Procurement: India Tries To Legislate Success

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April 22, 2022: Since the 1990s India has more energetically sought to develop a domestic weapons development and production capability. There has not been a lot of progress so the government made it more difficult to import needed weapons that Indian firms were unable to develop and build. As part of that effort, since 2020 the Ministry of Defense has released three negative import (now called positive indigenization) lists containing 310 items that must be obtained from Indian firms within three to five years. The lists also specify thousands of components for military equipment that must be obtained locally. Indian military procurement over the next five years is estimated to be about $130 billion and the government is trying to address the structural problems that have prevented commercial firms from developing military equipment and do it in record time. India is also trying to reduce the power of government weapons development and production operations that have never been able to compete with foreign defense manufacturers.

The indigenization lists are supposed to be mandatory but, based on past experience, failure to meet government demands for locally made equipment means the military will continue to do without or be forced to accept inferior weapons and equipment. The positive indigenization list is less a solution than another part of the problem.

The major goals of local procurement are to decrease reliance on Russia, which is still the largest supplier of military equipment. At the same time India is the second largest (after Saudi Arabia) importer of weapons in the world and the largest customer for Russian military exports. India has been buying less from Russia since the 1990s. Since the 1960s Russia supplied more and more, often over 80 percent, of Indian weapons imports. In the last decade that has fallen to fifty percent and continues to decline.

The second part of the program to reduce weapons imports is to make it easier for Indian firms to meet the needs of the Indian military. To move that along India has issued the Positive Indigenization Lists identifying specific weapons and items of military equipment that must be procured locally. Most items must be obtained locally within a year while others have several additional years. By the end of 2025 none of the items can be imported without special permission from the government and that does not come without cost.

Making it mandatory to buy locally has been tried before and led to some spectacular failures, so much so that the government authorized the emergency FTP (Fast Track Procurement) procedures in 2004. With FTP the military could unilaterally buy some items from foreign suppliers. It was assumed that FTP would eliminate the most embarrassing problems with getting the military weapons desperately needed. It was also believed that government efforts to clean up the corruption and other problems with the military procurement process would soon make FTP unnecessary. That has not happened.

FTP is still around to allow the immediate purchase of essential military items without the usual political and procurement delays that can add years, sometimes a decade or more, to obtaining needed items. FTP is still needed because the current confrontation with better equipped Chinese forces on the northern border makes it obvious that all the Chinese weapons and equipment is Chinese-made and clearly more modern.

Why has China developed a world-class weapons development and production capability in the last few decades while India has not? Mainly it’s about corruption and decades of India making it difficult for Indians to start and operate profitable firms that could produce consumer goods as well as military equipment. The United States became the largest economy in the world over a century ago by encouraging this entrepreneurship. Many other nations, including those in Europe and East Asia (Japan, South Korea and China) followed that example.

While making it difficult for Indian entrepreneurs, India tried to use government owned weapons development efforts and defense manufacturers. These state-owned organizations were epic failures and continue to develop second-rate weapons or weapons that don’t work at all. Recent examples include assault rifles, helicopters and jet fighters. The only successes have been with privately owned firms and that is what the government wants more of. The Indigenization Lists and new rules and laws to reduce restrictions on commercial firms are meant to encourage less dependence on imports. As with previous efforts in this area, the goals tend to be more aspirational than actual. Indian government bureaucrats and procurement agencies have become quite effective at protecting their own interests at the expense of commercial firms and the needs of the military. This is a problem in all industrialized nations because that is the nature of government; to use their power to expand. Nations like China and Israel are notably different because China did not begin undergoing the industrial revolution until the 1980s. As usual, that produced spectacular results, which will be eroded over the years as the government expands, often at the expense of successful new firms. That is already happening in China, where the communist government fears the potential political influence of the largest and most successful firms. Israel is a special case because they have been under constant attack by their Moslem neighbors since Israel was founded in 1947. For Israel it has always been a matter of succeeding at developing new weapons or being wiped out.

