Publication | Page 617 | Manohar Parrikar Institute for Defence Studies and Analyses (2024)

The EU-India Helsinki Summit October 10, 2006 Alok Rashmi Mukhopadhyay

The Seventh EU-India Summit will be held on October 13th in Helsinki. The annual summits take place alternately in New Delhi and in the capital of the incumbent European Union presidency - at present held by Finland - under the existing framework of EU-India relationship, which was given the shape of a 'strategic partnership' at the EU-India Summit of 2004 in The Hague. The Joint Action Plan (JAP) adopted at the New Delhi Summit in 2005 was a comprehensive programme of EU-India engagement in the coming years. As the EU-India strategic partnership has started to attract interest in Europe, India and at the international level, it would be pertinent to carry out an overview of this strategic partnership on the eve of the summit.

Before the EU-India strategic partnership came into being, India had been maintaining bilateral strategic partnerships with major European nations like Britain, France and Germany for a few years. Recent events show that major European nations are indeed interested in intensifying their bilateral engagements with India: be it India as the theme of the recently concluded International Book Fair in Frankfurt, the British Strategy Paper for 2015, which earmarks India and China as the focus, or the visit of the Indian Defence Minister, Pranab Mukherjee, to France and Germany in early September 2006. Given this trend of an intensified bilateral relationship with European majors, some pertinent questions need to be posed. Does the EU-India relationship really deserve the attention and toil of the foreign policy makers in India? Is the EU, a 25-member juggernaut which will include two more nations, Bulgaria and Romania, in January 2007, really going somewhere? Moreover as basic notions of a global organisation or a political entity is seen from this part of the world, the most vital question is whether the EU is indeed a power (read militarily) or is it one in the making? The prevailing perception about the above-mentioned questions would be negative as both the referenda in France and in the Netherlands in the summer of 2005 were against a more cohesive EU - in the form of a European Constitution - and the bitter controversy around the EU budget in late 2005. One may describe these negative developments as symptoms of 'Euroschlerosis'.

Developments in the last year and the unresolved issues may also add to the fuzziness of the future of the union. Issues worth mentioning in this context include: the long and prolonged debate on Turkey's membership; German Chancellor Angela Merkel's support to a reference to 'Christianity' in a revised European Constitution; Britain's restriction of access to skilled workers from Romania and Bulgaria, despite the two countries being full members of the EU. The British decision to control migration from those two new members actually emanates from the statistics that the number of immigrants from these new member states has increased more than twenty times in the last year alone. This is a reflection of the anxiety over 'Polish plumbers' which partially contributed towards the rejection of a European Constitution in France last year. Therefore, strategic experts influenced by these cross-purposeful developments, may come to the conclusion that the EU has indeed reached a rudderless situation.

Nevertheless, those who observe the sophistication of the EU's working procedures would be overwhelmed by the daily volume of business completed by the basic EU institutions, namely the European Commission in Brussels, the European Parliament in Strasbourg, Brussels and Luxembourg, and the incumbent EU presidencies. At a more practical level, there is also criticism against the expensive translations of basic EU documents from English to Slovenian or from French to Latvian and travelling allowances for EU officialdom as a burden on the European taxpayers. Differences of vision also prevail amongst the major European political groups who want to see the EU to be developed in accordance with their respective ideological moorings - red, green, Christian or liberal. However, the distinctiveness of the EU lies in the flexibility to arrive at a decision mostly based on consensus amongst its member nations. For observers from other parts of the globe it is undeniably an experience where continuous compromise is achieved amongst 25-plus member nations on a daily basis in almost all aspects of European lives. Therefore, without being aware of the complexities of the EU and its nitty-gritty, sweeping comments and juxtaposing EU with the US, in order to prove the former's non-viability as a military bloc, are only indicative of the observers' unwillingness to get into pain-staking details of the EU and thus superficially following Robert Kagan's hypothesis that the United States is from Mars while Europe is from Venus.

However, as far as India's engagement with the EU is concerned, it has shown willingness to go beyond the 'traditional trajectories' in its foreign policy and thus engage almost all parts of the world. Economic diplomacy has become the major component in this endeavour. As the election manifestos in 2004 of both the major electoral combines in India, the Congress-led United Progressive Alliance (UPA) and the BJP-led National Democratic Alliance (NDA), were unambiguous in giving due importance to the EU, it is obvious that at the political level there exists a consensus in considering the EU as a global power to be reckoned with. Not only there exists political consensus, there is also an increasing interest about the EU among the public and media, which could not be imagined even five years ago. The EU today, with a population of more than 450 million, a strong common currency in the Euro, a Gross Domestic Product (GDP) of US $13 trillion (in 2006), economically and technologically competitive production regions throughout the continent and growing irrelevance of national borders, does in fact offer enormous opportunities for Indian trade and industry. On the other hand, the EU has also been observing the economic and technological growth of India and its expanding middle class over the last decade and major European brands are keen to enter the Indian consumer market.

In fact, trade is found to be the main driving force of the present Indo-EU relationship. Indian trade and industry have not only invested in Western Europe but also made their presence felt in Central and East European countries (CEEC), which so far remain unexplored as an investment destination. Indian majors like Kirolskar, TCS, and Dabur have already started their operations in East European nations like Hungary and Romania. However, there are also problem areas in this arena. For instance, the EU has complained about high Indian duties on European wines. For its part, India complains about visa restrictions faced by Indian businessmen and discrimination against Indian professionals in Europe. This issue can be addressed through the mechanism of the proposed Comprehensive Economic Co-operation Agreement (CECA), the signing of which would provide a boost to India-EU ties.

Technological cooperation remains one of the main pillars of the Indo-EU strategic partnership. Be it Indian participation in the EU global navigation system, Galileo, or membership in International Thermonuclear Experimental Reactor [ITER] project, both India and EU have been engaging each other with greater vigour. Not only at the EU level, but also individual member nations and European defence industry in the last year have started their businesses in India or have shown willingness to participate in defence co-production. A EU-India Aviation Summit, which follows the Helsinki Summit, would address the new challenges in civilian aircraft technology.

However, the most important and interesting thing would be the outcome of the coming summit in the area of EU-India co-operation to combat terror. As India has been experiencing both home-grown and cross-border terrorist attacks - the latest manifestations being Mumbai and Malegaon - Europe is also facing the scourge. In fact both the two previous EU-India summits were held in the background of terrorist attacks. The EU-India Joint Action Plan of 2005 has therefore resolved to establish contacts between the Indian and EU Counter-Terrorism Co-ordinators. In this regard, it must be mentioned that the EU Counter-Terrorism Co-ordinator is a new post that came into existence after the Madrid terrorist attacks on March 11, 2004. Gijs de Vries, the EU Counter-Terrorism Co-ordinator, does not have the power or the enormous mandate that his counterparts in other countries have. Therefore in the coming months it would be interesting to observe whether EU member nations take it as a priority to strengthen the institution of EU Counter-Terrorism Co-ordinator, which would definitely reinforce European co-operation with other governments in the campaign against terror. It is therefore expected that till the institution of EU Counter-Terrorism Co-ordinator gets a full-fledged mandate, India would follow the existing bilateral frameworks with European nations in the form of Joint Working Groups on Terrorism.

In conclusion, it must be reiterated that the EU-India relationship is a rather innovative one in comparison to India's time-tested relationships with major European nations. However, in a short span of time, the EU-India relationship has shown tremendous potential in various areas. Given the multicultural nature of both the EU and India they share common concerns and have already decided to learn from each other's experiences. Similarly, India and the EU are also devoted to multilateral approaches towards current global challenges. It must therefore be remembered that any analysis of the challenges in the EU-India strategic partnership should be undertaken giving due consideration to the complex but dynamic EU integration process, the interlinking of different EU institutions in a specific decision and the daily challenges the EU faces as a unique organisation.

Nuclear and Arms Control EU-India Summit, India-EU Relations, European Union Impressions of an IDSA Seminar on the North East October 10, 2006 Namrata Goswami

On September 25 and 26, 2006, the Institute for Defence Studies and Analyses (IDSA), New Delhi, conducted a seminar on Peace and Development in the North East in Shillong, Meghalaya. This was done in collaboration with the North Eastern Council (NEC) and the North Eastern Hill University (NEHU), Shillong. The two-day seminar provided a forum for scholars, media personalities, military personnel, bureaucrats and politicians from the region to express their views and thinking on the subject at hand. During the course of the seminar, an interesting mix of political vision, academic analyses, and hands-on experience of journalists and the military, interwoven with some very stimulating discussions on issues vital to the North East, were observed. The seminar, a novel gesture on the part of the IDSA in the region, registered strong local interest and media coverage. The inaugural session was aired on live television throughout the North East.

In his welcome address, H. V. Lalringa, Secretary, NEC, appreciated the IDSA's gesture and stated that the seminar could not have come at a more appropriate time given the ongoing Naga Peace Process and its likely positive impact on peace in other states of the region. IDSA Director, N. S. Sisodia, identified the North East as one of the most important regions of India, given its strategic location, its rich culture and an abundance of natural resources. Tapping the human and economic potential would be extremely beneficial for the region and would also at the same time open the doors for cross border linkages with an economically vibrant South-East Asia. He stressed on the importance of peace and development in the North East and indicated that the seminar was the start of a process for further cementing bonds with institutes and universities in the region.

In his inaugural address, P. R. Kyndiah, Union Cabinet Minister for Tribal Affairs and Development of North Eastern Region, pointed out the deep concerns about the foreign nexus in aiding North Eastern insurgent groups set up sanctuaries in neighbouring countries. He expressed satisfaction with the Centre's efforts in engaging in peace talks with rebel groups and hoped that the North East would witness higher economic activity with various developmental schemes in place. R. G. Lyngdoh, Home Minister in the Government of Meghalaya, spoke against any governmental incentives to surrendered militants. He candidly argued that such packages indirectly encourage youths to take up the gun and later surrender in the hope of enjoying government-funded benefits.

The broad topics covered in the Seminar included: Insurgency and Counter-Insurgency, Identity and Conflict, Peace and Development, and The Way Ahead.

Insurgency and Counter-Insurgency

The IDSA has dealt with topics of defence and strategic issues related to the North East since its inception. Dr. Pushpita Das, an Associate Fellow at the IDSA, gave an excellent overview of the work that has been done at the Institute in this regard. The earliest publication in the IDSA journal was the paper titled "Perspectives from Nagaland" by Prof. B. K. Roy Burman, which analysed the Naga insurgency in two contexts - South East Asia and India. In its early years, the Institute also published three papers on the Sino-Indian imbroglio with a focus on Arunachal Pradesh. In subsequent years, the IDSA has followed these up with several in-depth articles, papers, monographs and books, all primarily dealing with insurgency and security.

Insurgency in the North East thrives on cross border flows of finance and small arms. As a result, when the stock market in South East Asia crashed in the late 1990s, some of the biggest losers were insurgent outfits of the North East. The 'economy' created by these outfits collects revenue through parallel taxes, extortion, ransom, foreign aid, profit sharing with corporate houses, siphoning off state developmental funds and arms and narcotics trade. These issues were brought out by Prof. Sajal Nag of Assam University, Silchar, in his paper titled "Financing the Resistance: Political Economy of Insurgency and the Structure of Non-State Economy in North East India."

Prof. K. Ibo Singh's (Manipur University) paper on "Insurgency in Northeast India and India's Neighbours" was an excellent recap of the trans-border network feeding the insurgency in the region. Insurgency in the region thrives on several external linkages and connections with contiguous countries. The unfortunate attitude of Dhaka is manifest in active shelter and support to militants of the region bolstered by the 'sworn India hater' - Pakistan's Inter Service Intelligence (ISI). The Myanmar connection is kind of 'traditional' with the base provided by the World War II 'veterans' lineage in the form of the American trained and armed Kachin militants. However, Myanmar's current interface with North East outfits is provided by S. S. Khaplang's faction of the National Socialist Council of Nagaland, a rather easy task given the porous nature of the Indo-Myanmar boundary.

Another important paper "The Changing Scenario of Insurgents in Manipur" by Prof. Joykumar Singh (Manipur University) reflected on the existing 'culture of violence' in Manipur today. In his view, revolutionary activities by the youth are motivated by a feeling of desolation resulting from the Indian state's inability to bring about meaningful assimilation of identities and culture. Also, non-violent protests against the Government of India's decision to situate Manipur within the categorty 'C' states gradually spiralled into violence and separatist tendencies. Referring to the concept of the 'moral efficacy of violence', Prof. Singh lucidly argued that New Delhi's lacklustre response to non-violent dissent has radicalised the youth and forced them to conclude that violent movements get attention whereas non-violent protests do not.

The North East of India abounds in 'social capital' within the civil society discourse, which can be vitally used for peace and development. This is a resource that is almost unexplored and therefore untapped. However, this concept has a downside because even though there are strong bonds among smaller groups based on kinship and tribal affiliation, it is weaker in larger groups. The remedy lies in better communications, which creates bonds on shared values and issues, impacting upon the larger group. This perspective was expertly dealt with in the paper titled "Role of Civil Society" by Dr. Archana Upadhyay from Dibrugarh University. A case in point is the Naga reconciliation moves and the growth of a common sense of purpose.

Identity and Conflict

The first paper under this theme titled "'Acculturative Stress and Identity in National Minority of the North-Eastern India" by Dr Zokaitluangi from Mizoram University dealt with issues of identity, attitudes, values and adjustment from acculturation based on a study of five hundred and thirty five Mizo students. It makes interesting inter-scale/sub-scale factor analysis on psychological measures. These measures are analysed with the help of multiple regression analyses on three independent components of acculturation, namely, heritage acculturation, mainstream acculturation and the resultant acculturative stress. Acculturation is the process when two or more cultures with different origins, behavioural traits and lifestyles interact continuously and directly leading to the process of adaptation. Heritage refers to an individual/group's culture of origin, mainstream indicates the 'other' dominant culture that an individual/group comes across besides the heritage culture, and acculturative stress arises on account of the process of adaptation by an individual/group with the mainstream culture. This is especially true for a minority due to the consequences of identity conflict and ethnic values. A case in point is the Naga identity and conflict arising out of acculturative stress. This identity stress has been for long a bone of contention due to rigid posturing by both parties to the issue.

Dr. Nani Mahanta of Gauhati University debated on the necessity of an interface between policy makers, insurgent leaders and civil society. He argued that civil society could be a third face if consultations between the first two sections reach a deadlock. Dr. S. Bhattacharejee of Tripura University provided a detailed perspective based on identity complexities in Tripura, where the differences between tribal/non-tribal identities are an everyday reality. Professors A. L. Ao and A. K. Singh's "Identity and Conflict: Nagaland Perspective" emphasised on the Naga issue from a critical standpoint. The authors claim that the Nagas are a separate nation, with a distinctive culture and lifestyle and that the so-called Naga 'insurgency' is actually a movement to preserve and protect this distinct identity.

The Naga crisis draws its strength and supposed legitimacy from a historical baseline. This was examined vis-à-vis the other more contemporary contributing factors to the crisis in the paper titled 'Contested Domain of the Naga Narrative', by the author of these impressions. Based on historical evidence, the author argued that the Naga claims of uniqueness and distinctive identity do not hold true, given that Naga tribes had strong linkages with the Meitheis of Manipur and the Ahoms of Assam. Moreover, the British had occupied their lands by the end of the 19th century and established an administrative set up in the Naga Hills.

Terrorism & Internal Security Northeast India Lights out for the nuclear deal? October 05, 2006 Cherian Samuel

The speed and relative ease with which the Indo-US nuclear deal raced through the respective committees of Congress and the margin by which it was assented to by the House of Representatives on 27 July, scarcely four months after it was introduced in Congress, created the expectation that the same scenario would play out in the Senate. These hopes have been belied by the failure of the Senate to pass the Bill before it recessed for the mid-term elections.

One perception of this development is that Senators were not fully signed on to President Bush's vision of a strategic partnership with India, and its benefits for the United States, and therefore put the brakes on the deal by bringing up procedural hurdles. A closer examination of the sequence of events shows that the outcome could largely be attributed to happenstance - a series of events and outcomes that looks like they might have been arranged even though they were really accidental.

The Bush initiative got a very tepid welcome in Congress, not out of opposition to the bill per se, but as a consequence of the internal dynamics of the relationship between the legislature and the executive. There was a perception that the Administration had ridden rough-shod over the legislature, first negotiating a Bill without due consultation, presenting it to Congress as a fait accompli, and then trying to rush the legislation through, which Congress saw as trampling on its fundamental right of advise and consent.

The momentum picked up once lobby groups impressed on the Congressional leadership that dragging their feet on the bill would have a negative impact on the burgeoning economic relations between the two countries. Vocal protestations to the proposed legislation from the non-proliferation lobby notwithstanding, there wasn't much opposition to the Bill from amongst the rank and file of Congress for whom the legislation was neither a political hot potato nor electorally significant - important factors to be considered in a year of mid-term Congressional elections. Added to this were sustained lobbying efforts by a number of groups, ranging from the Indian American community, the business communities of the two countries, fronted by their respective business alliances, and think tanks, especially those with a focus on South Asia. Though officially maintaining that getting the deal through Congress was an internal task to be undertaken by the US Administration, the Government of India, as an interested party, also made an effort to reach out to legislators, recognizing their position as a separate centre of power.

Subsequently, the bill fell victim to its own success with a controversial legislation being tagged onto it, the intention being to ride piggyback on the more popular bill. (Incidentally, the same mechanism had initially been proposed to get the Nuclear Bill through Congress if it had struck too many roadblocks.) This plan backfired with a number of Senators putting a "hold" on the combined legislation, thus preventing it from reaching the floor of the House. By the time the combined efforts of the Indian American community and the business lobbies had succeeded to remove that particular hurdle, a paucity of time coupled with a crowded legislative calendar and pending legislation related to domestic (and electorally important) issues took centre stage, leaving the India bill out in the cold. Bills that were passed in the last days of the current Congress ranged from the defence spending bill to the homeland security spending bill to a bill authorising further fencing along US-Mexico border. President Bush himself had other priorities such as getting the bill allowing military commissions to prosecute terrorism suspects through Congress.

Renewed attempts to expedite its passage at the very end of the session were stymied by the Democrats for a number of reasons. They were determined to deny the Republicans a foreign policy victory just before the elections, and given that they are widely expected to reduce the Republican majority in the Senate and to even gain a majority in the House, a re-look and possibly a refashioning of the Bill seems to be in their scheme of things. If this turn of events comes to pass, the Bill would be on slippery ground since the ideological underpinnings of the Democrats makes them more receptive to the exhortations of the non-proliferation lobby, evident from the voting on the Bill in the House where out of the 68 who voted against the Bill, 58 were Democrats.

If the Bill is not passed in the current session and once again has to run the gauntlet of the Committees, Under Secretary of State Nicholas Burns' prediction in March that getting the Bill through Congress would be akin to a 15 round (boxing) match might well turn out to be the understatement of the year, given the lack of room for manoeuvre for both the US Administration and the Indian government. The muted response on the part of the Indian government to the delay is an indication of the maturation of relations at a governmental level. But domestic competitive politics coupled with media hype has given a much higher profile to the deal in India than in the United States. If the deal were to fail to pass through in the lame duck session as well, it might still leave a manageable impact on bi-lateral relations. However, it would be a public relations disaster for the United States, in one of the few countries where public opinion sees US actions in the recent past in a favourable light. As the James Bond villain Auric Goldfinger famously said, "Once is happenstance, Twice is coincidence, The third time it's enemy action." The looming danger is that the public might skip from one to three.

Nuclear and Arms Control India, Nuclear, United States of America (USA) The Eastern Factor in the Sri Lankan Ethnic Conflict October 05, 2006 M. Mayilvaganan

A flare-up in the fighting in the East, particularly in Trincomalee District, has put a question mark on the prospects of peace in the island nation. The Eastern province of Sri Lanka has been a theatre of war for more than 20 years, and, since the 2002 Ceasefire Agreement it has particularly been the stage for continued local level conflict due to its multiethnic nature. All three communities, Tamils, Muslims and Sinhalese, continue to face severe threats to their human security such as loss of livelihood and internal displacement. Lars Solvberg, the newly appointed chief of the Sri Lankan Monitoring Mission (SLMM), recently pointed out that since July 22 when the conflict over the Maavilaru waterway broke out, "over 200 civilians have been killed and several thousand … internally displaced."

