Defence production: the illusion of public sector success - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Tuesday 30 January 2007

Defence production: the illusion of public sector success

by Ajai Shukla
Business Standard: 9th May 2006

In an earlier Broadsword article (Bringing the private sector into defence, 11th April 06), I had pointed to the woeful record of the Defence Research and Development Organisation (DRDO) and the Defence Public Sector Undertakings (Defence PSUs), to argue for a larger role for the private sector in defence production. In response, Ashok Parthasarathi (Public-Private Partnership requires equals, 29th April) declares that the private sector is incapable of managing the high-tech projects of developing and producing weapons systems for our defence services. He cites several “success stories” of the DRDO to conclude that the DRDO and the Defence PSUs have in fact performed excellently.

Most of the supposed successes that Parthasarathi cites are perfect examples of the smoke-and-mirrors obfuscations that these agencies have used for years to create the illusion of success. Look more closely at his most prominent “success story”: the Arjun tank. Parthasarathi is correct only in enumerating what the project visualised: designing, developing, testing, mass-producing and handing over to the army a world-class tank. What he does not mention is that the DRDO’s Arjun tank has, despite a time overrun of more than two decades and the expenditure of over 2000 crore rupees, failed in developing critical systems like an engine, night vision equipment and radio sets. Instead, it imported them off-the-shelf and fitted them in the Arjun, creating a dependency on foreign vendors that undermines the logic for developing an Indian tank: creating self-sufficiency. The Ministry of Defence (MoD) wants to close this sorry saga by getting the army to accept a token order of 124 Arjuns. But even that seems far off. Last December the DRDO was to field five Arjun tanks for comparative trials by the army. Instead, those tanks went into the Heavy Vehicles Factory near Chennai, having basic defects rectified. The trials have not yet been held.

Parthasarathi’s article has several more inaccuracies. He credits the DRDO with upgrading the 130-mm artillery gun to 155-mm; an Israeli company, SOLTAM, did that work. He claims the DRDO developed night vision equipment and fire control systems for T-72 tanks; in fact not one tank fields the DRDO’s sights. The Thermal Imaging Stand-alone Sights (TISSA) now fitted in hundreds of Indian tanks were bought from Israel. The Light Combat Aircraft (LCA) that Parthasarathi cites is nowhere near completion. Having failed to produce a workable engine, Hindustan Aeronautics Limited (HAL) has fitted the LCA with a US engine!

Private corporations, eager to enter the defence field, ask: wouldn’t open competitive bidding for major defence contracts insure that projects don’t run on forever and that they meet the standards expected by the services? But the old system of MoD patronage to its own establishments continues; the DRDO gets to evaluate prospective defence purchases and decide if it wishes to develop that system in India, or allow its purchase from the international market. If DRDO vetoes the purchase, development could go on for decades. The DRDO enjoys monopoly status since private corporations --- as Indian as the DRDO --- are completely excluded from this indigenisation process.

The captive customers -- the services -- meanwhile suffer in silence, often paying for delays with lives. Former army chief, General VP Malik, in his just-released book on the Kargil War, recounts how the DRDO scuttled the purchase of a gun-locating radar from the US in 1997, declaring that they could develop it in-house within two years. The absence of this radar in Kargil denied Indian forces the capability to zero in on the Pakistani guns that eventually caused hundreds of Indian deaths. In 2005, after it became clear the DRDO was getting nowhere, India finally signed the contract with the USA.

At no stage was any company from India’s private sector given the offer to develop the radar. Compare this with the way the US does things. Any planned weapons system is developed concurrently by at least two private corporations; Uncle Sam pays them appropriate development costs. The products developed by these companies compete against each other and a production contract is signed with the successful company. In India, there is no such system. The DRDO decides what it wants to develop. The government funds it without regard to time or money. The private sector considers itself lucky if it gets sub-contracts for ancillary systems.

This is not to suggest that the DRDO and the Defence PSUs have enjoyed no success at all. The Integrated Guided Missile Development Programme (IGMDP) can boast of projects like the Prithvi and Agni missiles. Shipbuilding is another success story. But a lengthy list of failures cannot be wiped away by a handful of successes or by the rhetoric of self-reliance. India’s vast defence R&D and production establishment -- thousands of scientists, bureaucrats and workers -- are understandably shy of competition from the private sector. But genuine self-reliance in defence production will be greatly enhanced by spicing it with competition from India’s increasingly excellent private sector. And Parthasarathi’s contention that the private sector cannot handle the kind of projects that the Defence PSUs do will only be tested when private corporations are finally allowed a central role defence production.


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