India is different because it adopted a local form of socialism instead of free-enterprise when modern India was formed in 1948. As a result, India has always had to import most of its weapons. Efforts to change this have failed so far, mainly because of corruption and unwillingness to tolerate competitive and efficient defense industries. That corruption that has been pervasive in India for thousands of years and makes imported weapons from nations willing to pay bribes to Indian government officials more attractive than allowing competitive Indian firms to develop and provide cheaper locally made equipment.

One bit of good news is that this form of corruption has been under heavy attack for more than a decade because of the Internet. Political parties could control mass media and much local news, but not the Internet. Fighting corruption has become enormously popular with voters, who learn that most Western countries supplying weapons to India are often very anti-corruption themselves and much more successful at it. When Russia was supplying over 80 percent of weapons imports you had a supplier that was a dictatorship quite comfortable with bribes and payoffs. For more than a decade Russia has been losing sales to Western firms. The culture of corruption still exists in Indian defense procurement, but it is under heavy attack. Even if no bribes were involved when buying foreign weapons, that would not fix the inability to create a competitive Indian weapons industry.

The reason for that has to do with why, for most of the last half century, most Indian weapons came from Russia. There were several reasons for that; politics, price and practicality. The policy was a decision by Indian politicians to be “non-aligned” during the Cold War. This conflict began just as India became independent from the British Empire. Still resentful towards Britain and the West for two centuries of colonial domination, India officially refused to take sides during the Cold War. Yet its relations with Russia (a communist dictatorship) were much warmer than with the Western democracies. Although India clung to democracy, the educated classes were infatuated with the promise of socialism. For several decades Indians abhorred the Russian form of government (a dictatorship) but admired their socialist approach to running their economy. It wasn’t until the 1980s that most Indian politicians admitted that the Russian economic model was all a fraud and not working. For India, this set-in motion the sort of free enterprise policies that China had employed since the 1980s. By then it was too late for India. Decades of attempts to impose government regulation and guidance of the economy had created a huge bureaucracy that could not be easily dismantled because many of these jobs were used by politicians to reward supporters and get reelected.

Then there was the price of Russian weapons. They were cheaper than Western equivalents. This meant more could be spent on bribes and payoffs. Finally, there was practicality. India’s main foes were Pakistan and China. Pakistan had a much smaller population, economy and defense budget than India. Russian weapons were adequate for Pakistan. China was also poorly equipped, until quite recently, and separated from India by the Himalaya Mountains. Under those conditions Russian weapons were just fine for Indian needs.

Since the Cold War ended in 1991 all this has changed. Indian politics has changed and now officially wants to clamp down on the corruption, which everyone admits cripples the economy. Price is still important, but it’s been noticed that Russian weapons have slipped in quality and effectiveness since the Soviet Union collapsed. Pakistan is even less of a military threat, because Pakistan is even more corrupt and economically crippled than India. China, however, is another matter. China has managed to build a powerful and productive arms industry. All those Russian weapons India has no longer provides any degree of superiority. India needed Western quality arms to maintain a competitive military for confronting China. But Western weapons are more expensive. It’s possible to make them in India under license, but the Indian industry has not been able to master high tech sufficiently to make this practical. In short, it’s no longer practical to tolerate an inefficient domestic defense industry.

Efforts to create domestic defense industries have been crippled by specific portions of the bureaucracy. The worst of these is the DRDO (Defense Research and Development Organization). Alas, DRDO became a monumental example of bureaucratic inefficiency, wasting billions of dollars and decades of effort on weapons systems that never quite became operational or when they did, they really weren't. DRDO was created in 1958 to provide government support and guidance for defense related research. But the network of research and manufacturing facilities DRDO established since then were more about patronage and plundering the taxpayers than in actually creating competitive defense industries. Even DRDO efforts to create low-tech weapons (like assault rifles and other infantry equipment) were failures, with sloppiness and inefficiency resulting in very uncompetitive weapons.