Although the situation in the East, like in the North, has seen much violence, developments like the first ever internal split in the LTTE on the basis of region, the emergence of other Tamil paramilitary groups and the persistence of violence along with the assertion of a separate identity by the Muslim community have underscored the significance of the Eastern Province in the future of Sri Lanka's ethnic crisis. Further, the emergence of the Eastern Province as a vital strategic point in view of the significance of Trincomalee Harbour, Naval Base, Oil Tank Farm of Lanka Indian Oil Corporation (LIOC) and China Bay Air Force Base, further highlight its importance in any resolution of the ethnic question. As a result, both the LTTE and the Sri Lankan government have given a great deal of attention to the armed struggle in the region.

The Eastern Province is seen as more fragile than the Northern Province due to its complex ethno-religious character. The demographic profile of the Eastern Province makes it interesting, as it is critically balanced between Muslims, Tamils and Sinhalese. According to the 1981 census, Tamils constitute 36 per cent, Sinhalese 33 per cent, and Muslims 29 per cent of the region's population. Other than the regular infighting between the Tamils and Sinhalese, of late there has been an increase in Sinhala-Mulsim tension as well, partly because of the rise of Sinhala radical groups in these areas. For instance, the efforts of some Sinhala radical groups to put up Buddha statues in Muslim localities have caused tension in Pottuvil in Amparai District.

Despite the cohesion provided by a common language - Tamil as a mother tongue - the Tamils in this region are divided on the basis of religion. Although Muslims mainly speak Tamil, they seek their identity in terms of religion and not in terms of language. Since the nineties, their assertion of a separate identity has been reinforced by their political growth in the East under M. H. M Ashraf, founder of the Sri Lankan Muslim Congress, and later under the leadership of Rauf Hakeem. Besides, it also questions the LTTE's 'concept of homeland' and its claims of being the 'sole representative of Tamils'. Of late, Muslim leaders have begun demanding a separate territory within the northeast in case greater autonomy is granted to the northeast as a whole under any power-sharing model.

Muslims, who are mostly businessmen and traders, fear being made "second class" citizens under a Tamil administration. Their distress has grown visibly after the Tigers began to target Muslims. A watershed in this regard was the August 1990 massacre of 130 people at two mosques and the subsequent expulsion of 100,000 Muslims from the Jaffna peninsula during the course of that year. Muslims are predominant especially in Amparai district and in the divisions of Kattankudy of Batticaloa and Muttur of Trincomalee, all in the Eastern province, as well as in Puttalam in North Western province.

The issue of the East in the ethnic conflict gained further prominence after Karuna's split with the Tigers in March 2004. For the first time, differences between the Jaffna Tamils and Batticaloa Tamils came to the fore. The underdevelopment of the eastern Tamils vis-à-vis their northern counterparts has a political undercurrent, and Karuna cited this as the sole reason for his decision to operate independently. His decision found wide public support at that time in the East. This division has serious politico-military implications for the LTTE in the East. For instance, its strongholds like Sampur were lost to the Sri Lankan Army. Till recently, Sampur played a significant role in monitoring and controlling the Sri Lankan military presence in both land and sea. Karuna's split has also emerged as a hindrance to the resumption of the peace process, besides adding a new dimension to the messy ethnic conflict. The danger for the LTTE lies in this undercurrent of eastern Tamil regionalism combined with Muslim assertion.

Another major factor that strengthens the importance of the East is the reported collaboration of other Tamil paramilitary groups like EPDP, PLOTE (Siddarthan) and EPRLF (Perumal) with the Karuna faction. Apart from weakening the LTTE's base, the Karuna faction has also attempted to bring other Tamil groups opposed to the LTTE in one forum with the reported support of the Sri Lankan Army. These paramilitary groups are consequently beginning to exercise constraints on the LTTE's strategic and operational space. They not only employ mainly hit and run tactics against the LTTE but also engage in sporadic violence designed to make it appear as if the Tigers were the perpetrators, which they hope would eventually result in an embargo being placed on the Tigers. The net result of all this is that the LTTE has not able to effectively manage the territories it operates from.

It is no wonder that the LTTE is desperate to consolidate its base in the East. The Tigers are trying to grapple with the challenge thrown up by the Karuna faction and other paramilitary groups and their preferred option seems to be to decimate the groups and their loyalists through 'hit squads'. The killing of 'PLOTE' Mohan in Colombo is a classic instance in this regard. However, the Tigers' approach to dealing with Muslims has been different. To tackle Muslims, the Tigers are trying to minimize their hostility towards them by avoiding direct confrontation. And on the political front, the LTTE has repeatedly warned the Sri Lankan government that the provision of help to Karuna's faction and other paramilitary groups would be a hindrance to the peace talks.

Though there is uncertainty over the future of the peace process, these developments in the East have raised certain fundamental questions about the nature of the negotiation for reaching a final settlement on the ethnic problem. One important question is how far the Government and the LTTE could go without the support of the East in finding a solution. Secondly, even if the LTTE agrees to settle for autonomy under an agreed power sharing method, it is doubtful that the Muslims would agree to a handover of the entire Tamil 'autonomous' territory to the Tigers. The future of the peace process and the ethnic question would thus crucially depend on addressing the wider question of the East.

South Asia Sri Lanka Challenges in Defence Planning October 2006 V. S. Shekhawat

Defence planning is essentially a subset of overall national level planning in the political, economic and social spheres and has to be evolved in the context of global and proximate factors affecting the nation. . It has also to take into account the philosophy and ethos animating the national psyche; in other words the historical and cultural forces which have shaped the collective memory and outlook of the people over the centuries.

The Cold War, was a classic example of the factors stated above. There were fundamental philosophical differences between the adversaries – the western bloc, advocating the virtues of free enterprise and its own interpretations of democracy, and the Soviet bloc, equally strongly asserting the merits of the socialist system as the only one genuinely meeting democratic aspirations and assuring social equality and economic wellbeing of the people as a whole, rather than for a few. Fifty years of the Cold War could not conclude the capitalism-socialism debate, though, in the end, it did push the socialist forces into, perhaps temporary, retreat. This was because the struggle was really for power and domination. “The evil empire” of Ronald Reagan’s description may have withered away, but the necessity for the US to target the so called “rogue states” has not disappeared.

Many examples can be found of philosophical differences leading to stand-offs, usually with the USA as one of the parties. The USA-Cuba divide is a long-standing one. USA-Venezuela stand-off is just developing and resonating in other Latin American countries. Sometimes the differences are couched in the language of anticipated threats, such as in US-North Korea, or US-Iran relations. The true reasons and underlying causes are buried in verbiage and obfuscation. A more serious rift has developed over the selective and poorly conceptualised US war on terrorism, launched for spurious reasons in Iraq, when the real source of terror was elsewhere and far more complex. Differing religious beliefs and rigidities are often cited as causes but do not sufficiently explain conflicts within the same religion, as between Protestants and Catholics in Northern Ireland or the Shias and Sunnis in Iraq and elsewhere.

Planning for the security and defence of a vast country like India with its particular geographic location, historical experiences and associations, social, ethnic, religious and cultural diversity, political and economic structure and a large , relatively poor, democratically governed population, is a complex and challenging task. It is rendered more so in the context of the national and international situation in the last sixty years or so, embracing post-World War II de- colonisation, partition, the creation of Pakistan and later Bangladesh, conflicts with Pakistan and China, the Cold War and its aftermath, the disintegration of the Soviet Union, the redefinition of NATO’s role, and of most recent and decisive significance, the September 11, 2001 terror attack on the United States mainland. This last factor is significant because it resulted in a major re-orientation in US foreign policy

Strategic Overview

Planning for defence pre-supposes identification of threats and contingencies. Until about five years ago, the strategic situation for India was difficult but relatively clear. Pakistan was a definite threat, conventional, clandestine and nuclear. China was a strategically reducing threat, though its international power, influence and economy were growing. Uncertainties in Bangladesh and Nepal required us to be vigilant for fall-out effects. There were problems in the north-east of insurgent groups exploiting the ethnic ties and jungles in Myanmar, and the destabilising spill-over effects of the activities of the Liberation Tigers for Tamil Eelam(LTTE) in Sri Lanka.

The presence in our proximate waters, of non-littoral naval forces in substantial numbers, such as those of the US, which has been traditionally supportive of Pakistan, had to be taken cognisance of. Also the fact that warfare at sea, because of its distinctive characteristics of rapidity of concentration and dispersal of forces, mobility, flexibility and speed of execution, requires a different, longer term approach to threat assessment.

Strategically the global situation is now evolving in a manner less inimical to India’s interests than in the preceding fifty years. Yet the end of the Cold War did not see any easing of pressures on India. On the contrary, economic sanctions and technology denials were increased so as to coerce India to conform to norms of international behaviour prescribed by dominant world powers, led by the US and the European Union on the one hand and China on the other. The reason was the desire of the P-5, the five permanent members of the UN Security Council, who are also the N- 5, the self-certified nuclear powers, to preserve their monopoly power status in the face of India’s challenge through the nuclear tests of 1998.

Yet, the re-evaluation of foreign policies by leading powers set off by the September 11, 2001 terrorist attack on the USA, has initiated processes that are, by and large, beneficial to India. An indication of this is the US declaration of seeing India as a strategic partner for the 21st century, and its efforts to legislate exceptions to its domestic laws to allow supply of nuclear materials for peaceful civilian use to India by the cartel operated by the Nuclear Suppliers Group (NSG).

Nearer home, the pathological hostility of the Pakistanis establishment towards India is rooted in its quest for a national identity, which no novel interpretations, distortions or reinventions of sub-continental history seem able to provide. It will be a long time before there can be normal relations with Pakistan because they are influenced more by the internal contradictions and dynamics of the Pakistani state rather than considerations of mutual benefits through good relations. Since the Pakistan army is the self-appointed guardian of the undefined “ideology of Pakistan”, normalcy will come when the Army decides it should be so; or the cost-benefit equation alters.1

With China, there is perceptible progress on resolving disputes and fostering economic and cultural relations. As for Nepal, Bangladesh, Myanmar and Sri Lanka, there is no significant positive change, and because of shared borders, internal problems in those countries will continue to spill over into India. Instability in Afghanistan remains a cause of concern, especially because of Pakistan’s dubious role, and this will have its impact on the pursuit of India’s energy and strategic interests in Central Asia.

Non-littoral naval forces in significant numbers are still present in the Indian Ocean, but there is no coercive or inimical intent as in the past. Indeed, the Indian Navy holds regular friendly exercises with them on a routine basis. China’s long term plans for a naval presence in the region have to be taken note of. There are ample signs of Chinese maritime interest, starting from building and operating communications facilities in Myanmar to financing and building Pakistan’s Gwadar Port on the Makran coast, collaboration in building warships for the Pakistan navy at Karachi shipyard, as well as port building in Sri Lanka. On the western rim of the Indian Ocean, China is vigorously pursuing options in Africa, underlined by the meeting of 49 heads of state/government in Beijing in early November this year.

National Objectives in the Long Term

Planning for defence has to be in the framework of national objectives over a period of decades ahead, even if these are not publicly articulated. USA does not hesitate to state its intention to remain the dominant global technological, space and military power for the foreseeable future and tailors strategic policies accordingly. China has, by its actions, investments and developments over the years, demonstrated that it intends to be at least the equal of the USA, though with “Chinese characteristics”. Pakistan makes no secret of its intention to be “different” from India, and to compete with and undermine India at every opportunity.

India too has shown in various ways that it intends to be in the forefront of nations in every sphere: economic, technological, industrial and human development. What about military capability? Does it wish to have only a capacity to ward off aggression by land and sea? Or does it aspire to play a larger role in the region? If it emerges as the world’s third or fourth largest economy in a few years, would a commensurate military role follow? Or are national objectives to be largely achieved by a combination of diplomacy and economic policies? If it aspires for a permanent seat in the UN Security Council, is it prepared for the increased diplomatic and military responsibilities attached? Many of these seemingly philosophical issues require to be debated to facilitate meaningful defence planning for the future.

Organisation for Defence Planning

Planning for defence involves almost all aspects of government, not only because of the extreme seriousness of the undertaking, but also because a long duration war will require marshalling the total resources of the nation. It can never be presumed that hostilities will always be of short duration, as there is a tendency to do so in the context of India-Pakistan conflicts. Many instances in history illustrate this, for example the US misadventure in Iraq. The US-led coalition forces were injected on the assumption of a quick victory, a warm welcome by Iraqi citizenry and a glorious return home for Christmas. They are still there nearly three years later, as also in Afghanistan, with no indications of an early resolution of the conflicts. Madeleine Albright, the former US Secretary of State has this to say about the US Iraq expedition: “We have damaged our reputation very badly. Iraq may turn out to be the greatest disaster in American foreign policy, which by its very nature means that it is worse than Vietnam.2 In this context, it is worth recalling the words attributed to Fredrick the Great: “No war is accidental or unintended. The only thing unintended is the bloodiness and duration of the conflict. Defeat too is unintended”. 3

No rational planning can be done on basis of a worst-case scenario. Apart from being illogical, it is unaffordable, and therefore unachievable. Rather, realistic defence planning requires a thorough and detailed analysis and evaluation of the security environment, threat perceptions, technological assessments, etc. and should result in an integrated defence plan. Such a plan should be linked to national capacity in the civil sector and integrate utilisation of resources such as road transport, civil aviation and technical manpower in a pre-determined manner for war.

British Example

Through almost four hundred years of wars and colonial expansion and contraction, the British learnt to restructure their fleets and armies as the situation demanded and finances allowed. This was not done at the cost of contingency planning and military effectiveness, as the rapid mobilisation at the time of the Falklands war in 1982 showed.

A major defence costs study, Front Line First was initiated in 1994, whereby the entire UK defence organisation was to be reorganised to effect economies, especially at headquarters, with maximum integration of civil and military staff at all levels, enhanced delegation of financial powers and simplification of procedures.4 Some of the conclusions of the Study could apply equally to Indian defence organisations:

The Ministry of Defence Head Office and other headquarters at all levels were seen as being too large, too top heavy and too bureaucratic.
The process of delegating responsibility to individual budgetholders was generally seen as the key to maximising efficiency. There were too many minor rules and regulations that were rigidly applied, and stood in the way of maximising value for money.
There was a need for greater cost consciousnessso that costs could
be linked more explicitly to output.
Rationalisation of command, training and support structures on a joint Service basis could increase operational effectiveness as well as offer savings. (Huge differences in the size of the three services and the sub-continental geographic spread would make this impractical in India).
Changes were necessary in the culture of the Department, in simplification of working practices and in placing more weight on personal responsibility and accountability.

The possible savings envisaged according to the study were: 5

Equipment and Logistics- 51 per cent.
Estate and Support Infrastructure – 14 per cent.
Organisation and Management – 16 per cent.
Personnel and Training – 19 per cent.

The reduction in Head Office personnel was to be drastic indeed, from 12,700 in 1990, to 5,200 in 1995 and finally to 3,750 by 1998. 6

The report contains other interesting observations that have relevance for us: 7

There is no single body below the Ministerial level with authority and responsibility for the full range of the Department’s policy activity and management. (One may ask whether this is feasible or even desirable).
Align single Service Chief of Staff’s responsibility as professional head, with financial responsibility and accountability.

The MoD in UK is a unique integrated organisation in the government, as it is both a Department of State, as well as the headquarters of the Armed Forces as a whole. The Study states: “The importance of preserving clear lines of functional responsibility to Ministers for the different aspects of the business remains. We do not believe that this requires parallel, separate, military or civilian hierarchies. It was encouraging that the study found little evidence of this in the existing structure”. 8 (Emphasis added).

United States Experience

Whereas the UK defence organisation has evolved over a considerable period in a measured way, the Defence structure in the United States in its present form is largely a post-World War II creation. Due to the preponderant role of the US armed forces during and after the war (“military policy was foreign policy”). 9, its emergence as a SuperPower with a global reach, the requirements of major wars (Korea and Vietnam), the Cold War, numerous smaller military involvements, and because of the possibility of nuclear war, the US defence organisation has become extraordinarily large and complex.

A further impetus for change and streamlining of the US, UK and other European defence organisations, was the creation of the North Atlantic Treaty Organisation(NATO) and the Warsaw Pact and the halfcentury long nuclear stand-off between the Western and the Soviet blocs. These changes were brought about by stark necessity and were politically driven, often in the teeth of opposition and even sabotage by the civil and military establishments. The fear of a pre-emptive nuclear attack without warning drove the adversaries to demonstrate an organisational capability to retaliate instantaneously and overwhelmingly, and thus hope to deter the attack altogether.

Major organisational changes in the USA, such as the creation of a Joint Chiefs of Staff Committee (JCSC), and a national security set-up were initiated during President Truman’s time in 1947. The last major reorganisation was in 1986 under the Goldwater-Nichols Act of 1986.10 Changes in UK followed, notably under Prime Minister Margaret Thatcher.

It should be remembered that fear of nuclear war was very real in the minds of national leaderships and military planners during the Cold War. Extremely complex and high cost weapon systems were developed and money had to be found by curtailing duplication and waste in the armed forces and in the civilian and military bureaucracies.

Apart from operational considerations, the creation of the Joint Chiefs of Staff (JCS) in the USA and the CDS in the UK were felt to be necessary for budgetary reasons, to clarify lines of control and responsibility, and to facilitate legislative supervision. All democracies require that armed forces be firmly under civil direction and control, but there is also nagging fear that somehow they manage to evade legislative oversight. In mature democracies, these concerns are not necessarily about relative power, but about better financial management of the requirements of the state, and the apportioning of the budgetary pie. The aim is also to forestall military inspired adventures. Sometimes, however, it is the civilian political authority that goads the military into action, as the USA did in Iraq, despite sound advice to the contrary.

Delays,cost Overruns and Failures

Despite the more evolved and refined systems of defence management in advanced countries, delays, cost overruns and plain failures of major weapons systems are not infrequent. Here is what the US Government Accountability Office has to say about the Pentagon’s failure “to deliver high quality products in a timely and cost-efficient fashion”, asserting that future national security is at risk as a result It is “not unusual to see cost increases that add up to tens or hundreds of millions of dollars, schedule delays that add up to years and large and expensive programmes frequently re-baselined or even scrapped after years of failing to achieve promised capability”. The GAO also criticised the lack of accountability in the Department of Defence, and that the Pentagon “has never clearly specified who is accountable for what, invested responsibility for execution in any single individual, or even required programme leaders to stay until the job is done.” 11

The UK experience is much the same as far as major defence projects are concerned . For example, according to the National Audit Office major projects report, the current cost estimates for the three latest Astute class nuclear attack submarines (SSNs) has risen from UK Pounds 2.6 billion to UK Pounds 3.5 billion. The project has barely survived “cost overruns and schedule delays, arising from a combination of poor project management, an immature computer-aided design (CAD) tool and a haemorrhaging of skills and experience in the submarine industry”.12

Planning for a future submarine nuclear deterrent platform is also not very optimistic. Assuming the UK government takes a decision in 2006, the submarine is not likely to be delivered before 2024, which according to the UK Director General Nuclear and Controller of the Navy, Rear Admiral Andy Mathews, “sounds a long way off, but is actually quite a tight timescale for something like this”.13

If this is the fate of defence planning in mature and experienced countries such as in the UK and the USA, is it any surprise that our planning too is beset with inadequacies?

Situation in India

Effecting major organisational changes in the management of the armed forces has to be politically driven from a full understanding of the issues involved, the benefits to be derived, the efficiencies and savings to be achieved, without undermining operational effectiveness. A pre-condition has to be that the highest political executive be convinced of the necessity for change, has a hands-on familiarity with the management of defence issues in broad terms, and has the will, time, and organisational, legislative and people skills to see the changes through. Such conditions existed in varying degrees in the USA, UK and most European countries during and after the major wars, and urgency was provided by the people’s instinct for survival in the face of possible nuclear holocaust. In India, the necessary conditions for driving change are largely absent, despite the dysfunctional nature of the organisation for defence planning and endemic delays, cost overruns and failure to meet specifications.

Planning for defence is an extremely complex matter abounding in uncertainties. Since the state is dealing with future requirements, the success of research or design effort, availability of material resources or skilled personnel, capability of the builder, manufacturer or supplier, or even assurance of funding and stability of policy cannot be taken for granted. This is further complicated if foreign governments or manufacturers are involved, introducing uncertainties of licensing, sanctions, denial regimes, end-user issues and even unrelated matters such as diplomatic pressure . There are also the complications of offsets, sweeteners, kickbacks and disinformation/misinformation by competitors and interested parties.

