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'The armed forces have been given clear indication that they have to give priority to Make in India and indigenisation and dependence on foreign source should be reduced.'
'Almost Rs 90,000 crores contracts have been signed during my tenure. Another almost Rs 70,000 crores are in the pipeline.'
Defence Minister Manohar Parrikar, in his most detailed interview since becoming Raksha Mantri a year ago, speaks to Nitin A Gokhale.
In what is perhaps the most detailed interview since he took office in November 2014, Defence Minister Manohar Parrikar speaks to well-known defence analyst Nitin A Gokhale for his new portal BharatShakti.in and lays out a clear roadmap for the defence sector.
Nitin Gokhale: So what are your thoughts after a year in office?
Manohar Parrikar: Reflection of the past one year gives me the satisfaction that I could change a lot of issues and handle a lot of priorities in defence.
Policy Issues
How are we progressing in terms of policy frameworks to guide equipment induction?
There are some issues which are on the way to completion. For example, Defence Procurement Procedures; its review has been completed. It is in its last stages of being finalised. Meanwhile, the urgent issues have been addressed.
For example Offset Policy, Policy on Complaints which was derailing the acquisitions earlier, have been clearly spelt out.
For complaints, how have you changed the earlier method? Trivial complaints and anonymous complaints; how will these be handled?
If there is some component in an anonymous complaint which has substance, on verification found correct, action will be initiated. However, complaint will not derail the process of procurement until proven prima facie. So a complaint will be processed along with the procurement; the process is not derailed.
Secondly, if the complaint comes from the participant, one of the tendering parties, if it is found frivolous, he can be penalised.
Of course, we have taken precautions and will refer to the Ombudsman if any action has to be initiated, otherwise we close it.
Unless you find prima facie evidence in the complaint, the process does not stop The acquisition process, which was often getting derailed because of frivolous complaints -- sometimes even cancelled -- has been stopped now.
That's one issue. The eecond issue -- Offsets. We realised the earlier Offset rules had some very regressive policies like, for example, you could not change the IOP (Indian Operating Partner). This was a very unreasonable condition because Offsets are executed over a long period of time.
Sometimes the product becomes obsolete, sometimes the IOP closes down. Services, for example, was being kept out of the ambit. These have been included.
So most of the issues pertaining to Offsets have been addressed, matters regarding complaints have been addressed, foreign exchange rate equalisation -- that means what was available to PSUs (Public Sector Units) are also being now granted to the private sector.
PSUs were granted protection from fluctuation of exchange rate. That is now granted to the private sector.
It was unfair actually, since we say that it should be a level playing field. Level playing field is being insured for local industries.
For example, in Offsets, Buy Global, if it was an Indian company, then you had to do 50% indigenous. Whereas for a foreign company it was 30% Offset. So now we have levelled it both at 30%.
Like that even a price comparison now is being done without the statutory taxes; because imported supplies do not undergo many of the taxes. These are some intermediate steps which have been taken already.
We intend to come out with DPP 2015 before mid-December. We should be able to notify. So that should change the pattern.
Acquisitions
Now in the case of earlier RFPs, almost Rs 90,000 crores (Rs 900 billion) contracts have been signed during my tenure. Another almost Rs 70,000 crores (Rs 700 billion) are in the pipeline. They are in the final stage. After the final approvals are obtained, they will be contracted.
I expect in the next 6 months, another Rs 50,000 to Rs 60,000 crores (Rs 500 billion to Rs 600 billion). In the next six months, the total figure of contracts signed will be Rs 150,000 to Rs 160,000 crores (Rs 1.5 trillion to Rs 1.6 trillion). And almost another Rs 95,000 crores (Rs 950 billion) are in the negotiation stage.
So in the second year, you will find around Rs 130,000 to Rs 140,000 crores (Rs 1.3 trillion to Rs 1.4 trillion) contracts would have been signed. So, the earlier RFPs are now being speeded up.
I have to do it with caution because funds availability also has to be worked out.
I expect by March, at least one or two contracts in guns procurement will be finalised and the supply will start next year. Lot of similar exercises are being done in missile, submarines, fighters, helicopters, and in the second year they should be on the way.