Worse, many major DRDO weapons development projects have failed because bad politics ensured that bad ideas kept getting funded, and those efforts rarely produced anything the military found acceptable. For example, the 5.5-ton Dhruv helicopter was in development for two decades before the first one was delivered in 2002. Since then, domestic and foreign users have expressed dissatisfaction. A series of crashes indicated some basic design flaws, which the manufacturer insisted did not exist. Similar situation with locally developed Tejas jet fighter. Indian politicians still cite these two aircraft as examples of successful Indian developed tech. The Indian military has been equally quick to cite these two aircraft as unacceptable and has often succeeded in avoiding accepting more than a token number. Export customers did not exist.

Then there is the effort to develop and build a tank. Many of the problems with the Arjun tank project had to do with nothing more than government ineptitude. The Ministry of Defense was more interested in putting out press releases about how India was becoming self-sufficient in tanks than in attending to the technical details needed to make this happen. The Ministry of Defense crowd has done this sort of thing many times. Moreover, if it isn't incompetence screwing things up, then it's corruption.

Efforts to develop missile systems have also been a long running failure. Work on indigenous missile designs, under the Integrated Guided Missile Development Program (IGMDP), managed by DRDO has gone on for decades, with no useful weapons to show for it. The most common problems were apparently caused by inept software development. While India has a lot of local talent in this department, creating this kind of specialized military software is very difficult and the best programmers tend to join the growing number of new companies that sell their services or software products to foreigners. Many other Indian engineers and scientists migrate to countries where it is easier to put their skills to good use.

The one exception has been ballistic missiles. Curiously this was seen as a really, really important project and the politicians eventually backed off and let the engineers get on with it. India has world class engineers and scientists, but too many of them have to go overseas to do what they do best because the government does not tolerate being told what works and what doesn’t by people who know what they are talking about.

India is determined to develop the capability of designing and building high-tech weapons, something few countries can do. India is following in the footsteps of China and Russia, two nations that still had most of their population living in poverty, while the state concentrated resources to create the technological base needed to build modern weapons. Russia and China have gone farther than India in developing and manufacturing modern weapons. Not as far as Western firms, if only because of the corruption and lawlessness in both those nations. But Russia and China had an advantage of having authoritarian governments. Decisions could get made quickly and decisively. India is a democracy and democracies are messy. Important decisions tend to get “kicked down the road” rather than taken care of. Chinese leaders openly boast of this as a major reason China has succeeded while India fails.

There have been some new ideas and opportunities. One of the most alluring is the growing number of private firms in India that can handle defense work. Currently non-government Indian firms get about a quarter of the contracts. Foreign defense firms can make deals with these private firms who can then go after Indian defense contracts. But standing in the way are the Indian defense officials. The Indian bureaucrats have a well-deserved reputation of gumming up the works and preventing needful things from getting done. This makes it difficult for private companies, especially when the main customer is the government. Getting rid of DRDO and its 30,000 employees is difficult. Over 20 percent of them are scientists and engineers unable to compete in a free market economy with many of the rest are obstructionist bureaucrats that cripple the efforts of commercial firms competing with DRDO. Eliminating DRDO is extremely unpopular with most politicians. Yet in the last few years senior elected officials have made some decisive moves to end the bureaucratic deadlock. This involved something as simple as ending the ban on former military personnel taking key jobs in the Defense Ministry and shutting down state-owned arms factories with long records of failure.

This situation is tragic and a growing number of Indians realize it. India, a regional superpower and the world’s largest democracy, with a population of over a billion, now finds itself in a very rough neighborhood and military efficiency is becoming a necessity, not just a worthy goal. To deal with that, India has always maintained large armed forces and one of the largest armies (a million troops) on the planet. But keeping these troops equipped, for what is expected of them, has proved to be very difficult. The army keeps falling behind in replacing aging weapons (like artillery) and obtaining new technology (missiles, smart munitions, night vision). Getting the money from the government has been the least of their problems. The biggest hassles are with corruption and failed efforts to develop local weapons production.

The latest government moves to change all that are not revolutionary, but evolutionary. As has long been observed, democracies always do the right thing, but often only after trying everything else. India still has not reached the end of the “everything else” list.

 


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