Graphic: Mint
Graphic: Mint

Defence procurement needs sustained focus on execution, not just approvals

A large part of the orders for procurements that were approved in FY15 and FY16 are yet to be placed

Countering the criticism of continued sloppiness in procurement, defence minister Nirmala Sitharaman claimed that the decision-making process has been hastened. The frequent meetings of the Defence Acquisition Council (DAC) ensuring timely decision-making on procurements are shown as validation to this faster decision making process.

The thrust is welcome. Equally important is the focus on execution. An analysis by Motilal Oswal Securities Ltd shows a marked rise in capital acquisition approvals by the DAC under the current government. Unfortunately, however, ordering is lagging by a wide margin. More than three-fifths of the procurement approvals are yet to be ordered (see chart).

The brokerage considered only large orders (>₹2,000 crore) for the analysis.

True, the ordering is expected to take time, given the complexities of defence procurement. But as the broking firm points out, a large part of the orders for procurements that were approved in FY15 and FY16 are yet to be placed.

According to the defence procurement procedure, the entire procurement process should take around two years, points out the broking firm. But experience suggests that the ordering is taking a much longer time.

The data and analysis validate industry complaints. Companies that have built capacities and complained about slow orders hope the process is quickened.

“Our (defence division) sales in FY-18 were less than our expectations due to delay in the process of validation and testing which takes substantially long time," ammunition and related components maker Solar Industries India Ltd said in its latest annual report, warning the industry can be demoralized if the government does not provide a defence industrialization strategy with appropriate planning.

Even the public sector entities which are usually the preferred suppliers face delays.

Bharat Electronics Ltd reported muted order inflows last fiscal due to delays. “Bharat Electronics Ltd had guided for order inflows of 14,000-16,000 crore for FY18 on expectation of approval of large orders like Akash missile system and LRSAM (long-range surface-to-air missiles). However, these orders are now likely to flow in FY19E," ICICI Securities Ltd.

As pointed out earlier in this column, the concern now is the ordering activity will be further delayed, as the government’s focus will shift to the general election.

Fund constraints are only part of the problem. Technological ambiguity (inability to decide what technology to use), extended field trials and delay in issuance of proposal requests are all adding to the ordering delays.

“There is a need to fast-pace the procurement process, increase the involvement of the private sector and supplement this with committed funding for upcoming projects," Motilal Oswal Securities adds. It is imperative the minister focuses on execution to retain the industry’s faith.