Integrated Defence Planning

Whatever the complications, it would seem self-evident that comprehensive integrated planning for the defence of India would reduce duplication and waste, better utilise technical and manpower resources, make for more efficient and cost-effective procurement for the armed forces, and simplify their logistics management. This is of course easier said than done. The first difficulty is the vastly disproportionate size of the Indian army compared to the Navy and the Air Force, the nature of its operational role and its special equipment requirements, very little of which is common to the other two services. Until more common platforms such as the Advanced Light Helicopter (ALH) and the Light Combat Aircraft (LCA) enter service, shared logistics will remain restricted to basic items such as ammunition, transport vehicles, rations, medical supplies and the like. Some commonality also exists in indigenously developed missiles, UAVs, radars, communications equipment etc, but the list could be expanded.

Nevertheless, there is a modest degree of integration in the Indian armed forces, starting with the common training of officer cadets at the National Defence Academy which began in January1949 long before the concept gained favour with leading military powers. The Indian armed forces have been moving towards integration at the higher levels of the defence organisation too with deliberation, within the limitations of the security environment, the infirmities of the political system, the shortcomings of bureaucracy and the doubts within the military establishment itself.

The Service Headquarters are now styled as the Integrated Headquarters, Ministry of Defence (Army/Navy/Air Force) as the case may be, and there is limited integration of civil and military staffs on a functional basis. There is also more devolution of financial powers, the positive effect of which is discernible even at the unit level. However, despite strenuous efforts and comprehensive recommendations by a “Group of Ministers”,14the nettle that is yet to be grasped is that of the Higher Defence Organisation at the level of the Defence Minister, the Chief of Defence Staff (CDS) and his charter and responsibilities, and the reorganisation of the Departments of Defence, Defence Production and Research and Development.

No integrated staff can function effectively unless there is a common professional superior, and none exists. All joint planning and proposals routed through the Chiefs of Staff Committee (COSC), are agreed to (or shelved) on the basis of consensus and promulgated under the authority of the rotational Chairman, COSC. Consensus is not a bad thing; it causes less frictions and has a greater chance of succeeding. But it is critically dependent on the co-operative relationship between the services, mutual accommodation, goodwill, personalities of the three Chiefs, their interpretations of parochial service interests and willingness to moderate them for common objectives. Instances are known of a single service secretively processing cases that have implications for the other two, in cooperation with some civil servants for their own ends, and together, misleading the minister. Naturally, trust is the biggest casualty, with not only administrative but operational implications.

Since budgets are always tight, no consensus is possible on the equipment plans of the three services if it entails sacrificing a major service project. Budgetary proposals are, therefore, merely aggregations of each service requirements, and no matter how justified, result only in separate rough and ready budgetary provision for the Army, Navy and the Air force in the national budget. This by no means implies authority to spend the amounts on the proposals submitted, which have to be again justified individually up the tortuous chain for approval by the “competent authority”, whosoever that might be in a given case. Delays and shortfalls are in-built into the system and seem to worry only the military that has to live with the consequences in terms of diminished operational capability or personnel hardship and morale.

Another major deficiency is that the Department of Defence under the Defence Secretary, who is the de-facto Chief Staff Officer to the Defence Minister,15 does not participate in any meaningful way in formulating and developing the proposals received from the armed forces before they are moved for financial and executive approval, preferring instead to “examine” them for ministerial endorsem*nt, often without being technically or professionally equipped to do so. 16 Because of the staffing pattern, its competence lies in procedural matters, but as “examiner”, it feels obliged to raise numerous, supposedly searching queries that are often based on superficial information.

Chief of the Defence Staff (CDS)

The creation of a Chief of Defence Staff will not solve the problems associated with the defence planning process without a complete overhaul of the Ministry of Defence organization. Here the UK experience is directly relevant in conceptual terms but will differ greatly in detailed execution. The Minister, termed Secretary of State for Defence in UK parlance, presides over a ministry and armed forces, integrated on a functional basis at all levels. Thus, a largely military office could have several civilian officers; a largely civilian office could have military representatives. These would work through their respective chains, largely civilian or largely military. At the top, the CDS and the Permanent Under Secretary (PUS), a civil servant, “neither of whom is subordinate to the other”, are the Principal Advisers to the Secretary of State for their respective areas of responsibility. The services Chiefs offer their collective advice to the CDS in the forum of the Chiefs of Staff Committee. All four senior military officers have direct independent access to the Secretary of State and the Prime Minister.17

Defence Procurement

The armed forces procure stores, equipment, weapons and systems costing billions of rupees every year after a labyrinthine process of proposals and approvals. As the experience in most other countries indicates, there are factors, which make it difficult to streamline the process. We need to import most of our defence equipment, as India does not yet possess all the advanced technologies required for modern military hardware. The navy has achieved the maximum indigenisation through its shipbuilding programmes but still has to import major weapon systems and vessels, especially submarines, from abroad or seek collaborations. Until recently, this was complicated by US and western sanctions against India that restricted the transfer of numerous technologies.

Defence procurement is the area where maximum delay is caused by our tortuous bureaucratic and financial procedures and lack of accountability and internal transparency. It is also hamstrung by allegations of corruption and resultant political paralysis. The case of the Bofors guns and the HDW (SSK) German submarines are well known and the truth is still to be made public.19 But while the political charades go on, the armed forces are deprived of capability build up and go into conflict without having the weapons and wherewithal, no heads roll, and no one is arraigned for any gross impropriety or crime.

The HDW SSK submarine project was to set India on the path of indigenous design capability and enable their building in India with increasingly locally manufactured equipment. Two submarines were built in Germany and two at Mazagon Docks in Mumbai — the last some ten years ago — after which the project ground to a halt because some persons were alleged to have taken bribes. The political attacks and scandal that followed ensured that no government would bite that particular bullet. Meanwhile, the HDW has changed hands several times, and at one time was owned by an American bank as a speculative investment.

Interestingly, South Korea started building similar HDW SSK type 209 submarines about the same time as India did. While our programme has floundered, the Koreans built nine of these boats and have launched the much-improved follow-on type 214 on June 6, 2006. Nine of these will be built, for a total of eighteen. 20 Korea is no stranger to corruption and political scandals, yet defence capability build up has not been compromised.

We have now turned to the French, who have so far been supplying the Daphne and Agosta class submarines to Pakistan. The plan is to build the Scorpene class in India. No sooner plans are announced, scandals erupt about alleged dubious and shady deals. Even if the project gets going, it will be five years or more before the first Scorpene enters service. What happens to India’s deteriorating submarine capability and operational readiness in the event of war? Who is the person or persons whom the nation will call to account for putting India’s security in jeopardy? The country bears an enormous cost for controversies over corruption in terms of opportunity lost and diminished defence capability.

Transparency and Confidentiality

There is need for confidentiality, even secrecy, in defence procurement for reasons of security, price negotiations and vendor competitiveness. But certainly there should be internal transparency in the procurement process, in the formulations of proposals, their processing, recommendations at various stages and financial and political decisions. Some of this will automatically come about if an integrated defence organisation is created since much of the procedural opacity is in fact located in the Department of Defence and the Ministry of Finance where the political inputs are injected.

Political interventions in the national interest can be entirely legitimate if they are in consideration of vital economic, security or diplomatic issues. They are wholly improper if they are to further political party or personal interests, as has too often been the case. Transparency is a goal earnestly to be wished for but it is futile to talk of overall transparency unless there is honesty in the political system. This would appear to be a bleak prospect if former Cabinet Secretary TSR Subramanian is right. He says: “In my four decades of public service I have come across thousands of politicians... I have worked closely with hundreds of them in one context or another. I am saddened to say that I have come across only a handful of honest politicians.” He is unsparing too of his own tribe, the civil servants and succinctly articulates the reasons for the collapse of the “the steel frame”- the Indian Civil Services.21

Importing equipment from abroad has long-term implications for supplier reliability, costs, etc. Increasingly, as a consequence of business restructuring in Europe, companies get taken over by others, perhaps from another country or even continent, with ensuing business complications. Add to this, arbitrary restrictions on spares or support placed under NATO or US stipulations that effectively render the equipment unserviceable over time. We have experienced this with several major systems. It is for such reasons that India has hesitated to procure US equipment and Venezuela, for example, is turning to Russia and China for its defence requirements.22 Moreover, hardly any country in Europe has sovereign ownership of its firms, only majority holdings, though the French try to retain substantial control over companies such as Thales and EADS. Most firms are part owned by other firms from other European countries. This is fine for buyers from the EU, NATO and western allies but has serious implications for assured supply of spares for a country like India, and also because equipment life cycles are of 15 to 20 years.

It would seem logical from several points of view to manufacture and build within India to the maximum extent. In this we should follow the Russian or Chinese model rather than be beguiled into thinking that we will have ready access to western equipment sources for the asking, despite their friendlier stance in the changed environment led by US initiatives. Besides, with their higher costs, there is always the question of affordability. Our past experience of sanctions and denial regimes under the NPT, MTCR and other such stipulations should always be kept in mind. There have been instances of even manufacturers in India — subsidiaries of foreign firms— selling equipment to the private sector but refusing to supply to the Indian defence forces under directions from their home country.

Even between western NATO allies the technology transfer relationship is not without pitfalls, and many US weapon systems are denied, even to close allies such as the UK. The policy of “buy American” and export restrictions insisted upon from time to time by the US Congress, as much due to vote bank considerations as for safeguarding technology, strains even the US-EU arms relationship. India would do well to temper its expectations on technology transfer from the USA, Europe or any other foreign source for that matter.

Public-Private Partnership

With the maturing of technology in the private sector in India, the prospects of Public-Private partnership have greatly improved. Warships being built in India are a very good example of this carefully nurtured relationship over a period of nearly 40 years. But the growing demand for privatization of Public Sector Undertakings (PSUs), should be cautiously handled in the case of strategic PSUs. Vitriolic criticism in the media of defence PSUs and the Defence Research and Development Organisation (DRDO) from an imperfect understanding of the totality of issues involved, including the historical context, ill serves India’s interests for self-reliance in defence technology and weaponry.23 It is vital for India to retain control over strategic PSUs as our private industry is not evolved, diversified and mature enough to handle the kind of turmoil caused by takeovers in the European pattern. We should rather consider the French model where the state continues to substantially own the asset, while granting it functional freedom. French defence firms like Thales and EADS, are some of the largest, most high-tech and competitive in the world, while being substantially state-owned.

The emerging pattern in European defence industrial structure has another uncertainty. Can we be certain that the European Union will exist in the future? It too can disintegrate like the Soviet Union or Yugoslavia if major differences arise over, for example, the admission of Turkey or some other emotive issue, or the differing visions of powerful, charismatic national leaders. History has witnessed this over and over again. The eastward expansion of NATO and its newly conceptualised global role could provoke strategic reassessment and political retaliation from an already resentful and economically recuperating Russia that is still trying to overcome the trauma of the disintegration of the Soviet Union.

The re-assertion of national sovereignty over the defence industry in a fractured European environment will be messy indeed, and foreign customers will be the biggest sufferers. India has already experienced this in the dissolution of the Soviet Union when many manufactures located in Ukraine, Belorussia, Latvia, etc., went their separate ways, leaving the Indian armed forces high and dry for necessary spares and support. Even the re-unification of Germany disrupted supplies from East German firms that were closed down.

Conclusion

Planning for defence is one of the most complex functions of a government. It begins with an appreciation of the international security environment, the global political, social, economic and military forces at work, and takes into account long-term national and security objectives and economic factors.

We have adopted the British pattern of defence administration but have not carried it to its logical conclusion of a streamlined, functional organization, integrating civilian and military elements. The nature of the Indian state and system of governance make it difficult to make radical changes. The creation of the post of the CDS is a case in point and is unlikely to come about until the Prime Minister is freed from domestic crisis management and can be more directly involved in supervising defence through a competent minister and functionally integrated ministry.

India with its size, economy and technological competencies, should design, develop and build most of its defence requirements within the country. Production assets should be substantially state-owned, but meaningful private-public partnership should also be energetically encouraged. Reliance on foreign suppliers should be greatly reduced in a deliberate, phased manner.

Defence procurement is beset with delays, high costs and dubious transactions rooted in the political process. These result in lost opportunities and lowered operational capabilities, yet no one is held to account and the public seldom gets to know the truth. In the absence of political probity, expecting transparency in the process of defence procurement appears to be optimistic. Nevertheless, apart from required confidentiality, internal transparency at staff and decision-making levels is both desirable and feasible.

References/End Notes

1. Ayaz Amir, Dawn, Pakistan, July 7, 2006.
2. Madeleine Albright, Interview, Business Standard, New Delhi, July 4, 2006
3. Attributed to Fredrick the Great
4. Front Line First: The Defence Costs Study, London, HM Stationery Office, 1994
5. Ibid., p.8
6. Ibid., p.11
7. Ibid., p.11
8. Ibid., p.10
9. Source unknown
10. Official website of the Chairman, US Joint Chiefs of Staff
11. Jane’s Defense Weekly, April, 12, 2006, p. 19.
12. Jane’s Defense Weekly, March 22, 2006, p. 35
13. Jane’s Defense Weekly, August 30, 2006, p 13
14. “Reforming the National Security System” – Recommendations of the Group of Ministers, February, 2001.
15. There was an attempt to alter this with the creation of the Defence Planning Staff during the Prime Ministership of Rajiv Gandhi, with Arun Singh as the Minister of State for Defence. The Director General (DGDPS), was sought to be shaped in the manner of a Chief of Staff to the Defence Minister/ Prime Minister (in the US Presidential style?) insofar as military plans and inputs were concerned. The concept did not survive the political falling-out between Rajiv Gandhi and Arun Singh. The Defence Planning Staff morphed into the present Integrated Defence Staff, which will presumably become the secretariat of the Chief of the Defence Staff (CDS), as and when created.
16. Author’s notes of meeting on August 7, 2000, of several retired Chiefs of Services with representatives of the Task Force headed by former Minister of State for Defence Arun Singh, to generate inputs for the Group of Ministers’ Report of February, 2001. Arun Singh observed to the effect that “The Minister cannot be well informed on defence matters overnight. Hence he relies on civil servants who are also not well informed (vis-à-vis the service headquarters staff). The only thing they understand is cash. The Ministry of Finance has no respect for defence budgeting documents. They go by availability (of funds) or the monsoons”.
17. Official website of the Ministry of Defence, UK.
18. Conversation with Prime Minister PV Narasimha Rao at Navy Day reception, Navy House, New Delhi, December 4, 1992. The author was Vice-Chief of Naval Staff at the time.
19. Former Prime Minister V P Singh claimed at the launch of his book Manzil Se Zyada Safar, that the Congress Party had been collecting funds for elections through defence deals from the days of Indira Gandhi. He added: “I believe every party has to generate resources. Previously funds were procured from corporate houses. But a time came when funds began to be collected through defence deals abroad”. The Economic Times, New Delhi, June 26, 2006.
20. Jane’s Defense Weekly, June 21, 2006, p. 29
21. TSR Subramanian, Journeys through Babudom and Netaland: Governance in India, Rupa & Co., New Delhi, 2004, p. 336, p235.
22. Jane’s Defense Weekly, April 26, 2006, p.7
23. Ajai Shukla, “Broadsword”, Business Standard, New Delhi, August 29, 2006.

Defence Economics & Industry India, Defence Budget, Defence Procurement, United States of America (USA) Defence Budget: Towards an Outcome and Programme Based System October 2006 P. R. Sivasubramanian

The contents of the general, as well as, the defence budget of the Government of India have normally been widely discussed and debated. However, the focus mostly has been on the magnitude of the budget rather than the system of budgeting. Yet it is the system that needs to be the focus of discussions and requires reforms. Over a period of time, the budget documents had become quite static in terms of structure, content and communication of results. With the demands of those needing information from the budget changing with time, reforms in the structure and content of the defence budget had become overdue.

A budget is an instrument of policy. Through the annual financia statements it can translate a long term or medium term plan into action. The questions that arise are: what do we expect out of the budgeting system? And does it facilitate a meaningful translation of the intended objectives as reflected in the budget estimates? The perception about what the Defence Budget: Towards an Outcome and Programme Based System 709 defence budget should contain also depends on various categories of users. The institutions/persons looking into the budget can be divided into the following three main categories:

Parliament, which votes the budgetary appropriations and also reviews the performance through the appropriation accounts and audit reports. Preceding the vote on the budget, Parliament has the report of the Standing Committee on Defence, which examines the demands for grants in detail.
The administrative ministry, the executive arm and supporting institutions working with it. The administrative ministry formulates the budget and, after necessary backing of the Finance Ministry, gets the approval of Parliament to enable it to operate.
A mix of users such as experts in the field, institutions, beneficiaries, academics and the common citizens who are interested in the information, especially the value for money derived from the actual expenditure.

To meet the changing needs of the diverse sets of users, the defence budger needs to change both its format and contents with time. Yet systemic changes in structure, form and content of the budget have been slow to come about in India. Changes have been made from time to time but essentially in amplification of contents or deletion of certain items, or addition of new service relating to expenditure. We, therefore, need to know how far and why it has not been feasible to introduce new concepts.

The Defence Services Estimates (DSE) have an amalgam of outlays that can be converted in terms of outcomes into tangibles and some intangibles. As far as the defence budget is concerned, it is clear that the Parliament, the executive, defence analysts and the tax payers would be interested to know the outcomes. They would be keen to know the quantum of funds provided for air defence, the cumulative total of such allocations in the budget over a period of time and the results achieved in providing protection against potential air attacks.

While evolving any modifications in systems, it is necessary to know what is needed in the Indian context by various users. Having recognized the inherent advantage of a budget that can reveal what it has achieved in terms of intended objectives, the question arises as to whether the existing structure and content need a total substitution, partial modification or supplements in order to serve as a conclusive document for evaluation of the outcomes. The past legacy also needs to be tackled in any overhaul or change in the existing system. The legacies are located in the content of the basic administrative and accounting data generated from the source levels, the mode of transmission, the organisational entities involved in the processing of the data, the relationships between these entities, the command and control, the technology used and, most important, the manpower resources, both in terms of skills and the numbers at the appropriate levels. Other relevant factors are: reluctance to exchange information in an institutionalised manner and an exaggerated sense of secrecy in publishing and disseminating information.

This article attempts to delineate feasible reforms to make the budget speak for itself in terms of intended objectives and the outcome or value for money realised out of the expenditure incurred.

The Existing System

The Defence Services Estimates (DSE), as a document, has evolved over a period of time to its current structure. Though its structure has largely remained the same in form and contents, it has had modifications. It is believed by many that, as a public document, its existing format is adequate to convey the objectives of the government. The comments/ reactions to a budget presentation are made in terms of judgement on magnitude of allocations for army, navy, air force, DRDO and for new services, etc. However, a growing number of people, especially in the ministry and service headquarters, well-informed defence experts and academics have persuasively argued for a change. Many Members of Parliament have often sought more information, than what is available in the existing document.

The criticism of the present system is that it is largely input oriented. Specifically this means that it focuses on expenditure in generic terms, i.e., in terms of pay and allowances, stores, transportation, etc., and not in terms of targets and its actuals. The budget is also devoid of details in a number of major components of expenditure. The figures of expenditure on certain categories such as ‘stores’, ‘works’, etc., are such that it is not clear as to why and for what the funds are provided. The budget is divided in terms of ‘revenue’ and ‘capital’. Even in this regard, the classification was until recently carrying legacies of the past and did not reflect the basic nature of certain items. In several areas, assets of a capital nature were being classified under revenue. Consequently, capital assets were underpitched, especially in respect to the army. The omnibus nature of items under capital expenditure indicated as ‘other equipment’, ‘aircraft’, etc., do not reveal adequate information on specific items of expenditure, even where these are of large magnitude. The word ‘maintenance’ nowhere figures under Revenue Budget but is covered under ‘pay and allowances’, ‘stores’, etc.

With substantial increase in funding for defence, the need for adequate information has become of great importance for interpretation of the budget. At present, information on the budget is available to the executive/ parliament through the following three main reports:

The Appropriations Account
The audit report of Comptroller and Auditor General
Reports of Parliamentary Committees – especially those of the Standing Committee on Defence and, in certain cases, the reports of the Public Accounts Committee, based on the audit reports.

