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DID » Politics » Issues - Political » India’s DRDO Rethinking the Way it Does Business

India’s DRDO Rethinking the Way it Does Business

17-Nov-2006 08:36 EST

Related Stories: Asia - India, Issues - Political, Policy - Procurement

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In “India’s Defense Market: Obstacles to Modernization” DID looked at the various organizational pathologies that were creating repeated failures for Indian defense procurement efforts, to the point that billions of dollars were being appropriated and not spent. We have also followed projects like India’s Kaveri jet engine, its missile programs, the Arjun tank, et. al., which have consumed a great deal of time (over 20 years in many cases) and many crores of rupees without fielding operational weapons systems.

The changes required are wide-ranging and complex – but in a democracy, these things eventually come home to roost and reform efforts begin. There have been a few signals lately that these changes may begin at last. Where are they going? Will they succeed?

BrahMos
PJ-10 BrahMos
(click to view full)

With China taking significant steps to improve its defense industry, while funding that industry at levels far higher than a democracy like India can, something clearly has to be done. Opening India up to foreign defense manufacturers, which has been the de facto result of many of DRDO’s project failures, can be an effective solution – vid. the PJ-10 BrahMos missile – but it is not a panacea.

Scientific Adviser to Defence Minister Shri M. Natarajan’s concerns re: the “triple trap” of relying on foreign defense procurement are well stated:

  1. What is developed abroad may not suit local requirements
  2. What is suitable may be denied
  3. What is not denied could be unaffordable

Which means India’s defense industry must retain some local capabilities, and work to increase them. To that end, he is correct to note that business as usual won’t suffice.

India Defence now reports that The Government is looking at “substantial changes” in the existing model of developing advanced defence products. At present, India’s DRDO has to do a lot of the sub-component development work that would be done by Tier 2 and Tier 3 suppliers in America or France. Unsurprisingly, Defence & Research Development Organisation (DRDO) chief M. Natarajan said recently that they have:

”...proposed greater involvement of stakeholders by sharing project expenditure and management. DRDO is not a manufacturer. Its primary job is to create capacity. The industry is also realising that this would be possible if there is some mechanism of assured minimum quantity and there is some partnership with foreign entities.”

The Indian MoD release is more specific. Natarajan suggested a pattern of funding with DRDO contributing 70%, Industry 20%, and the user Services (Army, Navy, Air Force etc.) 10% for better stakeholding in long term projects.

That may not be the right ratio, or even the most important step, but note the direction of his thinking.

Which brings us to other recent statements from various officials at the International Seminar On Defence Finance & Economics.

On the one hand, External Affairs Minister Shri Pranab Mukherjee has called for greater synergies between public spending and private enterprises with regard to defense production. What he appears to mean by this is the traditional pursuit of industrial offsets as part of defense contracts, plus expanded auditing.

At the same conference, Sir Kevin Tebbit of U.K. presented Britain’s work in the area of ‘Smart Acquisition’ to manage time, cost and performance, while Dr. Elisabeth Wright of the U.S.A. made an presentation on Life Cycle Management of defense acquisition costs.

All are well and good. None of them appear to address the root issues.

Techniques like life-cycle management, outcome budgeting and accrual accounting may offer limited help in specific areas, and could become part of a drive to greater accountability for results if used properly. On the other hand, the kind of “oversight” much beloved of politicians can contribute to waste and delays as easily as it prevents them. The core question is, “what is the real problem?”

Unless that question is answered correctly, such measures as are proposed above can easily become a substitute for real diagnosis, and the opposite of help. Further damage is especially likely if one’s biggest problem is a cultivated environment in which people won’t take risks and paperwork is seen as more important than production, all in a heavily state-owned and run sector. In that environment, even Natarajan’s proposal to shift some project funding away from the state can be seen as a simple offloading of risk and expense onto other entites, while maintaining a controlling share.

On the other hand, there are currents afoot that could leverage the ideas of synergies with the private sector and a move away from the state as a manufacturer, using industrial offsets to help expand India’s private defense industry, all done in conjunction with expanded use of modern management tools. For instance:

“Addressing the seminar the Union Finance Minister, Shri P. Chidambaram said that Defence PSUs needs to improve their comptitiveness by reducing costs and enhancing productivity. He said, “The argument that the Government in all circumstances must support loss making undertakings or inefficient ordnance factories because of their strategic importance or surge capacities is difficult to sustain in an increasingly globalised world with many more efficient alternatives. Efficiency, productivity and true competitiveness have to be the underpinning of a strong and vibrant Defence Industrial Base.”

