarment procedures. Immediate blacklisting of vendors comes at the slightest whiff of payment of bribes or agency commissions. The blacklisting policy has been counterproductive and requires course correction.
The recent blacklisting of AgustaWestland for alleged transgressions in the procurement of helicopters has raised a dilemma about blacklisting all Finmeccanica companies. This in turn has made procurement of completely different weapon systems, such as submarines, from other group companies difficult, eroding defense preparedness.
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