The Appropriation Accounts signed by the Controller General Defence Accounts (CGDA)/ Secretary Defence (Finance) and by the Defence Secretary gives the actual expenditure against allocations under various minor and sub heads. The reasons for variations of actuals against allocations are also indicated. However, it does not throw adequate light on physical achievements (outputs) in respect to a bulk of the items since the document is not intended to be an account on performance. However, there are exceptions. For two organisations - military farms and military engineering services - assessment of performance is given in separate sections.

Under the present system, getting an overall picture of budget in financial/physical terms and the actual performance is not easy and requires a lot of derivation, collation of data/information and enormous effort on the part of the ministry/services/departments. A document reflecting outcomes of at least major items provided in the budget would make the whole task easier apart from serving the basic and very important task of effective management of schemes and achievement of objectives.

By and large, the existing structure of the DSE with classification and sub-heads such as ‘stores’, ‘works’, etc., cannot facilitate the understanding of what is the outcome intended from the money spent on various items of expenditure related to defence. Even in an important area of maintenance of aircraft, it is difficult to derive from the budget that if Rupees “X” have been allocated for maintenance of an aircraft type “A”, whether the required level of maintenance has been achieved. This information becomes available much later when an Audit Para is raised and even becomes an item in the report of the Public Accounts Committee (for example MiG -29). The existing budgetary system has another deficiency. For instance, allocations made for a gun are spent and the expenditure reports also reflects this position but the guns may still not be inducted for the purpose for which they were procured. The existing system may show good financial progress with almost entire payments having been made in respect of an item, but the crucial phase of testing, which is vital towards achieving the final outcome, could drag on. Successful tests of many systems do not necessarily lead to a successful outcome or their timely induction into the armed forces.

The DSE reveals very little about allocations even of a non sensitive nature. There are only one line entries in the budget documents for amounts running up to a few thousand crore of Rupees.

There are a number of other weaknesses in the system. The time taken for transactions does not get reflected in the financial information reports pertaining to a budget, and a continuous update of information on liabilities incurred by various sanctioning/spending authorities is not available An equally serious shortcoming is the inability to fully disseminate information to the concerned authorities and the absence of a synergised effort among various wings under the MOD for creating a comprehensive integrated report that would reflect the financial-cum-physical programmes.

Steps have been taken from time to time to make the existing DSE and the annual compilation of accounts more meaningful. In 1987, a reform was initiated in segregating pension from the DSE and ordinance factories from the army budget, with the objective of making this production organisation into a separate cost centre. Further reforms took place in 1992, based on the report of the task force (under A. K. Ghosh) which added over 150 categories in the classification of accounts, revealing more on the content of the expenditure, so that certain specific activities could be made transparent.

It is clear that a well evolved coding section, in vogue since the1930s and subsequently enhanced by computerisation in 1971, has enabled further expansion of codes, meeting the growing need for giving information on expenditure related to an item.

Group of Ministers Report and Further Enhancements

Following the submission of the Kargil Review Committee Report, Government of India instituted a comprehensive review of the National Security System. This review was carried out by the Group of Ministers (GOM) constituted on 17 April 2000. The GOM further set up the following Task Forces:

Task Force on Intelligence Apparatus
Task Force on Internal Security
Task Force on Border Management
Task Force on Management of Defence.

To overcome some of the shortcomings in the system of budget the Task Force on Management of Defence recommended certain steps to improve matters. A Study Group on Budgetary Reforms (set up under the Task Force on Management of Defence) was constituted in August 2001, with the following terms of reference:

To reveal the form and content of DSE;
Examine the expansion of budgetary classification to promote programme-based budgeting;
Reveal the classification of expenditure between revenue and capital in respect of defence services/departments.

The Study Group on Budgetary Reforms, in its Report submitted in January 2002, suggested that the existing DSE may include additional inputs under certain heads of accounts in the various detailed demands for grants. The estimates for the defence research and development organisation were also segregated from the army and a separate major head opened. Thus the demands for grants were expanded from five to six. Based on the Study Group’s recommendations, an additional volume, called DSE Volume II, has been introduced for better budget management. With the additional details provided,internal management control by the services / departments / MoD / MoD (Finance) has improved.

It is important that the existing scope and content of the budget documents are enhanced before taking up more complex tasks. The significance of opening budget centre heads and additional classification categories needs no emphasis. The Group, consisting of representatives of all the services and departments, recognised that the first step in implementation would be an evolution of a comprehensive financial information system in respect of all the three services and the departments and the real time availability of budget centre data pertaining to budgetary allocations, progress of expenditure and committed liabilities. Meanwhile, to make the existing classification between ‘revenue’ and ‘capital’ more meaningful, it was recommended that guidelines be drawn up for identifying items which are appropriately capital but are being placed under revenue. The Study Group also recommended the expansion of budgetary classification in the DSE to provide better budgetary control, which will facilitate the future formulation of a programme budget. For purposes of expenditure monitoring and feedback controls, the group also
recommended a more detailed classification with a separate volume covering all categories of expenditure, right down to the services and departments with budget centre-wise allocations. These are now available in Volume II of the DSE, which is an internal document. The gap in the existing document is sought to be bridged to some extent by the DSE Volume II.

The introduction of DSE Volume II has enabled the stakeholders to get a feedback on activities related to various budget centres. Put in simple language, this volume is a document that shows where the money is allocated, on what it is to be spent and by whom. This format is applicable to all the three services, ordnance factories, DRDO, etc., and has made monitoring, control and evaluation of the results of budgetary allocations more meaningful. This is an important step towards better management. It would also be a step towards planned allocation down to the various cost centres, based on a plan of expenditure, linked to the performance of activities.

Concept of Budget Centres

Alongside budgetary reforms, another committee was constituted to further expand the concept of accountability and responsibility, budget centres, and delegation of financial powers. The concept of budget centre allocation was recommended to be further expanded. This concept involves
planning, programming, accounting, reporting and evaluation systems. The report of the Committee on Delegation of Financial Powers for the army, navy and air force emphasised that the following facts need to be taken into account:

Responsibilities centre with clear objectives;
Decentralised authority-cum-responsibility centres;
Physical targets, linked to input and output in financial terms;
Set of financially feasible and clearly defined objectives;
A network of accounting and effective reporting systems.

The committee had the advantage of the framework already created by the first new management strategy concept was tried out in the naval dockyard, when B.V. Adavi was the Financial Adviser Defence Services(FADS). The concept of budget centres, along with integrated finance sector, was established in the services headquarters when A. K. Ghosh was the FADS. The budget centres, in concept and operation, facilitate generation of necessary inputs and outputs, which, in turn, enables evaluation of performance from field level and upwards.

The measures implemented during the last decade and a half have gone a long way in enhancing the value of budget and supporting documents towards achieving better monitoring and control, and better insight of the results.

Deficiencies

The content of the existing budget still falls short of a document oriented towards outcome. The recent reforms, additions and modifications would, no doubt, help all those who are deeply involved in the Ministry of Defence and service headquarters in managing expenditure and evaluating the results of the existing budget, with the additional facility of detailed accounts, papers and supporting documents. But to the rest of those involved/interested in not so intense a manner, some gaps in understanding the intended results of the outlay, outputs and outcomes remain. So it would appear the system of budget calls for a change.

The question arises: for whom the budget is made? It is principally for the services/defence departments, MoD and all the players who receive allocation of funds as per objectives and norms that get translated into policy and allocations when the budget is prepared. It is also for all those who have a stake in knowing whether the value for money has been realised. However, the problem is that the feedback mechanism is inappropriate for fully meeting the need for information and even the reports of various parliamentary committees are received too late for incorporation in the Budget. Even though the appropriation accounts are available on time,the performance evaluation is confined to only two areas of activities: military engineering services and the military farms. The system does not provide for concurrent/annual review of all expenditure. So, the budget as a whole gets neglected in terms of evaluation of the outcome. This is the position, in respect to the budgeting system for the defence though certain improvements have been built into the system over time, these are not adequate for a full scale evaluation of a large part of the budget.

At this stage, it would be appropriate to comment on the meaning of the terms ‘performance budget’, ‘programme budget’ and ‘outcome budget’. Performance budget primarily indicates the physical progress of various schemes and programmes in relation to budget estimates. This was introduced by the Government in a number of Ministries, especially those handling development programmes, based on the recommendations of the Administrative Reforms Commission in 1969. Programme budgeting was first introduced in the US Defence Department as a system contrary to conventional budgeting. It describes and gives details of costs of all activities or programmes in a budget. Objectives, outputs and expected results are described fully as are the necessary input costs, such as of raw materials, equipment and staff. The sum of all activities or programmes constitutes the programme budget. The major task is to consolidate all activities that could be classified as a programme mission, such as training, coastal defence, etc.

Programme based budgeting requires linkage between plan and programmes, and input and output. As A. K. Ghosh has stated in his book India’s Defence Budget and Expenditure Management in a Wider Context, the terms “performance budgeting and programme budgeting has been used interchangeably as both concepts are based on functions and activities and the emphasis is on results.”1 He further states, “The time dimension is of immense importance for expenditure management in defence, which is emphasised by programme budgeting. Programmes are inherently forward-looking. Performance, on the other hand, is based on past activity and evaluation of the past performance becomes a focal point of attention.”2

However, as Ghosh himself states that confusion has somewhat been removed in the UN manual, which has viewed performance budget as an all inclusive concept, embodying programme formulation as well as measurement of the performance of work in accomplishing programme objectives. The outcome budget, as the Ministry of Finance in its memorandum dated 30th December 20053, stated, is a pre-expenditure instrument. It helps to realise the ministries’ vision through clearly defined outcome/output as a supplement to the current system built around postexpenditure scrutiny. The need for this has been felt as there is a lack of clear cut one-to-one relationship between the final budget and the performance budget as it was evolved earlier and inadequate setting of physical targets for the ensuing year. Development of outcome budget is not as complex as of a programme budget and can be built around the existing systems with some modification and expansion.

Outcome Budget

The Department of Expenditure, Ministry of Finance on 30th December 2005, has given guidelines for preparation of an outcome budget which was introduced by the finance minister in Para 100 of his budget speech (budget 2005-06). The need for an outcome budget has arisen owing to weaknesses that have crept into the performance budget, given the absence of a clear one-to-one relationship between the financial budget and the performance budget. Though the MOD and a few other ministries/ departments have been exempted from the preparation of the outcome budget, they have been asked to carry out this exercise for internal reviews and to voluntarily decide to place it in the public domain, fully or partially. The memorandum called for a tabular format which could be visualized as “vertical compression and horizontal expansion” of the budget estimates (BE) as given in Volume II. The components in the format for the outcome budget comprise financial outlays, projected physical outlooks, and projected/ budgeted outcomes (intermediate/ partial and final).

The system of budget, as evolved by the Ministry of Finance, thus includes the outcome budget for the ensuing year and performance budget for the previous financial year. It implies that the performance budget format now includes linkage with not only the financial budget but also the outcome budget. The implication for the Ministry of Defence is that an outcome budget can be evolved for the ensuing year even within the existing structure and format of the budget without waiting for the development of a programme budget in a number of areas of activities in defence.

The key terms ‘outlays’, ‘outputs’ and ‘outcome’ in the budget have been defined by the Ministry of Finance as follows:

Outlays imply total financial resources deployed for achieving certain outcomes. Outputs are a measure of a physical quantity of the goods or services produced under a scheme or a programme. They are usually an intermediate stage between outlays and outcomes. Outcomes are the end products/results of various initiatives and interventions, including those in partnership with public sector undertakings, autonomous bodies, etc. They involve much more than mere output since they cover the quality of the goods or services.

The Finance Minister in his foreword to the outcome budget document on 25 August 2005, aptly stated: “I must caution that outlays do not necessarily mean outcome. People of the country are concerned with the outcomes.” The Ministry of Finance has recognised that, in respect of certain ministries, the conversion of outlays into outcomes is a complex process. The Ministry of Defence and certain other departments have been exempted from preparation of outcome budget. But it is evident that the principles enunciated in regard to the outcome budget in the civil ministries such as benchmarking standards/quality of outcome in services, standardising unit cost of delivery, capacity building for requisite efficiency at all levels in terms of equipment, technology, knowledge and skills, and to further ensure flow of appropriate funds at the right time to the right level, with neither delay nor “parking” of funds, effective monitoring, evaluation and feedback system are equally applicable to the defence setup. The introduction of outcome budget in defence will further enhance and ensure accountability at all levels. Outcome will be readily transparent to all those involved in the management of budget as well to the parliament and the tax payers.

The outcome budget, linked with performance budget, should not merely reflect results of a year but also indicate the progress in achieving certain long-term objectives, such as cumulative performance and final outcome. As an example, hypothetically if an outcome budget has been finalised reflecting the goal and vision of the self reliance plan, formulated in 1993, which aimed at 70 per cent self-reliance in certain areas of defence production over a 10-year period, it would have known by now what has been achieved and where the government has fallen short. This would have helped in taking corrective measures for the next decade to reduce imports and achieve greater self-reliance. The eleventh report on the demand for grants of the Standing Committee on Defence (April, 2006) has emphasised the need to enhance indigenisation and reduce imports. It is felt that the formulation of an outcome budget would help to monitor
the results with respect to the plan.

There are a number of areas in the defence sector which are amenable for introduction of outcome budget. Areas where these could be considered with definite yardsticks for measurement are:

Maintenance and production workshops in the three services
Ordnance factories
Training
Repairs and refit of certain ships under the navy
Certain components of research and development establishments
Capital works other than those connected with any weapon system.
Ordnance depots (at least other than arms and ammunition), etc
Married accommodation project
Ex-servicemen’s health scheme.

There could also be a number of other items other than those listed above. A rough conservative estimate of those that are non-sensitive in nature, show that at least Rs. 15,000 crore of the defence budget could be brought under the outcome budget and placed in the public domain. This could form part I of Volume I of the outcome budget. In these areas, the public has as much right to information as in the civil sector. Many more categories, especially of equipment, can also be brought under outcome budget for purposes of internal controls. This second segment could be Volume II of the outcome budget and can be the internal document of the government, which has the right to keep information to itself in case it is of a sensitive nature. Preparation of an outcome budget would automatically imply preparation of performance budget vis-à-vis the outcomes planned. The formats of the documents are given in the Ministry of Finance office memorandum cited earlier.

Evaluation of performance indicators has a major role in providing credible information to decision-makers. Such an evaluation is not easy in intangible areas. Premchand in his book, Public Expenditure Management, 4 has identified this issue as follows:

“Performance indicators should follow the objective set for the organisation. These objectives should be specific, disaggregated, and measurable in one form or the other. Indicators in such a context seek to serve as a bridge between the objectives, resources allocated and the organisation’s outputs. They could indicate the following aspects:

Throughput or volume;
Productivity and cost; Time target;
Demand for services;
Availability of services; and
Outcome”.

Financial Information System

A crucial aspect for achieving success in evolving any improved budgetary systems for evaluation of results in the defence set-up, would be the development of a total and comprehensive financial information system with a wide area network covering all the three services, the concerned defence department, the defence accounts department and the Ministry of Defence. A report in this regard was submitted in August 2002 to the Ministry of Defence by the author who after his retirement as Secretary Defence (Finance) in February 2002 had been appointed as Adviser to the Ministry of Defence. In the Report, a number of recommendations were made to improve the existing system and to make available more information to the MoD officials.

The need to build an information system on liabilities has been felt for more than a decade and half and some progress has been achieved, especially in regard to items under ‘capital’. But building an institutionalized reporting system on commitments made in contracts, supply orders and liabilities incurred thereon is a necessary adjunct to any budgetary exercise. Once this reporting system is institutionalised and relevant information becomes part of supporting budget documents, the seriousness would be bestowed to the preparation of liabilities figuring in the report. The review of contracts, supply orders and updating of the figures would then become a continuing exercise from the point of view of ensuring outcomes as well as taking corrective action when required.

There is also a need to have convergence between various services/ departments on aspects like unit code and contract code to facilitate the creation of a better information system. Uniformity in redesigned source documents needs to be enforced by the MoD in all services/departments. This has implications for the right kind of information-control the MoD would like to exercise. Network needs to be established between various services, departments, and especially between the CGDA and the Service Headquarters and other defence departments. Computerisation without a total communication network for exchange of data/information would produce less than optimum results. Adequate networking would facilitate better output in terms of content, details and availability of information on time. Quality of information would be crucial in any system and modern technology facilitates it. To evolve an improved budgetary control system, this would be a necessary prerequisite since, in the manually dominated or partially computerised system, and the manual process itself adds to the difficulties.

Programme Budget

The development of programme budget is a complex task. As a first step, the Integrated Defence Staff needs to formulate elements of the programme budget after defining various programmes. Some steps have already been undertaken by them. A multi-disciplinary group, which will also comprise a cost committee, would need to complete this task.

There are several questions that could arise while considering the introduction of a programme budget. As per the knowledge and experience of the author, the issue has been under consideration at least for the past two decades. It is not clear whether all concerned in the defence set-up are keen about a programme budget. The question also arises whether the programme budget is feasible within the existing structures and systems. It is also common knowledge that in the last decade much more information was available in the media about defence matters than before. This has also motivated many defence departments to rush to the press for publicity about success of a mission, weapons system, etc. While this may be good from the point of view of morale of the citizens, quite a few achievements are being publicised though the projects may be far from achieving their ultimate outcome. Another complexity in evolving a programme budget arises when the definition of the programme cuts across the services. Even within a service, especially a large service like the Army, there could be complexities in reflecting the estimates and expenditure of different arms especially in a situation where not all transactions are cashbased and many are on the basis of documents. Jointness in the field among the three services, if achieved, could facilitate evolution of a programme budget. The IDS are in the process of experimenting and evolving some concepts in this regard. The identification of various
programmes should be the starting point for spelling out the elements of a programme budget.

Development of a programme based budgeting would require a huge amount of cost accounting. Work needs to be done for each type of transaction in various units, formations, workshops, headquarters, etc., within a service and across the services. A highly automated system, with networking cutting across the boundaries of services and departments, would facilitate the task. The methodology and structure for programme based budgeting in a time-bound manner would require systematic planning and implementation in a phased manner.

In the interim, the best approach would be to enhance the financial information system and networking, and operate an outcome budget as spelt out in the preceding paragraphs, which will enable better-decision making. A danger is that even a system once created or established tends to get into disuse with poor maintenance. For instance, the initial enthusiasm for creation of websites in various institutions, especially in the government sector, was not sustained thereafter due to poor maintenance in terms of updated information. The financial system without regular and online update and with thousands of inputs coming from different units would make any budget and reporting systems incomplete and may even be misleading.

Conclusion

The defence budget is already of a very large magnitude. In a period of 15 years, it has grown five and a half times - from an outlay of Rs. 16,347 crore in 1991–1992 to Rs. 89,000 crore in 2006-2007. As a component of the central government budget, it continues to be the largest among all departments, some 15.78 per cent. It has very large components of expenditure that are totally non-sensitive in nature and on which information is available through various documents. But what is lacking is information on results of the large outlays and sometimes even the output. The defence budget has not had the benefit of having a performance budget component. Though the performance budget in many of the civil ministries does not always help in assessing the value of money realised out of the outlays, these aspects can be rectified through the outcome budget. Allocation of funds to the defence would soon touch Rs 1,00,000 crore and would continue to grow from year to year, especially in view of the huge costs involved in certain modern systems. Therefore, the financial information systems need to be improved and enhanced. The budget system should ensure transparency and accountability and responsibility at all levels and display that value for money has been realised. The information technology available today will facilitate tasks which were not possible earlier. A document such as an outcome budget will enable a single point reference for all concerned in place of a multiplicity of papers that need to be consulted. An outcome budget, along with a performance budget, would be a first step in this direction. These would be supplements to the existing volumes of DSE. There is also a need to make a beginning in preparing programme budget in select areas, given the manpower resources constraints and the gaps in total connectivity and network.

References/End Notes

1. A.K. Ghosh, “India’s Defence Budget and Expenditure Management in a Wider Context,” Lancer Publishers, 1996, P. 87
2. Ibid
3. Government of India, Ministry of Finance, Department of Expenditure F No. 2(1) Pers/Ecorrd/OB/2005 dated 30th December, 2005
4. A. Premchand , “Performance Measurement and Evaluation in Public
Expenditure Management,”- International Monetary Fund, Washington DC, 1993, pp. 189-206

Defence Economics & Industry Defence Budget Weapons Procurement: Qualitative Requirements and Transparency in Evaluation October 2006 Mrinal Suman

Procurement of new weaponry and equipment for the armed forces is a long, complex and arduous process. Funds involved are enormous and the quality of equipment selected has a profound influence on national defence potential. Therefore, most countries have evolved elaborate procedures aimed at procuring the most appropriate equipment at affordable prices.