What about the Rafale?
The Rafale is in the final stages. Commercial negotiations should be beginning any moment. Of course, the Paris incident (the November 13 terror attacks) may delay it by a couple of weeks.
So the 50% Offset has been agreed upon.
The overall framework is almost finalised. So commercial negotiations should be on, could be on, but this incident might cause delay. But I expect by December-January we should be in a position to close the deal.
In defence, we have to look towards self-reliance. In the figure of Rs 90,000 crore that I gave you, almost 70 per cent is indigenous, Buy Indian or Buy and Make in India. Only 30 per cent of the contracts are in the category of Buy Global.
The projects for which AONs (Acceptance of Necessity) have been granted, the value is around Rs 105,000 crore (Rs 1.05 trillion).
In that, almost 88 per cent is Buy Indian and Buy and Make Indian.
These AONs will be reflected in next year's contracts. Whatever AONs have been granted will be progressed to RFPs in the coming year. Lot of indigenisation efforts are being put in. It is not easy to change the mindsets.
But all the armed forces have been given clear indication that they have to give priority to Make in India and indigenisation and dependence on foreign source should be reduced.
Of course, if there is some technology issue, we can still go ahead and get that, but the trend is that by next year the ratio of 70:30 (imported to indigenous content) should change by at least 10 per cent.
So the target is that annually you reduce the foreign component by 10 per cent so that in four to five years, you reverse the ratio -- from 70 per cent foreign import you go to 70 per cent indigenous content. You see, almost 20 to 25 per cent imported content is inevitable.
Some raw materials cannot be manufactured because of technology gaps or lack of economies of scale and because the mineral is not available and in some cases the quantum, the volume does not justify making it in India. It will be too cost prohibitive.
DPP 2015
The rigid and opaque decision-making in MoD, has it been addressed?
The earlier DPPs were all procedure driven. In DPP 2015, we are considering an arrangement where besides the procedure -- of course we have to follow procedure -- but wherever unforeseen difficulties come, there should be a mechanism to fall back on some principles.
The preamble will basically describe the methods for solution to fall back upon through a structured mechanism. Secondly, single vendor situation is also being addressed.
Whereas transparency demands there have to be more than one entity in competition, after taking proper oversight and after taking proper technological review, if a particular product's SQRs cannot be changed and there is no possibility of multi-vendor situation, single vendor situation can be proceeded with proper precautions in the DPP itself.
Even the SQR and field trial concept is under consideration to be modified. SQRs should be based on operational requirements. And field trials should be based on criteria that are generally available in existing equipment.
In the case of costly equipment, and even the not so costly equipment, a supplier cannot be expected to comply with all SQRs you require in the trial samples. This aspect needs to be taken into consideration for field trials to ensure wider participation.
Strategic Partners and MSMEs (micro, small and medium)
What about the concept of choosing strategic partners?
Getting in strategic partners does not mean they will be in all acquisitions. It is only in the areas where technology and investment are high you cannot have multiple suppliers.
Suppose you want to set up an assembly line for manufacturing fighter planes with, how do you select an entity? There will hardly be one or two options. Very few will have the financial muscle, technological capabilities and manufacturing ability.
It requires a well-established management set-up. The items that we are talking about are very few: Submarines, helicopters, fighter planes and may be a couple of more. Now this selection does not keep the MSME sector out of the scope.
We can always ask the strategic partners to ensure that so much percentage of the indigenised content be reserved for the MSMEs or for that matter those who source supplies from MSMEs may be given a higher weightage. There are many ways of doing it.
How are you encouraging the MSME sector?
We are in the process of finalising the DPP in which many difficulties faced by MSMEs are being addressed to ensure that financial viabilities of MSMEs are ensured and they are not pushed into a financial crisis.
You are also looking at encouraging indigenous design and development?
Yes, indigenously designed and developed product is being given the top priority and it will form a vital part of DPP 2015. But I want to make one point very clear: The DPP even after finalisation may require changes depending on the difficulty we face.