Shri Chidambaram said that optimal allocation and utilisation of resources is the challenge before Defence Finance & Economics. Referring to the many positive aspects of India’s economic growth in the last few years, he stated that policy changes are already in place to allow private sector participation in the Defence sector with up to 100% equity ownership. Shri Chidambaram said the partnership has to be further strengthened and taken to higher levels with greater outsourcing by Defence PSUs, Ordnance Factories, R&D Labs etc. The Minister said Defence Accounts Department must constantly review their systems and procedures for faster service delivery. Shri Chidambaram was of the opinion that Cash Management Systems, Management Information Systems, Migration to International Accounting Standards are some of the important aspects in this context.”

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SEI CMMI 5 Levels
(click to view full)

India’s software development community, which boasts more Level 5 CMMI firms than anywhere else in the world, shows that Indian firms are well acquainted with the demands of quality, development of new technologies, and performance to specifications. As this very pro-DRDO but well-referenced entry on Wikipedia documents, the DRDO has also shown the ability to succeed with a number of its own projects. Even within that sample set, however, note the patterns in DRDO’s bigger successes like the Pinaka MLRS and BFSR-SR short range 3D battlefield surveillance radar – and also the pattern of failures like the 125mm FSAPDS tank ammunition.

As DID has noted in our coverage of India’s annual Ministry of Defense report, however, large segments of India’s arms industry are government-owned. Given the number of jobs (read: votes) dependent on these enterprises, the political reality is that closing these firms or even substantially reducing their workload is extremely difficult. The result is an environment of non-accountability.

One that won’t be fixed by changing the accounting methods.

There are many other reforms that will be necessary in order to create a defense industry and capability level that matches India’s ambitions – but if the core issues revolve around culture and performance, greater involvement by the growing private sector in India’s state-run defence industry and projects is a fine place to start. Most of the other items discussed, from greater use of modern management tools, to increased focus on performance, to a growing private sector capable of partnering effectively with foreign firms and producing key sub-components, can then begin to improve of their own accord.

Will India succeed? it is impossible to know. One may begin to say, however, that they are headed in the right direction at last.

UPDATES:

July 7/08: India’s army decides to cap production of the Arjun tank at just 124 vehicles, though DRDO lobbies for 500 and alleges sabotage. T-90s will be the mainstay of India’s future tank force instead. Read “India Plans to Cap Arjun Tank Production”.

March 1-3/07: Perhaps we were a bit over-optimistic about the DRDO’s direction.

India’s DoD has issued a release describing the key areas/projects under DRDO. It’s titled “Revamping Of Defence Research And Development Organisation.” The changes thus far… they’ve struck a committee, and asked it to make recommendations. In most democratic political systems, this means the government has decided to do nothing substantive about the problem.

In a similar vein, the government’s March 1, 2007 release “Private Sector Participation For Developing Weapon System” can be summarized as “we’re already doing this, it works fine.”

Additional Readings & Sources

  • Indian Express (Nov 15/06) – Our DRDOs and Don’ts. “The difference between good and bad organisations often is that a bad organisation frequently forgets the purpose for which it was created. Having lost sight of why it came into being, its focus gets distorted. This distortion is evident in the DRDO’s workings. Instead of working in concert with the defence forces in ensuring that the services get weapon systems and force multipliers that they need within the desired time frames and without having to compromise on cost and quality, its purpose has been to get more projects, more funds, bigger budgets and grander establishments in the name of indigenous production capability….”
  • A DID reader writes in re: the India Express series: ”[The articles have] come in for considerable criticism for shoddy research. For instance, the continued tone taken throughout the article that the DRDOs record is dismal, but bar one former chief (who tried to have his boys get a better pay), no attempts were made to get a balanced record. As a case in point, the LRDEs excellent record of radar systems was avoided all together…. the report goes to mention DARE (a lab) as a success and unlike DRDO, and savage the LCA project. But the reality is that DARE is [an outgrowth of the LCA project].... The article on missiles is similarly quite erroneous- off the record, DRDO scientists are chafing at technical details being completely wrong. Nor can they issue public rejoinders (about accuracy and guidance systems) since, as you can imagine the PRC and Pak. would be keenly interested in the germaine details (CEP) etc…. I do wish the Indian media would hire scientific professionals with industry experience, or truly interested personnel to cover the topic.”
  • India Defence (Aug 7/06) – Indian Navy to be balanced in ten years: Admiral Prakash. ”...with the indigenous ship building efforts in the country gaining strides and other ongoing acquisition programmes like aircraft carrier and other force multipliers coming to fruition, the Navy would be an all purpose maritime force to be reckoned with in the next 10 years. “Though our maritime interests are now all over, anything that happens from the eastern coast of Africa and the straits of Malacca”, he said the immediate footprints for the navy was the Indian Ocean area.”