Critical activities like determining parameters and evaluating competitive bids need to be carried out diligently while ensuring adequacy of equipment profile, financial probity, objectivity and transparency. Effectiveness of any functional procurement regime, inter-alia, depends on the following aspects:

Formulation of cost-effective Qualitative Requirements (QRs) so that the users get what they need at minimum expenditure.
Evaluation of technical and commercial proposals in a transparent, fair and well-defined manner by using scientific tools for objective inter-se comparison.

QRs are evolved to specify essential parameters of military equipment needed in a specified time period to counter a threat, fulfill other operational needs, or fill an equipment void. They spell out the users’ requirements in terms of functional characteristics in a comprehensive, structured and concrete manner.1 In other words, they define minimum performance attributes, corresponding to the task or tasks to be performed by the system.

As QRs form the basis of equipment philosophy, they are need based. They apprise the vendors about what is being sought and provide a wellset benchmark for subsequent inter-se appraisal of equipment tendered for evaluation by different vendors.

Since formulation of QRs is an important stage of the entire process, a highly deliberate and meticulous approach has to be adopted while determining them. QRs generally depend on the following factors:

The nation’s operational doctrines and operational plans.
The prospective enemy’s capabilities, his probable plans and tactics.
The likely pattern of employment of the equipment in the obtaining terrain and climatic conditions.
The current and anticipated technology levels.

Poorly conceived and imprecisely drafted QRs create confusion, lend themselves to misinterpretations, compromise quality of equipment, prove expensive and cause immense delays.2

Practices in Some Other Nations

The practice of asking the services to evolve QRs of equipment sought is a legacy of the Second World War. It is too rigid and does not cater for changing technology. Most of the developed countries have already adopted different procedures as per the level of technology mastered and the maturity of their indigenous defence industry.

The United States introduced Advanced Concept Technology Demonstration (ACTD) a decade ago. The concept aims at offering comparatively stabilised technologies to the defence forces and letting the commanders ascertain their suitability in the operational environment.3 Thus, it is left to the commanders to determine whether the equipment offered meets their requirement or further developmental work is required. In this methodology, it is not the military that demands development of new systems ab-initio. Advantage is taken of the nation’s technological prowess to tell the military as to what equipment can be made available. Thus, time taken to develop new technologies as per the military’s requirements is eliminated.

The ACTD concept can work best for countries which have a welldeveloped scientific base with multiple agencies working on different competing technologies. This approach has the added advantage of making the military aware of what is technically feasible in a given time frame, rather than seek equipment with over-ambitious and impractical QRs.

Formulation of QR in India

After the inclusion of a projection in the acquisition plan, the sponsoring directorate is asked to finalise its QRs. All available books on the equipment and catalogues of the manufacturers are collected. The best characteristics of all known equipment are compiled as requirements. There is a general tendency to include as many features as possible to demonstrate the enormity and exhaustiveness of the work done.

Thereafter, the draft is circulated to various concerned agencies, other possible user directorates and maintenance directorate for obtaining their views/comments. Staff Equipment Policy Committee (SEPC), as constituted by the Services Headquarters, finally approves the QRs. In cases where commonality of equipment exists and standardisation of QRs is merited, a Joint Staff Equipment Policy Committee is constituted, with representatives of all the three services to formulate Joint Services Qualitative Requirements.

A review of the Indian system reveals the following weaknesses:

QR formulation is a highly specialised task which calls for staff with flair, talent and a thorough knowledge of competing technologies. However, in several cases, Staff tasked to evolve QRs is not selected for any demonstrated competence. Thus, they remain untrained and ill-equipped for the task.
There is a tendency to seek irrelevant, non-essential, unverifiable and unusable capabilities without reference to available stabilized technologies. No one questions the need of a parameter.
There is a total lack of cost-consciousness. Cost, vis-à-vis minimum inescapable parameters, is never considered.
Staff is unable to translate the required parameters into established universally accepted standards. This leads to multiple interpretations.
QRs are spelt out in imprecise and indeterminate language.
Services tend to make QRs ‘futuristic’ fearing rapid obsolescence during the protracted procurement drill. Moreover, as the life of any major military equipment is 15-20 years, users are wary of equipment becoming outdated during their long military life. Therefore, QRs generally take the shape of a well-compiled ‘wish list’ of utopian dimensions.
At times, upgraded versions of existing equipment are sought on the basis of presentations by vendors.

Cost Efficiency Considerations

While pitching a parameter at a specific level, it has to be borne in mind that for every rise in level, there is an associated cost. Cost is a function of performance and the relationship between the two is not linear. As a matter of fact, cost increases in a geometric progression. Therefore, while fixing parameters, it is prudent to examine cost penalty since a minor acceptable moderation of a parameter may bring about huge savings. Every parameter must be judged for its inescapability.

There is need to resist the proclivity for demanding custom-made equipment as per own QRs in the very first instance since this is a costly option. Due to economies of scale, all efforts should be made to make do with equipment available off-the-shelf in the indigenous or world market. Similarly, all efforts should be made to utilise dual-use technology for defraying the cost of acquisition.

The Services should provide the range of performance parameters, with clearly specified minimum acceptable standards. Additional credit, through a system of multipliers, should be assigned for better performance. As it may not be possible to provide an acceptable range for all parameters, a well-considered mix of specifics and matrix is the best option.

Need for Separate QR for ‘Buy’ and ‘Make’ Cases

QRs for ‘buy’ and ‘make’ cases can never be the same. ‘Buy’ cases need contemporary and well-stabilised technologies which are widely available to generate sufficient competition. Equipment should be readily available for procurement and induction in the given time frame.

QRs for ‘make’ cases are based on futuristic technologies with uncertain time frames for their development and availability. QRs may also undergo periodic revision with changing milieu and acquisition of competitive technology/equipment by a potential adversary during the period of development. Till recently, common QRs were formulated both for ‘buy’ and ‘make’ cases in India.

Defence Procurement Procedure 2006, promulgated with effect from 01 September 2006, has prescribed a separate procedure for the formulation of QRs for ‘make’ cases pertaining to high technology complex systems. The sponsoring Service Headquarters is required to evolve broad based and realistic Preliminary Services Qualitative Requirements (PSQR). PSQR contain essential parameters (key performance attributes) and desirable parameters (for later development).6

Essential parameters need to be based on the proven state-of-the-art technology available in India or abroad. On the other hand, desirable parameters are based on futuristic/emerging technologies. PSQR would be subject to review in consultation with the Service Headquarters as the development progresses. Any amendment in essential parameters after the preliminary design phase would need the sanction of Defence Acquisition Council (DAC).

Introduction of the above provisions fails to address the central problem of determining QRs at the proposal stage itself. Additionally, as the ‘make’ procedure restricts itself to proven and matured technologies available in India or abroad, it really makes it akin to the ‘buy’ process, albeit limited to Indian vendors. In case the required technology is available in India, minimal effort is needed to put together the system indigenously. However, if the technology has to be imported, indigenous defence industry will need to resort to co-production or outright purchase of technology along with necessary equipment. There is no research or development content in both the cases.

The new dispensation has considerably complicated matter. India should follow a simple well-defined procedure without getting mired in quibbling and pedantry. Service Headquarters should initially devise purely military characteristics, which pertain primarily to the functions to be performed by equipment, either alone or in conjunction with other equipment in use. These Operational Characteristics should define performance parameters in broad terms only. Thereafter, DAC should deliberate upon the case to decide on whether to adopt a ‘make’ or a ‘buy’ approach.

Once a ‘buy’ or ‘make’ decision is made, the case should be returned to the Service Headquarters to frame Qualitative Performance Requirements for Purchase (QPRP) for ‘buy’ cases and Qualitative Performance Requirements for Development (QPRD) for ‘make’ cases respectively. QPRP are based on the equipment currently available in the world market, whereas QPRD
are based on futuristic technologies under development.

In ‘buy’ cases, QPRP should be forwarded to the Acquisition Wing, where a Technical Parameters Committee (TPC) is constituted under the concerned Technical Manager to generate Technical Characteristics (TC). TPC should have representatives of Director General Research and Development (DRDO), Director General Quality Assurance (DGQA), maintenance directorate and the sponsoring service amongst other concerned agencies. Experts from academic institutes and the private sector should also be co-opted for wide ranging consultations.

However, in ‘make’ cases, the Service Headquarters should forward QPRD to DRDO. DRDO needs to have a standing Research Oversight Committee (ROC) to analyse all QPRD and perform the functions of a think tank, where various technological alternatives are brain-stormed in depth. ROC should be tasked to produce Qualitative Research Requirements (QRR) for the equipment to be developed. QRR is primarily a technical road map, which broadly spells out the technology to be adopted, assignment of responsibilities and outline contours of various phases of development with time frames. Once the Defence Development Board, under the Scientific Advisor to the Defence Minister, approves the QPR, it acquires the shape of a Policy Directive and acts as the basic document for the development of that equipment.

Thereafter, the case is processed by DRDO, who define Technical Specifications (TS) of the equipment (which flow from QPR). These specifications relate to actual design development, production processes and engineering. Close interaction and periodic joint reviews with the user
service are maintained throughout the development phase. A schematic representation of the whole decision-making process to decide ‘buy’ and ‘make’ cases is given at Fig. 1.
Fig-1: Schematic Representation of ‘Buy’ and ‘Make’ Cases

The proposed mechanism has the following major advantages:

It ensures separation of formulation of parameters for immediate procurement and development.
Service Headquarters prepares realistic and well spelt out Qualitative Performance Requirements after obtaining extensive inputs at DAC meeting, where other services and experts are also present.
Technical Characteristics are not left to the military but are formulated by a technical committee after wide-ranging discussions, thereby ensuring their applicability and practicality.
Formulation of Qualitative Research Requirements is assigned to the scientific community. Close and regular joint monitoring of the development process is thus institutionalised.

Need for a Culture of Cost Consciousness

Since the services are the ultimate users, they should have the final say on the issue of parameters sought. However, it is equally important that the services take informed decisions. They ought to be aware of the financial impact of parameters fixed by them. They have to be apprised that the
relationship between performance and cost is neither linear nor in direct proportion since defence equipment is technology-sensitive. Thereafter, it should be left to the Services to either stick to the previous parameters or moderate them to obtain better ‘value for money’.

Use of equipment which is commonly available off the shelf in the civil market is a highly cost-effective choice. The services must explore this option at the outset. Similarly, an endeavour should be made to seek dual-use technology for economies of scale and up gradation of the industrial base in the country. Instead of seeking fully developed equipment at the outset, it is prudent to progressively induct improved equipment as they are developed. The British system of Mark I, Mark II and Mark III or the US Block system should be adopted.

In the new Defence Procurement Procedure, there is no provision for the grant of deviations after the issuance of Request for Proposals (RFP). The whole case has to be aborted and initiated afresh if none or only one vendor meets all the parameters. It is a highly restrictive stipulation. It will force the services to pitch their parameters at base levels to ensure adequate response, thereby depriving the services of equipment with higher performance characteristics.

It would be ideal for the services to formulate their QRs in the form of a bracket with lower and upper limits specified. The lower limit should provide the minimum benchmark that the particular equipment must meet. Extra credit could be given to the equipment for attaining higher performance standard, albeit within the specified range with the upper cap. Relative weightage has to be assigned to different parameters for the purpose. Such an arrangement will result in the development of a matrix of all quantifiable parameters. A well-considered mix of specifics and matrix is ideal for India.

It has also to be appreciated that cost efficiency does not mean identifying and bargaining with L1 for a given set of QRs alone. It is, perhaps, more important to obtain value-for-money by considering QRs with respect to cost and moderating them, if operationally feasible. This can only be done by applying performance-cost analysis techniques after detailed technology scan and market survey. Minor acceptable moderation of QRs may affect huge savings. It must be reiterated that the services must continue to have the final say on performance-cost trade off.

Weighted Aggregate Performance Index (WAPI) is worked out by assigning inter-se weightage to various performance parameters as per their criticality to operational exploitation of the equipment. Such an index helps in determining the type and level of technology needed, and its impact on cost.

As can be seen in Fig. 2, Equipment ‘A’ scoring 220 on WAPI scale will cost a great deal more than Equipment ‘B’ achieving 210 on WAPI scale due to the technology jump involved. Additionally, Equipment ‘A’ will have yet unstabilised technology with very few producers. On the other hand Equipment ‘B’ will have the benefit of matured, tested and inproduction technology with multiple producers. Thus, WAPI-Cost analysis acts as a scientific tool to help identify the most cost-effective acceptable option.

Transparent Evaluation Criteria

Once proposals from the invited vendors are received, they have to be examined for their comprehensiveness and compliance with the stipulated requirements. It entails detailed examination of all aspects to eliminate subsequent mis-interpretations. It has also to be ensured that all vendors understand the laid-down stipulations and submit their responses in an unambiguous manner.

Proposals are submitted in two separate envelopes (technical and commercial), albeit simultaneously. Technical proposals are opened to identify vendors whose products meet all QRs and can be procured. This process is called technical evaluation. Subsequently, commercial bids of technically successful vendors are opened for comparative price evaluation.

Technical Evaluation

Evaluation of technical proposals is a three step process: (i) paper evaluation of proposals to shortlist vendors for trials, (ii) field evaluation to validate performance claims and (iii) General Staff evaluation to identify equipment to be recommended for induction into service.

Paper Evaluation

Paper evaluation of proposals is carried out by a Technical Evaluation Committee (TEC) constituted under the Service Headquarters. It is a broadbased committee with wide representation. In case technology transfer is sought, nominated production agency is also co-opted. It scrutinises all technical proposals for their QR compliance. The committee seeks clarifications from vendors, if required. As stated earlier, if none or a single vendor is found to be complying with all QRs, the case has to be retracted and fresh QRs formulated.

A number of difficulties are faced in carrying out effective paper evaluation. These include the following:

Not all members of TEC possess the required knowledge to scrutinise technical proposals of newer technologies.
Many vendors forward standard product brochures with complete disregard to QRs. TEC cannot ignore their offers and has to scan small print to ascertain compliance.
Many experienced vendors make false claims hoping that required deviations will be granted subsequently. Honest vendors, who state facts, may get rejected for non-compliance.
Some vendors claim compliance only to have their equipment field tested in varying terrain and climatic conditions for their further development at India’s cost.

Field Evaluation

It is carried out under the aegis of Service Headquarters. The overriding aim is to confirm compliance of parameters in actual terrain and climatic conditions. Maintainability aspects are also examined. It is normally carried out on ‘No Cost No Commitment’ basis. Service Headquarters issues the trial directive which the trial unit has to adhere to.

Some of the common problems faced are:

Trial of new equipment with differing technologies is a highly specialised task. Trial units are totally untrained and ill-equipped for the same
Trial directives are issued as a matter of routine
Many aspects are indeterminate and are viewed differently by trial units.
Trial reports tend to be subjective as per the views of commanders in the chain and couched in generalities.
New parameters are incorporated by field commanders while giving final recommendations.

It is carried out by Service Headquarters, based on inputs received from all trial units and maintenance agencies. It ascertains compliance of demonstrated performance of equipment vis-à-vis QRs in the given terrain and climatic conditions. It shortlists the equipment recommended for introduction into service. Selection cannot be prioritised. Vendors get no credit for higher performance of their equipment.

The Ministry of Defence (MoD) accepts Staff Evaluation for initiating commercial process.

Matrix for Technical Evaluation

Evolving a practical technical matrix is a highly complex and painstaking task. If done properly, it can be extremely useful as QRs get translated into measurable and comparable parameters.7 It acts a benchmark against which all equipments are evaluated in a fair and impartial manner. It promotes transparency as all vendors know the evaluation criteria in advance and can view performance of equipment in an open competition.

A judicious mix of a matrix of quantifiable factors and other hygiene factors offers the best option as it is difficult to incorporate all QRs into a single matrix. The buyer can set minimum standards and yet obtain equipment with higher performance by giving due credit through award of extra points.

As shown in Table 1, a gun has to meet minimum standards of all parameters. Yet, it can earn additional credit for better performance within the laid-down range. During the process of Staff Evaluation, a decision can be taken to shortlist the top three or four performers for further commercial process. For example, if six vendors score 172, 181, 196, 221, 230 and 234 points respectively, a decision can well be taken, with the concurrence of Defence Procurement Board, to restrict choice to the top three only. This aspect of limiting the commercial process to top performers will have to be mentioned in the RFP to eliminate subsequent representations.

Commercial Evaluation

Commercial evaluation has the following two distinct aspects to it:

Evaluation of commercial offers submitted by the technically acceptable vendors to determine L1.
Evaluation of the price quoted by L1 to ascertain that it is fair and reasonable. This also helps in evolving an effective strategy for subsequent price negotiations.

A Commercial Negotiation Committee (CNC) is constituted under the Ministry of Defence. It carries out all processes from opening of commercial bids to the conclusion of contract. Sealed commercial offers of the technically accepted vendors are opened by CNC in the presence of vendors. A ‘Compliance Statement’ is prepared, incorporating commercial terms offered and sought, an analysis of the discordance and the impact of the same. A similar statement is prepared in respect of deviations noticed in the delivery schedules, performance warranty, guarantee provisions, acceptance criteria and other conditions. Comprehensive analysis of the commercial offers facilitates decision making.

Thereafter, CNC prepares a Comparative Statement of Tenders (CST), with a view to determine the lowest acceptable offer (L1). Further negotiations are carried out with L1 only. It is an intricate and protracted process as multifaceted aspects, having commercial overtones, have to be factored in. Discounted Cash Flow (Net Present Value) method is used, wherever applicable. Though recent reforms in the procedure have significantly improved the process, a great deal of work is yet to be done to fully streamline it.

Current Format for Commercial Evaluation

At present, no matrix is prepared as such. However, vendors are required to provide cost of all items as per the format issued to them. This facilitates preparation of a comparative table to identify L1. Some of the major aspects covered are:

Unit cost of fully formed and/or semi knocked down and
completely knocked down kits.
Cost of transfer of technology, where applicable.
Cost of Manufacturers’ Recommended List of Spares.
Cost of Special Maintenance Tools and Special Test Equipment.
Cost of recommended training.
Cost of training material.
Cost of optional equipment.

Annual maintenance contract cost specifying number of years, where applicable.

The format is neither all-encompassing nor comprehensive enough to meet the full requirements. There are a number of related factors which have a profound effect on total price and yet remain hidden while offers are being compared. Some smart vendors bid low for major visible items but include a number of well disguised ‘add-ons’ to obtain undue advantage. A fair comparison can be done only when all expenses are listed to work out overall cost of owning particular equipment.

Matrix for Commercial Evaluation

The very purpose of a matrix is to reduce all offers to a common comparable scale to ensure easy, transparent and objective comparison to determine L1. The matrix must be issued with RFP to enable vendors to provide their commercial quotes for all items. Vendors should be required to fill it up as a detachable annexure.

Preparation of a viable and effective commercial matrix requires a thorough knowledge of likely exploitation of the equipment. Preparatory work has to be done to anticipate, forecast and cover all aspects that have a financial bearing. Users have to plan the likely deployment pattern of equipment to foresee requirement of support facilities. Unlike a technical matrix, a commercial matrix has to be all- compassing. There can be no partial application since that would defeat the very purpose of the entire exercise.