Even after DPP 2015 is finalised it still has the possibility of further correction to ensure smooth acquisition. It is not a static, but a dynamic document. Of course, the changes can't be too frequent.
Transparency and changes are meant for giving everyone a level playing field. It doesn't mean you delay decision-making.
Policy: Agents and Representatives; Bans and Blacklisting
vWhat about the decision to not put a blanket ban on companies found in wrong doing? And allowing authorised representatives?
This policy will come out along with DPP 2015. Agents are authorised representatives only and not middlemen. We are going to define what agents mean. Currently, this definition does not exist.
A person who provides technological expertise, management support for a fee which is reasonable and which does not depend on the value of the contract or outcome -- positive or negative -- of the contract, will be allowed as agent.
What about the blacklisting policy?
The current policy is the moment allegations are made, the company is put on hold/suspended or blacklisted. Now if anything suspicious is found, it will go through the complaints procedure.
If prima facie anything is found to be wrong, notice will be issued and opportunity will be given to the party. But if it is serious, then we may proceed with temporary measures.
Temporary measures are, for example, put on hold, suspend.
Once temporary measures are initiated, a designated committee will go into the merits of the case. If they find that there is prima facie evidence of wrong doing, they will continue the temporary measures.
If they conclude there is nothing, they can withdraw the temporary measures. There will be a timeline for temporary measures.
If there is evidence of serious fraud or wrong-doing the committee can impose financial penalty, invoke the integrity pact bond or impose cost as deemed fit or ban the supplier..,
The existing issues will also be dealt with by the same committee comprising MoD officials and some experts with knowledge of vigilance matters etc.
Basically, what we are trying to do is to have a system that hands out graded punishment commensurate with the magnitude of the wrong-doing. This is in the final stage of being approved and will be issued along with DPP-2015.
DRDO and Product Upgrade
Coming to DRDO and other DPSU. Their performance has been mixed to put it mildly. How would you correct the situation?
In the last one year, we have managed to re-energise them. There is finality to some of their products. For example, some days ago, I inducted the locally developed Torpedo-decoy system for Indian Navy ships.
What about the LCA (Light Combat Aircraft), although it is not directly DRDO?
Yes, the LCA model is being given a final shape . Let me tell you in product development, nothing comes perfect, be it an Indian product or a foreign product.
Take the example of the Boeing P8I. They have a long track record, but there were some hitches.
Over the last two years, most of the hitches were taken care of. The company reacted quickly and most of the issues are sorted out now. There are still some issues, but I am sure these will be taken care of in the next one year, so that there is 100 per cent efficiency in this vital asset.
If that is the case with a well-established company like Boeing, how do I expect an ADA or HAL product to be perfect in the first instance?
So we inducted the LCA and by March 2016 most of the initial problems would be taken care of. And the production line will be initiated and the first squadron of LCA will start flying for the IAF.
Once they start flying, further problems, if any, will be sorted out over the first batch. In principle, approval for first 100 LCA I A, procurement has been accorded. As per requirement of the air force and as agreed by all concerned,
By mid-2016 we should have a very clear direction under Make in India for submarines, helicopters, guns and aircraft and missiles.
When I set a timetable, this is an MoD timetable, but there are other intangibles that may delay the programme a bit, but in 2016 we will have a very clear roadmap on these five important programmes such as fighters planes, submarines, helicopters and missiles.
Revenue Expenditure
These are all items of capital expenditure, but how are you tackling the delays in revenue procurements? Very often, essential supplies get delayed when decisions are not made quickly.
First of all, the bottlenecks in decision-making have to be cleared. The timeline for clearances have to be compressed. We are monitoring every item now. For example, in the case of ammunition, the OFBs are being continuously exhorted to improve efficiency and increase production.
We are giving them five years indent and clear orders three years in advance so that they can plan and source their raw material in advance.
From January, we are allowing them longer duration rate contracts so that raw material becomes cheaper and assured. Otherwise, they used to take a lot of time in finalising supplies.
This year, OFB has delivered around 15 per cent higher output with improved quality. So by 2017, my ammunition requirement should be adequately addressed.