Life Cycle Cost Analysis

Life cycle cost (LCC) analysis calculates the cost of a system or product over its entire life span in service. It is a tool that helps to choose the most cost-effective alternative available to ensure least long-term cost of ownership. It facilitates equipment selection based on total costs rather
than the initial purchase price. It is also called ‘cradle-to-grave’ or ‘wombto- tomb’ analysis. LCC consists of acquisition costs and sustaining costs. Both are not mutually exclusive. At times, cost of sustaining military equipment is many times the cost of acquisition. LCC is an excellent technique for equipment where adequate data is available and usage can be predicted. However, its applicability to military equipment is uncertain, primarily due to a large number of unpredictable factors. Some of the major difficulties faced are:

Major weapon producers are systems integrators and are unable to provide accurate life cycle support details of sub-assemblies outsourced by them;
While deterministic costs (cost of acquisition/development) can be firm, probabilistic costs (cost of operation, maintenance and failures) remain inestimable;
Reliability is the key issue. Vendors make tall claims whereas buyer’s ability for realistic approximation of newer and untested technology is limited;
Assumptions become essential due to the non-availability of data regarding past performance but these assumptions can sometimes go totally haywire;
It is not always possible to forecast the long-term effect of local terrain/climatic conditions, employment during operations and quality of engineering support;
Availability of extensive training aggregates and simulators reduces the load on main equipment and reduces maintenance requirements;
Cost implications of actual or planned modifications, upgrades or life extensions cannot be factored in; and
It is difficult to apply LCC where subsequent indigenous production is planned with technology transfer.

Sample Matrix shown in Table 2 is just an indicative one and is by no means comprehensive. A large number of additional factors, specific to each type of equipment, need to be included to work out the realistic total cost. The Table shows cost over five years only. As all major military systems have a service life of over 20 years, Life Cycle Cost has to be worked out by adding annual cost of ownership over the entire estimated service life of the equipment.

Determination of Fair Price

Determination of fair price has to be carried out prior to inviting L-1 for discussions. This is an exceedingly difficult process due to rapid technological advances. It cannot be done by applying a factor of inflation to earlier procurements of similar equipment. This is the most naive method as it ignores market dynamics completely. Moreover, as a certain degree of secrecy shrouds all arms deals, terms and conditions of previous sales to other countries are not available as guidelines.

Cost analysis is a key but highly painstaking function, especially in defence deals.

Fair price is based on the calculation of input costs (including developmental overheads) of the vendor, duly marked up with reasonable profit. There is no set methodology to determine the precise fair price for a weapon system. However, a broad range can be decided by due diligence and experience. Thereafter, an acceptability factor is assigned to the determined fair price. Thus, a suitable price bracket is created to restrict negotiations.

It is a generally accepted fact that expert negotiators can affect savings of up to 20 percent of the contract amount by deft negotiations and methodical approach. Therefore, all members of CNC should be selected for necessary skills and must possess a flair for negotiations.

Preparatory work has to be done before commencing negotiations. Maximum information must be gathered about the vendor to decide on the approach to be adopted. The best price can be obtained only if our own and vendor’s strengths and weaknesses are known. A vendor in desperate need for orders to keep his factories going is likely to accept much lower price whereas a vendor with surfeit of orders may adopt ‘take it or leave it’ approach. It is equally important to be aware of a vendor’s pricing strategy and bargaining habits. Many vendors intentionally quote higher price initially so as to be able to negotiate effectively by offering reductions during discussions and still have a highly profitable contract. This has to be guarded against. It is imprudent to seek reduction in cost by demanding discounts as a percentage of the quoted price without having carried out detailed cost analysis.

A large number of contracts are required to be finalised towards the end of a financial year to expend all allocated funds. This has two major fall-outs. One, due to pressure of time, functionaries may not be able to devote adequate time to all contracts to extract the maximum price advantage. Two, vendors gauge and exploit the buyer’s anxiety to close deals before the end of the financial year to avoid surrender of funds.

The Way Forward

Defence equipment is expensive. Procurements entail huge expenditure of scarce national resources. It is, therefore, essential that all functionaries involved in defence procurements are well trained and exercise utmost financial prudence.8 Each aspect must be weighed against the financial penalty that it entails. It is imperative that a culture of cost-conscientiousness is introduced in all facets of procurement.

QR is an archaic concept and needs to be discarded in its present form. Services must know the cost of equipment that they propose to demand. They must be aware of the impact of various parameters on cost. For ‘buy’ cases, the following suggested procedure will expedite procurement of equipment with operationally indispensable parameters, promote transparent evaluation and effect enormous savings:

Services should ensure that formulation of QRs is totally need based. Each parameter must be fully justified and reasons for nonacceptance of any dilution must also be considered. Suggested technical and commercial matrices should also be included in the draft RFP.
Draft RFP with QR should be forwarded to the concerned Technical Manager (TM). Technical Parameters Committee (TPC) constituted under the TM should perform two functions: (i) Finalise technical matrix and generate Weighted Aggregate Parameters Index in consultation with the user service and (ii) Carry out a technology scan and market survey to identify various cost-performance options. These should then be intimated to the service concerned for their appraisal. It has to be a continuous two-way dialogue.

With inputs available on various performance-cost alternatives, the final decision will be made by the services. But, it will be an informed decision and not taken in isolation without cost considerations. Thereafter, RFP should be issued with revised QR. Matrices for technical and commercial evaluation will help lay down well defined evaluation criteria.

And finally, any procedure is as good as the people who implement it. There is an inescapable need to select, train and equip functionaries carrying out various procurement duties.9 They have to be sensitised to view cost as a major influencing factor and a tool in the final selection of equipment.

References/End Notes

Major General Mrinal Suman, AVSM, VSM was the Task Force Commander at Pokharan. He superannuated in 2003 and since then has been actively associated with Confederation of Indian Industry (CII) in the promotion of defence-industry partnership.

1. Ministry of Defence, Government of India, Defence Procurement Procedure – 2006, August 2006, pp. 9-10.
2. Vague and loosely worded QR is the single most common reason for nonfructification of most acquisition proposals in India. Flaws and infirmities come to light when no corrective action can be taken. Invariably, the case has to be aborted and started afresh with revised QR with resultant cost and time overruns.
3. The programme was initiated in 1994. It aims at providing prototypes of maturing technologies to the military to test them in actual battle conditions and facilitate their further development. See John D. Moteff, DoD’s Advanced Concepts and Technology Demonstrations, CRS Report for Congress 95-283SPR, Congressional Research Service, Washington, February 16, 1995.
4. Commonality of technology over a wide array of equipment ensures focused approach and facilitates inter-operability of components and sub-assemblies. See “Military Functional Standardisation: General Approach to Solving the Problem,” at www.highbeam.com/library/docFree.asp (Accessed on July 10, 2006).
5. “Technical Procedure for the Procurement of Aircraft, Weapons and Electronic Systems,” Ministry of Defence Standard 05-123 Part O Issue 2, Glasgow, November 25, 2004.
6. no. 1.
7. Technical matrix can be drawn by the user service only. Only users can assign differential weightage to various parameters as it has profound effect on operational exploitation of the equipment due to trade-off between different performance characteristics.
8. The US Defence Acquisition Workforce Improvement Act recognised acquisition as a multidisciplinary career field comprised of 11 functional areas. Subsequently, the Defence Acquisition University was set up to provide necessary professional training to the acquisition workforce. See “Acquisition Management: Agencies Can Improve Training on New Initiatives - Report to the Chairman, Subcommittee on Technology and Procurement Policy, Committee on Government Reform, House of Representatives”, United States General Accounting Office GAO-03-281, Washington, January 2003.
9. Mrinal Suman “Quality of Acquisition Staff: A Key Factor in Defence Procurements”, Indian Defence Review, 20 (1), Jan-Mar 2005, pp. 26-29.

Defence Economics & Industry Defence Procurement Reforming Financial Management in Defence October 2006 Gur Saroop Sood

The Government of India and the Ministry of Defence (MoD) have initiated several reforms in the areas of budget and accounting. The reforms are ongoing and take into account the changes in other similar systems abroad and international best practices. The focus all over the world is to operate in a continuum of long-term plans, medium-term plans, annual plans, on the one hand, and allocations, targets and outputs on the other so that stability in budgetary allocations, accountability of the budgetholders and transparency in the processes can be ensured. The budget and accounting systems in India would have to undergo further and significant reforms if they are to attain international best practices standards.

The Budgetary System

The Defence Services and Departments compile assessed fund requirements for the ensuing Financial Year (1st April to 31st March) and project the same to the MoD (Finance) for allocation. Projections in respect of Locally Controlled Heads (LCHs) are formulated by the Defence services in consultation with the Command Headquarters and local Controllers/ Principal Controllers of Defence Accounts/Integrated Financial Advisers. On the other hand, the projections pertaining to Centrally Controlled Heads (CCHs) such as pay and allowances and modernisation schemes are formulated by the respective Directorates of the Service Headquarters and are forwarded to MoD (Finance).

The projections of Service Headquarters, after vetting by MoD (Finance), are then forwarded to Ministry of Finance, which, based on estimated overall availability of resources and projections of MoD, allocates funds for Defence Services and Departments. The allocations so made are distributed among six Demands for Grants 1 of the Defence Services/Departments and are sub-allocated to Major Heads, Minor Heads and other heads for expenditure under Revenue and Capital, voted and charged, on a gross basis. The allocations to Services/Departments are strictly needbased and are not dependent on any pre-determined percentages and form part of the non-Plan expenditure of the Government of India. They provide for the obligatory charges, essential maintenance requirements, committed liabilities and prioritized new modernisation schemes.

As per Article 114 of the Constitution of India 2, amounts under various Grants must not exceed the provisions of the Appropriation Bill of that Financial Year. Also, funds provided are to be spent for the purpose for which they have been allocated. Unspent funds lapse to the Consolidated Fund of India on the closing of a Financial Year.

In effect, the primary focus of the entire budgetary process is on resource allocation. This process does not establish a direct linkage between the allocation of funds and the capabilities these funds can create. From the budgetary allocations, it is not possible to directly deduce the capabilities that such expenditure can buy 3 or ascertain the value for money. Similarly, it is not easy to quantify the co-relation between the increase/reduction of allocations on the operational efficiency, training, etc. of the Defence Services.

Accounting System

The Accounting System followed in Government of India is cash-based. In this system, an expenditure is recorded in the accounts when cash is paid out and receipts are recorded when reported by the collecting agencies. The cash-based system ignores all non-cash transactions, whether they involve liabilities or creation of assets or inter-unit free issue of goods and/or services, etc. The accounting system does not also cater for re-valuation or consumption of assets through depreciation in respect of most organisations except probably some production agencies e.g. Defence Ordnance Factories.

The existing system provides for submission of audited Appropriation Accounts 4 to Parliament on completion of a Financial Year so as to reflect compliance between the allocations made by the Parliament and the expenditure incurred by the Executive giving reasons for significant variations between (i) the Original Grant and Modified Appropriation, and (ii) the Modified Appropriation and the Actual expenditure in that Financial Year.

Under the cash-based system, the currency transactions, pertaining to a Financial Year, are available till the closing of accounts. Once the accounts are closed, past transactions do not become readily available. In this system, committed liabilities incurred do not get recorded in the accounts at the time of their occurrence. Therefore, for commitment control, such information has necessarily to be generated through additional reports. If the committed liabilities are not available, the possibility of over or under committing resources vis-à-vis available funds in a Financial Year cannot be ruled out. The accounting system also does not generate information for the decision-makers to know whether the money is being spent on core or peripheral activities. Due to the principle of lapse, the Executive tends to spend the earmarked funds during the month of March, sometimes also referred to as ‘March rush’, in order to avoid surrender of unspent funds.

International Experience

United Kingdom

The Government of UK introduced the Accrual system of accounting 5 under the Resources and Accounting Act, 2000 and made the accounting system broadly consistent with the Generally Acceptable Accounting Principles (GAAP, UK). The Government introduced statements of gains and losses, balance sheet, cash flows, net operating cost, revaluation of assets, etc, and also the concept of capital charge, i.e. interest charged on capital (in the form of net assets) held by each Department of Government of UK.

Resource accounting and budgeting was introduced in the Defence Services in 2001-02. As a result, the Army took action to generate resources through marketing their spare training capacity and disposal of surplus Defence Estates and equipments, etc. The effort in UK is, therefore, to shift emphasis from input of resources to utilisation of resources.

New Zealand

New Zealand moved to accrual accounting under GAAP with Public Finance Act, 1989 6 for the departmental expenses of the Government. Further, with the amendments to this Act, the Government changed budgeting to accrual basis. In 2000, this was extended to the entire Government of New Zealand, including the capital expenditure. In New Zealand, expenditure constraint is applied whenever the decision to incur a liability is actioned. They, however, also prepare statements of cash flows. All Departments of Government of New Zealand provide expenditure reports to the Treasury by the 7th of each month. The Treasury, in turn, provides expenditure report to the Office of Auditor General in the next three days.

United States

In the USA, performance budgeting was introduced through the National Security Act 1949. Performance budgeting was introduced in USA on the assumption that presenting performance information along side budget amounts will improve decision-making. The country has continuously taken financial management initiatives to establish linkage between plans, targets and annual allocations. These initiatives have come in the form of Planning, Programming and Budgeting System (1965), Management by Objectives (1973), Zero Based Budgeting (1977), Government Performance and Results Act (1997), etc.

Even in the Quadrennial Defence Review 7 released in February 2006, the US is aiming to progress towards outcome oriented and capability based planning approach. The focus of the Department of Defence is to reach investment decisions through collaboration amongst the war fighting, acquisition and resources communities. The acquisition decisions are likely to be based on the technological feasibility, cost-per-increment of capability improvement and assessment of affordability. US also intends to establish ‘Capital Accounts’ for Major Acquisition Programmes so as to provide stability in budgeting system and accountability in acquisition. It is hoped that the proposed measures would enable senior management to implement risk informed investment strategies, reflecting joint war fighting priorities.

Initiatives in India

Performance budgeting, Management by Objectives and Zero-based Budgeting was introduced at different stages for implementation by various Departments and Ministries of Government of India. In 2003, Parliament passed the Fiscal Responsibility and Budget Management Act 8 so as to ensure better control over public finances and provide improved transparency and accountability in Government expenditure. Under the Act, the Central Government is required to lay before Parliament, Medium Term Fiscal Policy Statement, Fiscal Policy Strategy Statement and Macro economic Framework Statement, along with the Annual Financial Statement and Demands for Grants. Under the Act, no deviation is permissible in meeting the obligations of the Central Government without approval of Parliament.

In August, 2002, Comptroller & Auditor General of India set up Government Accounting Standards Advisory Board (GASAB) with the following objectives:-

To formulate accounting standards for implementation by the Union and the State Governments
To improve the utility of financial reports for various stakeholders to ensure comprehension, reliability, relevance, timeliness, transparency, consistency and comparability.

In July 2004, GASAB mandated D N Ghosh, a retired officer of Comptroller & Auditor General of India, to formulate a roadmap for making the transition from the existing cash-based accounting system to a more appropriate system of accounts for the Central and State Governments. According to available information Ghosh, had in his report, recommended adoption of a modified accrual accounting system.

In December 2004 the 12th Finance Commission 9 recommended gradual transition to accrual basis of accounting in the medium-term and in the interim period, to append additional statements of cash accounts on subsidies, salary expenditure, pensioners and pension expenditure, committed/other liabilities, debt, repayment schedules, increase/decrease of financial assets, implication of major policy decisions for future cash flows, maintenance expenditure, etc.

Ministry of Finance has accepted the recommendations of the 12th Finance Commission and has issued instructions for formulation of Outcome Budget 2006-07 10 for Plan funds and Performance Budget 2005-06, with additional statements, in pursuance of the 12th Finance Commission’s recommendations.

Controller General of Accounts, the Principal Adviser to Government of India in accounting matters, would have to formulate the final accounting standards, in consultation with the Comptroller & Auditor General of India after obtaining inputs from the concerned accounting organisations of Government and other experts in the field. The process is yet to be completed.

As part of the ongoing reforms, an ‘Outcome Budget’ was presented to Parliament on August 25, 2005 for the first time by the Finance Minister. The Outcome Budget presented was aimed at making it a pre-expenditure instrument to realise the vision behind outlays. Converting outlays to outcomes is a complex process, which differs from Ministry to Ministry and programme to programme. It calls for defining outcomes, which are measurable, monitorable, and also calls for defining the intermediate outputs. The process requires standardising unit cost of delivery, benchmarking the standards/quality of outcomes and services, capacity-building for requisite efficiency at all levels, ensuring flow of right amount of money at the right time to the right level and to inculcate an outcome oriented mindset.

Defence Budget Reforms

In pursuance of the recommendations of the Group of Ministers, a Study Group on Budgetary Reforms was set up in the Ministry of Defence to examine, inter-alia, the expansion of budgetary classification to promote Programme Based Budgeting. In 2002 the Study Group recommended introduction of Programme Based Budgeting in a gradual manner and to devise mechanisms for costing of all cash and non-cash transactions. The Study Group also expanded the concept of Authority-cum-Responsibility Centre, already introduced earlier in Defence, and recommended further factorisation of allocations within the Defence Services and Defence Departments.

In 1986-87, the Director General, Defence Planning and Staff, had engaged the College for Defence Management for devising structures, formats and guidelines for introduction of Programme Based Budgeting in Defence. The Integrated Defence Staff (IDS) has also mandated the College for Defence Management to suggest methodologies and structures for implementation of Programme Based Budgeting in Defence Services in pursuance of the recommendations of the Study Group on Budgetary Reforms, mentioned above.

The Defence Accounts Department has undertaken the project ‘Mission Excel IT’ seeking to adapt the current computerised systems to contemporary and futuristic platforms. Substantial changes are expected to occur in the availability of accounting and financial information as a result of improvements in the system and in the working processes.

One of the systems under review is the Financial Information System. The existing system provides All India Compilation of Receipts and Expenditure of Defence Services and Departments and generates over 100 MIS reports for various stakeholders. In fact, the All India Compilation System is one of the oldest automated systems of the Central Government. The Defence Accounts Department was the first in Government to introduce data processing through Hollerith machines with the use of Punching Medium in 1931. Since then, this system has undergone many adjustments till the old COBOL based system was changed to the existing FOXPRO based system using the VSAT links with over 20 Data Distributing and Processing Centres.

Under ’Mission Excel IT’, FIS is being expanded to include Liability Database, Allocation Database and Expenditure Database. It is expected that the new system would also capture additional data pertaining to contracts/supply orders, bills, vendors, consignees, etc.

Cost Accounting System – A Working Model

Defence Ordnance Factories have been following a comprehensive cost accounting system for nearly 100 years where all inputs such as labour, material and overheads, are costed to arrive at the unit cost of the finished products as well as of the intermediate products (Inter-Factory Demands). The Financial accounts for Ordnance Factories are derived from the cost accounts. Even the budgetary projections and allocations (inputs) are directly co-related to the issue/output targets. The ordnance factories also take into account their assets and depreciation while finalising the accounts. It is felt that the cost- accounting system followed by the Defence Accounts Department in the Ordnance Factories can be considered as an in-house model towards introduction of Programme Based Budgeting, particularly in respect of works projects (e.g., Married Accommodation Project), Dockyards, Base Workshops, Canteen Stores Department, etc. with suitable modifications.

Conclusion

The focus the world over is on linking resources (both projections and allocations) and results (capabilities) taking into account the long-term, medium-term and short-term plans. The challenge for India is to devise the most pragmatic methodology suitable for local conditions. GASAB is already working in this direction for evolving a suitable accounting system. A multi-year expenditure framework in the budgetary allocations can also be considered so as to ensure stability in budget availability.

References

1. Government of India, Defence Services Estimates 2006-07.
2. Durga Das Basu, Constitution of India, Tenth Edition.
3. Jasjit Singh, India’s Defence Spending: Assessing Future Needs, Knowledge World, New Delhi, 2001.
4. Government of India, Appropriation Accounts of the Defence Services for the year 2004-05.
5. UK Defence Statistics, 2005.
6. http://www.treasury.govt.NZ
7. Department of Defense (USA), Quadrennial Defense Review Report, February 2006.
8. Government of India, Fiscal Responsibility and Budget Management Act, 2003.
9. Government of India, XII Finance Commission, Chapter 14.
10. Ministry of Finance, Government of India, Outcome Budget: 2005-06.

Defence Economics & Industry Defence Equipment Acquisition: An Assessment October 2006 Dhirendra Singh

The primary objective of inventory management for the defence forces is to sustain and update their capabilities to perform the tasks given to them. The study of defence equipment purchase is normally confined to arms and equipment used for countering external aggression, although specialised equipment for surveillance and weaponry used in close combat situations especially in urban areas or those which result in little collateral damage are also utilised by the armed forces in anti-terrorist or counterinsurgency operations. Considering the vast sums involved and the attention defence purchases get in Parliament as well as the media and the public domain, it would be prudent to subject them to an in depth study. Putting the process through a rigorous analysis would lead to better understanding, help impart greater transparency and most importantly lead to development and use of analytical tools that would enable decisionmakers at the evaluation, policy, technical and commercial levels.

Evolution of Procedures

A digression into the evolution of purchase procedures would be of relevance at this stage. Post- Bofors procurement controversy, the need to codify procedures led to a set of instructions in 1992. However, they were rooted in the ethos of the defence institutional arrangements and were treated as classified instructions. This pre-empted wide dissemination of information and a critical examination by those outside the defence establishment. Moreover, they were meant to be used by the existing acquisition structure and so did not break any new ground. The restrictions also resulted in even those who were to use the procedures from getting the broader picture. Procedural mistakes, impromptu innovations or even resorting to short cuts became common. Nonetheless, core provisions were rarely overlooked. The aftermath of the Kargil conflict also brought in significant reforms in various sectors, including the acquisition infrastructure. The following inadequacies of the existing structures were addressed:

Absence of an organisation dedicated exclusively to acquisition where officers were multi-tasked;
Agencies working in watertight compartments, with no high level oversight, resulting in advantage to vendors who were better informed since they interacted with many agencies;
Procurement decisions were hierarchical rather than collegiate. This had an adverse effect since it was safer to object or raise peripheral queries rather than be singled out as the author of a new course of action or a crucial decision;
There was no inbuilt system of continuous or stage wise oversight, allowing mistakes to prevail or coming to light after the contracts are signed;
The database available with the various agencies was inadequate. These resulted in unrealistic Qualitative Requirements (QR) formulation, restricted vendor base and were a handicap during negotiations because of limited knowledge on costs and prices.

The procedures also did not cater for:

Procurement in emergencies;
Evaluation of bids on technology transfer; and
Long gestation projects (viz. Naval projects) requiring sustained
interaction between users, designers and builder.

Accordingly, during the reform process, stress was laid on bringing in efficiency through the synergy of various stakeholders. Demands of transparency, of at least the procedures, which guided the acquisition process if not the weaponry sought for, led to its declassification and wide dissemination through the Internet. This was done in December 2002. Additions and refinements came in 2003, 2005 and in 2006. The composite Acquisition Wing witnessed the Services and the Departments of the Ministry of Defence (Defence Department, Department of Defence Production and Defence Research & Development) and Defence (Finance) working in greater synergy.

The Acquisition Wing of the Department of Defence, with Technical Managers (from the Services), Finance Managers (from the Financial Services) and Acquisition Managers (from the Administrative Services) now function as a composite unit with a Special Secretary heading it. The Defence Procedures were elaborately codified with separate sections for Transfer of Technology, Naval constructions and Standard Contracts, and these widely disseminated. The Acquisition Structure, in turn, was integrated with the higher echelons responsible for perspective planning, determination of priorities and necessity for equipment, indigenous R&D and production so that purchase of equipment is properly integrated into the overall defence management structure of the Government. An indication of the efficacy of the reforms is the extent to which funds earmarked for capital expenditure (modernisation) in the last couple of years have been fully spent (substantively and not by the subterfuge of parking them with Defence Public Sector Undertakings).

Further refinements can now be contemplated. The rationale behind a particular procedure could be explained and incorporated as a preamble or in explanatory notes. This is necessary as the environment in which defence purchases take place differs from that in the civil sector, though comparisons are apt to be made. Statistical and Operations Research tools need to be utilised, backed by empirical studies. The use of such techniques would provide a quantitative dimension to the examination of various options, making possible more informed decision-making. This would lead to a more elaborate and perhaps convincing reasoning that would be of immense value to any oversight institutional mechanism either within the system, as envisaged in the present procedure, or to external audit authorities.

Equipment Profile and Sources of Supply

It is not the purport of this paper to lay down a theory or to suggest appropriate analytical tools. However, in the subsequent paragraphs, an attempt is made to examine various facets of defence equipment purchases so that the analyst can, for each step in the decision-making process, come up with an appropriate matrix as a result of a fuller knowledge of the complexities, constraints and limitations. Defence equipment themselves have special characteristics. Most pertain to high-end technology (which limits the sources of procurement); they are complex systems rather than discrete items (necessitating integration of sub-systems manufactured by a large number of vendors); they are susceptible to constant upgrades and modernisation (requiring maintaining contacts with O&Ms over longer periods); they require stringent quality checks during manufacture and at the time of purchase (hence an elaborate quality control organisation has either to be built in-house or the self-certification procedures need to be subjected to verification); and they are subject to export controls, embargos or sanctions (requiring adept diplomatic effort).

Perhaps the first step would be to understand the product mix. Owing to several factors such as (a) Long gestation period for acquisition; (b) Need to set up maintenance and product support infrastructure; (c) Train the user in the use of the equipment for optimal exploitation; (d) Standardisation; (e) the need to extract full value for sums spent; and (f) Need to keep up with fast changing technology, the inventory shows a range of equipment and broad spectrum of technologies. For simplification of classification the equipment in use is generally put into three categories (i) Those which have outlived their utility, become obsolete and are to be phased out without any fresh induction; (ii) Those which have stabilised after long use but which would soon have to be phased out when their utility life span gets over, and hence require only small quantities of fresh inductions and (iii) The state-of-the-art equipment to impart the necessary cutting edge to the forces. Statistical tools may well be used to determine an optimal mix of the three so that proper budgeting can be done.

The next critical factor is the source of supply. The goal of self-reliance mandates the sustenance and expansion of an indigenous defence industry, backed by R&D. In the Indian context, this task is to be carried out by the Defence Research and Development Organisation (DRDO), the Ordnance Factory Board (OFB) and Defence Public Sector Units (DPSUs). The latest to enter are the private players bringing in their own brand of expertise. Indigenously developed products can either be productionised as complete equipment or integrated with imported items. Imports are inevitable and, at present, constitute a large segment of the inventory. A fallout of imports is the transfer of technology arrangement, facilitating indigenous manufacture. Various models for such transfer have been developed over the years; starting from production technology, graduating to imbibing design technology and thereafter participation in joint research and development.

It is now a well-established axiom that in the defence equipment sector there is a near monopoly within the country with the state sector dominating production, and competition abroad—where several leading international defence suppliers operate. Costing of indigenous equipment is problematic. Buyers (the different services) have complained that an assured market tends to make suppliers less cost conscious and sellers have a grievance that they are being squeezed or subjected to interminable discussions before orders are placed because of the dominant position of the state as the sole buyer. Development of prototypes envisages identification of producers (both in the public and private sectors) at the initial stages itself. Such developers look for preference at the stage of production. However, when the product stabilises, there is the question of the quantum of order that would sustain the producers. So whereas prudence demands that competition is encouraged, to get value for money, such competition results in the closure of all but one or two suppliers because of limited requirements (not to mention the sporadic nature of placement of defence orders). A theoretical examination of such scenarios can lead to a better understanding and decision-making. A subset could be upgrades and weaponisation where the QRs must include compatibility with the platform.

As regards imports, a large number of products and many suppliers is expected to lead to better competition and value for money. This is, however, not reflected in the market. Costing remains an esoteric exercise. Worldwide, there has been consolidation of defence industry and suppliers are shrinking. Export policies of the supplier’s country or various technology control regimes restrict the sale of equipment with the latest technology. Moreover, since defence equipment sales are adjuncts of foreign policy, various strings can be attached. From the purchaser’s perspective, imports can be used to leverage other non-defence related goals. Offsets (currently mandated for purchases above a limit in India) are another emerging area. All these issues can be subjected to greater study and economic analysis.

Introduction and Use of Analytical Tools

Within this broad and complex picture, it may be desirable to subject the characteristics of each set of purchases within the three categories of equipment mentioned earlier, to a study and thereafter examined against QRs, evaluation criteria and concepts like life cycle costs.

In the case of obsolescent items, their characteristics would be (i) No fresh inductions (efficacy is reduced and technology is outdated); (ii) Need for frequent repairs and maintenance (these become more difficult with time); (iii) Limited availability of spare parts (as sources of manufacture dwindle). The analysis could concentrate on: (i) alternatives for maintenance and repairs. These could be in-house facilities set up by users in cooperation with producers of basic equipment or with franchisees; (ii) spares to be obtained as part of initial agreement on life cycle support or by manufacture through Transfer of Technology; and (iii) in the event of little or no competition, how to discover the price which would give value for money. Stabilised items would be characterised by: (i) limited inductions (they need to be ultimately replaced by those having later technology); (ii) the need to prolong useful life, necessitated by shortage of funds for replacement by state-of-the-art equipment, through upgrades. The issues for consideration would be: (i) identifying limiting factors for upgrades (existing platform, skills of Integration); and (ii) identification of integrators and items utilised to upgrade.

Induction of state-of-the-art equipment remains the most important aspect of defence equipment, requiring skills at all levels. These skills involve: (i) giving importance to products (identification from a vast array); (ii) planning and prioritising (perspective; five years and annual); (iii Bringing out a case for funds; (iv) formulating QRs and testing and trial procedures; (v) identification of vendors and creating a system of vendor rating; (vi) establishing evaluation procedures for items procured as well as Transfer of Technology; and (vii) phased development starting with Mark-I and proceeding thereafter. Aspects of economic analysis need to be identified for each of the following processes:(i) inter and intra-services equipment prioritisation; (ii) identification of essential and desirable features and possibility of giving weightage to each criteria; (iii) factoring in standardisation and limiting types of inventory for cost effective maintenance and training; and (iv) giving weightage to user preference (since in any conflict a determining factor is the man-machine coordination).

Conclusion

The above is only an illustrative list and is not exhaustive. However, what it does indicate is the urgent need for application of economic reasoning to defence equipment purchase. Such expertise could be developed in-house or to the extent that security is not compromised, by utilising the services of outside experts (individuals as well as organisations). As and when a body of knowledge develops, it would have beneficial practical applications.

Defence Economics & Industry Defence Acquisition Indian Foreign Policy and China October 2006 Harsh V. Pant

The global political architecture is undergoing a transformation with power increasingly shifting from the West to the East, according to most political observers.1 The two most populous nations, China and India, are on their way to becoming economic powerhouses and are shedding their reticence in asserting their global profiles. Japan is gradually raising its military profile and the Southeast Asian economies are back in business after the setbacks of the 1997 financial crisis. Whether it is such hopeful prospects or the challenges ahead in the Korean peninsula, Taiwan, and Kashmir, it is clear that this new century will, in all likelihood, be an Asian century.

The future of this Asian century will to a large extent depend upon the relationship between the two regional giants, China and India. According to the United States National Intelligence Council Report titled “Mapping the Global Future,” by 2020, the international community will have to confront the military, political and economic dimensions of the rise of China and India. This report likened the emergence of China and India in the early 21st century to the rise of Germany in the 19th and America in the20th, with impacts potentially as dramatic.2 The import of their bilateral relationship is not lost on China and India. In one of his meetings with the Indian Prime Minister, Chinese Premier Wen Jiabao is reported to have remarked: “When we shake hands, the whole world will be watching.”3 As of today, however, the trajectory of the India-China relationship remains as complex as ever and difficult to decipher despite positive developments in the last few years.

The puzzle that this article attempts to explore is the lack of a coherent Indian foreign policy approach vis-à-vis China despite the fact that China is India’s nearest rival for geo-political influence. According to standard realist theoretical paradigm in international relations, states respond to their structural conditions and do their utmost to tackle the most prominent challenges to their security. Yet, Indian foreign policy seems to have been unable to forge a coherent response towards a rising China that affects its security interests in many ways.

This article is not an attempt to explicate India-China relations in detail. 4 Rather it is an attempt to examine the reasons for the lack of a long-term strategic vision in India’s China policy. This article argues that this lack of a strategic approach has to do with domestic political constraints that have made it difficult for India to carve out a coherent foreign policy vis-à-vis China. While China has displayed a remarkable consistency in its dealings with India, India seems satisfied in muddling along from one high-level visit to another and anxious to keep China pleased. The absence of a guiding strategic framework in India’s China policy can have grave implications for India’s national security interests as well as for its emergence as a global player.

Cooperation or Conflict?

While realising fully well that it would take decades to seriously compete with the US for global hegemony, China has focused its strategic energies on Asia. Its foreign policy is aimed at enhancing its economic and military prowess to achieve regional hegemony in Asia. China’s recent emphasis on projecting its rise as peaceful is aimed at allaying the concerns of its neighbours lest they try to counterbalance its growing influence.5 China’s readiness to negotiate with other regional states and to be an economically “responsible” power is also a signal to other states that there are greater benefits in allying with China rather than opposing its rise in any manner. China realises that it has thrived because it devoted itself to economic development while letting the US police the region and the world. Even asit decries American hegemony, its leaders envision P ax Americana extending well into the 21st century, at least until China becomes a middle-class society and, if present trends continue, the world’s largest economy.

However, while declaring that it will be focusing on internal socioeconomic development for the next few decades, China has actively pursued policies to prevent the rise of other regional powers, or at least to limit their development relative to itself. In case of India, this manifests itself in its cultivation of Pakistan as a close ally. From supplying nuclear and missile technologies to building its military infrastructure, China has d one all it can to help Pakistan be an effective counterweight to India. And this policy has largely succeeded. While India no longer seems to enjoy its earlier conventional superiority vis-à-vis Pakistan,6 possession of nuclear weapons by both nations ensures that any step that India takes to strengthen its nuclear weapons profile is viewed by the international community as highly d estabilising in the context of the fear of South Asia becoming a “nuclear flashpoint”. China has thereby been successful inemerging as a “responsible” global player, despite its questionable nuclear and missile proliferation record, while the international community rails at India for making the world much more dangerous.

China’s attempts to increase its influence in Nepal, Bangladesh, and Myanmar, its territorial claims on parts of India such as Arunachal Pradesh, its lack of support for India’s membership to the United Nations Security Council and other regional and global organisations, all point towards China’s attempts at preventing the rise of India as a regional and global player. It is this strategy that China has consistently pursued. In fact, this strategy has been so successful that some observers feel India is off China’s diplomatic radar.7 This perception apparently is undergoing a revision as other major powers, especially the US, start courting India. The US is already looking at India as an important ally and the recently signed Indo-US civilian nuclear cooperation agreement is a testament to the growing strength of US-India ties. It is instructive that after US declared its ambition of helping India achieve the status of world power, China reacted swiftly and since then has been referring to India as a global power as opposed to a regional one, a formulation that China preferred before.

In contrast to China’s well-laid out policy vis-à-vis India, India has from time to time oscillated from going ballistic over China to a sort of acquiescence. There appears to be no coherent long-term strategy vis-à Indian v is its most important neighbour. This is despite the fact that a growing volume of literature analysing Sino-Indian relations points toward the inevitability of a competitive rivalry between the two nations, which should alert Indian decision-makers of the need for a strategic approach vis-à-vis China.

In one of the most detailed studies of Sino-Indian relations in a historical perspective, John Garver makes a convincing case that India-China relations have, over the years, been shaped by a deep and enduring geo-political rivalry.8 According to Garver, the rivalry is rooted in the “decades-long, multi-layered, and frequently sharp conflict over the two states’ relations with the lands and peoples lying around and between them.” 9 Ashley Tell is takes this structura list approach further and argues that China and India as rising powers in Asia remain natural competitors, competing to increase their influence not only in South Asia but also outside South Asia proper. Tell is goes on to argue that India-China competition is not likely to mutate in to malignant rivalry in the near-term but if Indian and Chinese economic and military capabilities continue to grow at the current pace, there is a likelihood of this relationship turning into a dyadic rivalry.10

This conclusion is supported by Sumit Ganguly who also contends that any dramatic improvement in Sino-Indian ties is unlikely and the relations between the two will remain competitive.11 Mark Frazier agrees but argues that precisely because so many sources of dispute exist between China and India, both sides have come to recognise the need to prevent tensions from leading to an overt rivalry. Therefore, according to Frazier, a quiet competition is the most likely possibility.12 Many in India have also reached similar conclusions.13 While there are differences on the exact nature that Sino-Indian competition might take in the future, there seems to be a broad consensus that a host of factors point towards a competitive Sino-Indian relationship. The underlying thrust of the above arguments is that whether India likes it or not, the inherent competition for regional influence will always underpin the realities of the relationship and therefore, India needs to shape its foreign policy accordingly. But the Indian policy seems one of over emphasising the promising future potentials in the relationship and de-emphasising troublesome past and present realities. It might then seem puzzling that a nation, such as India, that hopes to be a major global player is so insouciant about its closest competitor.

Constraints

There are a number of constraints that impede the development of a clear-eyed China policy in India. Some of these constraints reflect on the larger Indian foreign policy making while the others are China-specific.

Strategic Culture

Scholars of international politics have increasingly focused on culture as an important variable determining state behaviour in the international realm. Culture can refer both to a set of evaluative standards, such as norms or values, and to cognitive standards, such as rules or models defining what entities and actors exist in a system and how they operate and interrelate.14 It has been argued that the cultural environment affects not only the incentives for different kinds of state behaviour but also how states perceive themselves, or what is called state identity. 15 Cultural elements of a state’s domestic environment, thereby, become an important factor shaping the way national security interests are perceived by elites and the security policies of states.

While critics have argued that culture does not matter in global politics and foreign policy and cultural effects can be reduced to epiphenomena of the distribution of power and capabilities, culture is clearly one of the variables shaping a state’s foreign policy even if there are reasons to be cautious about its use in explaining political out comes.

A last air Ian Johnston argues that China has historically exhibited are latively consistent hard realpolitik strategic culture that has persisted across different time periods and continues to persist even in its present context when, according to him, China faces a threat environment that is most benign in several decades. China’s strategic behaviour exhibits a preference for offensive uses of force, mediated by a keen sensitivity to relative capabilities and Chinese decision-makers seem to have internalized this strategic culture.16 Johnston also notes that Chinese decision-maker stend to see territorial disputes as high-value conflicts, due in part to a historical sensitivity to threats to the territorial integrity of the state.17 This is of direct consequence for the future of India-China relations. This strategic culture provides Chinese decision-makers a set of clear principles as well as a long-term orientation in designing foreign policy.

Andrew Scobell argues that China’s foreign policy and its tendency to use military force are influenced not only by elite understandings of China’s own strategic tradition but also by their understanding of the strategic cultures of other states.18 In this respect, it is important to recognise that Chinese strategists continue to consider India as a militaristic, unstable, and threatening power, with an ambition of separating Tibet from China. In their view, India seeks to dominate its neighbours and foment conflict between China and other nations.19 This puts India in the category of Chinese rivals along with the US and Japan— states that, according to Chinese strategic elites, have menacing designs on China’s sovereignty and security.

In contrast, India’s ability to think strategically on issues of national security is at best questionable. George Tan ham, in his landmark study on Indian strategic thought, points out that Indian elites have shown little evidence of having thought coherently and systematically about national strategy. He argues that this lack of long-term planning and strategy owes largely to India’s historical and cultural developmental patterns. These include the Hindu view of life as largely unknowable, thereby being out sideman’s control and the Hindu concept of time as eternal, there by discouraging planning. As a consequence, Tan ham argues that India has been on the strategic defensive throughout its history, reluctant to assert itself except within the subcontinent.20

India’s former Minister for External Affairs, Jaswant Singh al so examined the evolution of strategic culture in Indian society and in its political decision-making class, with a particular reference to the post independence period. He finds Indian political elites lack the ability to think strategically about foreign policy and defence issues but he trains his guns on India’s first Prime Minister, Jawaharlal Nehru, pointing to his “idealistic romanticism” and his unwillingness to institutionalise strategic thinking, policy formulation and implementation.21

It is ironical, however, that even when Jaswant Singh was the External Affairs Minister, there is little evidence that anything of substance really changed in so far as India’s China policy is concerned. For all the blame that Singh lays at Nehru’s doorsteps, even Singh and his Bharatiya Janata Party-led government did not move towards the institutionalisation of strategic thinking, policy formulation, and implementation. Perhaps, the Indian strategic culture became too powerful a constraint for him to over come.

Lack of Institutionalisation

A major consequence of the lack of a strategic culture is the perceptible absence of institutionalisation of foreign policy making in India. Indian democracy is sustained by a range of institutions — from the more for mal ones such as the executive, legislative, and the judiciary, to the less formalin the broader civil-society. It is these institutions that in large measure have allowed Indian democracy to thrive and flourish for nearly 60 years despite a number of constraints that have led to the failure of democracy in many other societies. However, in the realm of foreign policy, it is the lack of institutionalisation that has allowed a drift to set in and the absence of a long-term orientation. Some have laid the blame on Nehru for his unwillingness to construct a strategic planning architecture because he single-handedly shaped Indian foreign policy during the formative years of the democracy. 22 Yet it is evident that even his successors failed to pursue institutionalisation in a consistent manner.

The Bharatiya Janata Party (BJP)-led National Democratic Alliance(NDA) came to power in 1999 promising that it would establish a National Security Council (NSC) to analyse military, economic, and political threatsto the nation and to advise the government on meeting these challenges effectively.23 While it did set up the NSC in the late 1990s and defined its role in policy formulation, it neglected the institutionalisation of the NSC and the building up of its capabilities to play the role assigned to it, there by failing to underpin national security policymaking with structural and systematic institutional arrangements. Moreover, as has been pointed out, the way the NSC is structured makes long-term planning impossible, there by negating the very purpose of its formation and its effectiveness remains hostage to the weight of the National Security Advisor (NSA) in national politics.24 The NSA has become the most powerful authority on national security and sidelined the institution of the NSC. Personality once again has prevailed over the institution. At times important national security decisions were taken in an ad hoc manner without utilising the Cabinet Committee on Security and the Strategic Policy Group (comprising key secretaries, service chiefs, and heads of intelligence agencies).

While the Congress-led United Progressive Alliance came to power in2004 promising that it will make the NSC a professional and effective institution and blamed the NDA for making only cosmetic changes in the institutional arrangements,25 it has so far failed to make it work in an optimal manner whereby the NSC anticipates national security threats, coordinates the management of national security, and engenders long-term planning by generating new and bold ideas. An effective foreign policy institutional framework would not only identify the challenges but it would also develop a coherent strategy to deal with it, organise and motivate the bureaucracy and persuade and inform the public. The NSC, by itself, is not a panacea as witnessed in the inability of the NSC in the US to successfully mediate in bureaucratic wars and effectively coordinate policy. But the lack of an effective NSC in India is reflective of India’s ad hoc decision-making process in the realm of foreign policy. The fundamental problem, perhaps, is that those holding the levers of power succumb to the temptation of controlling institutions and awarding loyalists with assignments, sidelining competence. India cannot emerge as a global power or even a regional one unless it designs appropriate institutions to manage its national assets concomitant to India’s vision of itself as a major player in the international system.

In the specific case of India’s China policy, this lack of effective institutionalisation of policy-making has made it difficult for India to assess the implications of a rising China in its neighbourhood. In the absence of an effective strategic planning architecture, India’s China debate has remained just that, a debate, with no attempt at the highest echelons of foreign policy-making to evolve a coherent strategy towards China.

India’s China Debate

The Indian political establishment is fond of arguing that there is a distinct continuity that defines Indian foreign policy. One can relate this easily to the standard structural-realist theory of international politics, according to which states fashion their foreign policies in response to the systemic constraints imposed by the international system, and domestic politics is not an important variable in this process.26 In a certain sense, this holds true for Indian foreign policy in general. There have been relatively few dramatic shifts in Indian foreign policy over the years and these shifts have been engendered by larger systemic forces, such as the end of the Cold War and the disappearance of the Soviet Union.

In so far as India’s China policy is concerned, there is visible continuity in the official position of India. There is a consensus across Indian political spectrum for improving bilateral ties with China and for resolving Sino-Indian differences through dialogue.27 However, this official policy hides a broader debate in India about how to deal with China. It has been pointed out that there are three broad views in India on how to deal with China and they have been classified as the pragmatists, the hyperrealists, and the appeasers.28 The pragmatists view China as a long-term threat and as a competitor but argue that this competition can be managed by engaging China economically and balancing against China by emerging as a major power in the international system. The hyperrealists view China as a clear and present danger and would like India to contain China by for gin galliances around China’s periphery and by strengthening its military capabilities. The appeasers view China as a friendly and benevolent neighbour and would like India to engage it whole-heartedly since China, in their opinion, is not a threat to India in any way.

Along similar lines, Steven Hoffman has also delineated Indian perceptual positions on China.29 He has outlined three ideal types which he classifies as the Mainstream position, China-Is-Not-Hostile position, and China-Is-Hostile position. These ideal types closely correlate with the pragmatists, the appeasers, and the hyperrealists of the above-mention edtypology. The Mainstream Indian perspective on China, according to Hoffman, views China as a potential threat to Indian security threats but hopes that effective Indian diplomacy can avert any major problems in the future. The China-Is-Not-Hostile perspective holds that China is a rational and peace-loving state that does not have malevolent intentions vis-à-vis India. In marked contrast, the China-Is-Hostile position views China as a short and long-term strategic rival of India and calls for Indian diplomatic assertiveness vis-à-vis China.

The common perception in the early years of independent India was that India had lost its great power status due to internal strife and discord, coupled with a stagnating economy which did not keep pace with the technological advancements of its competitors. It was assumed that the global balance maintained by the superpowers through the Cold War could be used to contain external dangers and thus military preparedness could wait. This belief was shattered by the 1962 border conflict with China. The India-Pakistan war of 1965 revealed the extent of Sino-Pakistan collusion and the unwillingness of the superpowers to pull India’s chest nuts out of the fire. Subsequent enhanced reliance on a single superpower limited India’s choices till a paradigm shift took place with the collapse of the Soviet Union. This experience also conditions the domestic debate in India: The Communists caution against an alliance with any power which limits India’s ability to foster mutual trust and forge amicable relations with its neighbours while the Congress has drawn attention to thee mergence of a global market and a globalising polity that makes a policy of universal global engagement most appropriate. The debate is clothed in clichés easily understood by their respective constituencies.

This debate has been going on for quite some time. Though the multiplicity of views reflects Indian democracy at its best, in many ways it also impedes the formulation of a long-term strategy. The consequence is that the Indian government, realising that there are a plethora of views on China, has taken the path of least resistance, a policy that keeps most groups satisfied, if not happy, even though it is a policy only in name.

Power Matters

The success and failure of a nation’s foreign policy is largely a functionof its power and the manner in which that power is wielded. Power and its pursuit lie at the heart of inter-state relations. A state’s power in the international system can be defined as a function of the material capabilities that it possesses.30 Despite all the talk of India as a rising power, on all indicators of power, economic and military, India remains behind China in terms of capabilities. While India’s economic and military capabilities have no doubt increased substantially in recent times, with its GDP being fourth in the world in purchasing power parity and its military the third largest in the world, China’s capabilities have continued to remain ahead of India’s . 31 More importantly, India is yet to master the ability “to integrate the creation, deployment and use of military instruments in support of national objectives.” 32 Military power, more often than not, affects the success with which other instruments of statecraft are employed. As has been observed by Robert Art, military power always lurks in the back ground of inter-state relations, even when nations are at peace with each other. 33 It affects the influence that states exert over one another, thereby shaping political outcomes. In stark contrast to India, China has shown a willingness to use force quite readily in pursuit of its national goals while always insisting that it is defensive in nature. Chinese leaders tend to rationalize even their offensive military operations as purely defensive and measures of last resort (this logic has also been applied to the 1962 Sino-India war),to an extent where defence can even include a pre-emptive strike. 34

Indian foreign policy’s failure to achieve its objectives vis-à-vis China has a lot to do with India’s as yet underdeveloped power capabilities. China’s rising power and the effectiveness with which it has wielded it has allowed it to achieve most of its strategic objectives vis-à-vis India. In fact, one of the reasons why China does not consider India to be its rival is because of its low opinion of Indian capabilities.35 Power matters and in international politics, weakness begets failure while strength begets strategic clout. Unless India achieves higher rates of economic growth and modernises its military, both quantitatively and qualitatively, and learns to use its military instruments in pursuit of national objectives, its foreign policy will struggle to achieve the results it desires.

Outcome: Does it Serve Indian Interests?

As a consequence of various constraints that have impeded that evolution of a long-term China policy in India, Indian foreign policy remains mired in confusion. Leaving aside the question of the ability of the Indian elites to think strategically on national security, in the case of India’s China policy, one is not even sure if the Indian political and foreign policy establishment understands the basic forces that shape and configure global politics. India’s inability, or rather unwillingness, to see the world as it is instead of as it should be, has become the major bane of foreign policy.

India’s lack of direction in its China policy is clearly revealed by the manner in which it has dealt with China in the past few years. While Sino-Indian bilateral relations have apparently improved, it is not clear if India has any idea as to what ends it wants to harness this improvement and what its strategic objectives with respect to China are. This has resulted in policy flip-flops that have undermined India’s regional and global diplomatic stature.

Former Indian Defence Minister George Fernandes described China as India’s “potential enemy number one” and former Prime Minister Atal Bihari Vajpayee explained to the world powers that Indian nuclear tests were a response to the threat posed by Chinese nuclear weapons and Sino-Pakistan nuclear and missile collaboration. But some five years later, China became a “good neighbour” for the same Indian government when Prime Minister Vajpayee visited Beijing. What brought about this remarkable transformation, of course, remains unclear till date. The Man mohan Singh government came to the office declaring that it wants to have friendly relations with China, which, of course, is a reasonable foreign policy objective. But without a clear articulation of India’s national security objectives, such declarations remain just pious rhetoric that has never been in short supply in India-China relations. Pursuit of friendly relations with China seems to have become an end in itself when it should be a means towards achieving India’s larger strategic objective of emerging as a major regional and global player. Diplomacy without an overarching conceptual frame work of foreign policy often becomes a technical exercise in splitting differences, thus acquiring shades of what many might consider appeasem*nt.

India’s China policy is in many ways symptomatic of a larger misunderstanding in the Indian political establishment with regard to what the nation’s foreign policy should be. For the left-liberal strand, foreign policy is merely an extension of domestic policy. As such since India is as ecular, democratic, and peace-loving nation, India’s pursuit of its relations with other states should merely be a reflection of these virtues. This has shaped much of the moral rhetoric in foreign affairs in India for the better part of the last 50 years and still continues to shape the understanding of global affairs within the major political formations on the left of the Indian political spectrum. The Indian discourse on foreign policy, in the words of one of the most astute observers of Indian foreign policy, “has remained frozen in a rhetorical trap, reminiscent of our class X essays in the earnest, third-worldist, allegedly non-aligned seventies.”36 A vivid example of this attitude is the rather extreme positions on national security taken by the Communist Parties consistently. While emphasising their fraternal ties with China’s ruling Communist Party time and again, they have called for an end to all military cooperation with the US and Israel, asking the Indian government to return to a policy of genuine non-alignment. Their complete silence on Chinese activities adversely affecting Indian national security interests even as they continue to denounce the US as a global imperialist has befuddled many.37

Prime Minister Man mohan Singh has also articulated a vision of Indian foreign policy, according to which foreign policy exists to push pragmatic economic goals, especially as India integrates more and more with the global economy, and also to build a world of open inclusive nations. This understanding of Indian foreign policy unambiguously identifies India with other liberal democracies of the world. The Prime Minister also suggested that the global environment has never been more conducive for India’s economic development than it is today and the world wants to help India to achieve its full potential. He argued that India should engage other great powers such as the US and China to the fullest and neither should be treated as an adversary.38 While there is much to commend in this articulation of Indian foreign policy agenda, particularly the exhortation that India should rise and take full advantage of the opportunities presented by the changing global economic milieu, it is rather naïve in its assertion that foreign policy is nothing more than an outcome of economic policy and that international politics is nothing but a sum total of global trade and economic cooperation.

It is in fact an offshoot of the liberal fallacy that assumes that only if nations were to trade more with each other, the world would become more prosperous and peaceful. In the case of Sino-Indian relations, many have argued that once economics becomes the driving factor, it will us her in a ‘paradigm shift’ in Sino-Indian bilateral relations.39 The understanding here being that in the short-term there is no threat to Indian interests from China and it is only a potential long-term threat or challenge to vital Indian interests. There is also the attendant belief that by embedding India-China relations into an expanding structure of economics ties future problem scan be averted. In many ways, this has become the dominant narrative of Sino-Indian relations in recent years.

K. Subrahmanyam has argued that China’s desire for increasing its bilateral trade with India and collaboration in sectors such as information technology can be effectively leveraged by India in shaping China’s attitudes vis-à-vis India.40 In a recent study, Jairam Ramesh, an influential member of the ruling Congress Party, has come up with the concept of “Ch india” that denotes synergy between the two Asian giants. He views closer economic cooperation between China and India as the best way to build trust and friendship, leading to a long-lasting peace between the two states.41 The problem with these assumptions is that not only is there little empirical evidence to prove that more trade leads to peace and tranquillity, but also that while politics and economics are certainly inter-related, the international economic system rests upon the international political order and not vice-versa. Indian foreign policy cannot be conducted on the naïve assumption that greater economic integration with the world would some how solve all its foreign policy problems.

At the other end of the political spectrum, the Indian right, because of its preoccupation with establishing a “Hindu” nation and minority bashing, has extended its narrow sectarian view to foreign policy. The consequence has been its obsession with Pakistan as evil incarnate in its foreign policy agenda and its inclination to view the world in black and white, friends and enemies, evil and noble. While undoubtedly pursuing pragmatic economic and foreign policies when in power, the Indian right, as represented by the BJP, seems to be under tremendous pressure to revert back to its extremist views, now that it is out of power. Where India’s multiculturalism and pluralism should be leveraged as India’s strengths in negotiating with an increasingly polarised outside world, the Indian right, with its resistance to India’s plural heritage, has been more interested in turning India into a mirror image of Pakistan.

Then there is the great Indian bureaucracy which suffers from the same myopia that Henry Kissinger long back diagnosed for the US foreign service— that it views its role as merely a solver of concrete issues as they come about and a negotiating instrument rather than one of shaping events and conceptualising strategy.

Shaped by these forces, Indian foreign policy has merely been one of responding to events around it rather than anticipating them and evolving coherent long-term strategies to deal with them in the best interests of the country. A nation’s foreign policy, to be effective, should ultimately rest on philosophical assumptions as to the nature of world order and the relationship of order to progress and national interest. In the absence of such a conceptual framework, incoherence would loom large as the diplomatic back and forth would become an end in itself and rather than shaping events, the state would end up reacting to developments around it as in the case of Indian foreign policy. The greatest casualty of this larger foreign policy malaise has been India’s China policy. From Hindi-Chini bhaibhai42 to potential enemy number one to great friend, India just does not know how to deal with its neighbourhood dragon that has played its cards so skil fully vis-à-vis India. It can be argued that successive Indian governments have, in fact, been following a coherent policy towards China, i.e., cooperation with China to build Indian capability till such time when India is able to challenge China’s primacy openly. If indeed this is the guiding framework, then India is in for a rude shock, as the current Chinese policy towards India will essentially preclude India’s emergence as a global or even regional power of any reckoning.

There is nothing really sinister about China’s attempts to expand its own influence and curtail India’s. China is a rising power and as such will do its utmost to prevent the rise of other power centres around its periphery. This is not very different from the stated US policy of preventing the rise of other powers that might threaten its position as a global hegemon. Just as the US is working towards achieving its strategic objective, China is pursuing its own strategic agenda. In many ways, it is natural for China to view India as a potential rival: for foreign capital, export markets, political influence, and aspirations for regional leadership.

There is also nothing extraordinarily benign in China’s attempts to improve its bilateral relations with India in recent times. After limiting India’s influence in various ways, China would not like to see India coming close to the US in order to contain China. In this geopolitical chessboard, while both the US and China are using India towards their own strategic ends, India has ended up primarily reacting to the actions of others. And the primary reason for this is the failure to recognise the forces that drive international politics in general and come up with a coherent strategy towards China, in particular.

With the US largely preoccupied with its war on terror and Iraq, China has increasingly asserted its pre-eminence in Asia. It has started to act like a traditional great power, pursuing its regional interests in a proactive manner and transforming its diplomatic relations with smaller neighbours. According to informed observers, this points to a well-conceived grand strategy at play – a strategy that would make it possible for China “to continue its economic growth, technological modernisation, and military build-up without provoking other countries to a costly rivalry.”43

However, notwithstanding China’s attempts at reassuring its neighbours, China’s growing power and muscle flexing as in the Taiwan Straits has led other regional powers to re-evaluate their strategic options. Japan has recently sought to broaden the scope of its security ties with the US and for the first time has explicitly discussed joint US-Japanese cooperation in the event of a crisis in the Taiwan Straits.44 In the face of a rising China that offers new opportunities, some in Australia have demanded that the government review its 50-year-old treaty with the US. 45 China’s rise has also engendered a cautious wariness in Russia, despite Moscow’s improving ties with Beijing. There is nothing surprising in China wielding its increasing economic and military clout in the region to gradually extend its influence and most other regional powers seem to have realised this. The only exception seems to be India, which seemingly believes that only if the two nations would trade more, all problems in their bilateral relationship would take care of themselves.

It is the structure of global politics that by definition makes Sino-Indian competition inevitable. There are two options for India – either play the game of global politics by the rules laid down by its structure or resign itself to a secondary status in the global hierarchy. Given that Indian decision-makers are already talking of India as a global player in the making, they cannot but take the rules of the game that is global politics, seriously. Of course, a Sino-Indian competition that can be diplomatically managed would be in everyone’s interest. But historically, rising powers have tried to reshape their strategic environment to reflect new realities of power and this has provoked conflicts. Many in India share the idea that only if India provokes China would China threaten India. This might seem comforting as it gives India a false sense of control over the unfolding of events. But China could be provoked by its own strategic environment if that is not seen to be commensurate with its rising prowess and expectations, regardless of India’s actions. India’s weakness, in that case, would do more harm than good.

The best that India can do is to first put its own house in order. India needs to develop its economic and military might without in any way being apologetic about it. It needs to clearly articulate its national interests and engage China on a host of issues, from the border problem to the alleged dumping of cheap Chinese goods in the Indian market. India needs to recognise that appeasing China is neither desirable nor necessary even as a direct confrontation with China is not something India can afford, at least in the near future. A stable foundation for the future of India-China relations cannot be laid by feigning total ignorance of Chinese activities that have adversely affected Indian national interests in the past. In all likelihood, Chinese attitudes towards India will change radically in India’s favour as the US strategy of strengthening India as a balancer in the Asian balance of power gathers momentum. This should present India a strategic opportunity to recalibrate its China policy and leverage its relationship with one power vis-à-vis the other.

Conclusion

India is a rising power in Asia and it needs to demand its rightful place in the inter-state hierarchy. But it will garner that respect only if it starts behaving in a manner appropriate to a major Asian power. India and China are the two major powers in Asia with global aspirations and some significant conflicting interests. As a result, some amount of friction in their bilateral relationship is inevitable. The geopolitical reality of Asia makes sure that it will be extremely difficult, if not impossible, for Hindi-Chini to be bhai-bhai (brothers) in the foreseeable future. If India and China continue to rise in the next few years, a security competition between the two regional giants will be all but inevitable. If India is serious about its desire to emerge as a major global power, then it will have to tackle the challenge of China’s rise. A rising China will not tolerate a rising India as its peer competitor. Even if a rising India does not have any intention of becoming a regional hegemon, China will try its best to constrain India as it has already done to a large extent. And it is that containment that India has to guard against. China’s intentions vis-à-vis India may seem entirely peaceful at the moment but that is largely irrelevant in the strategic scheme of things. India cannot have a foreign policy shaped by the assumed kindness of its neighbours. A nation’s foreign policy requires the ability of its leaders to think in the long term. India cannot and should not wear rose-tinted glasses on Sino-Indian relations just because things seem to be going smoothly at present.46

This reality should be accepted by the Indian policy-makers, rather than wished away. India should make a serious attempt to manage the frictions by expanding the zone of cooperation with China even as it tries to steadfastly pursue its national interests. It needs to display the confidence to craft a foreign policy that best serves its national security interests without always looking over the shoulders to make sure that China is not displeased. Again, India can learn a lot by examining how China has managed its relationship with the US in the last two decades.

While India certainly needs to engage China in an effort to reconcile security and political perspectives, it is naïve to assert, as many do, that India should first be sensitive to China’s concerns, real or imaginary, before defining its foreign policy goals and strategic agenda. Indian foreign policy agenda should be driven by only India’s national security imperatives. India needs to be more pro-active, consistent, and realistic when engaging China. China is not a malevolent, sinister international entity out there to demolish India but a state which is simply pursuing its own strategic interests in a hard-headed fashion on its way to its status of a great power. It is time for India to realise that India’s great power aspirations cannot be realised without a similar cold-blooded realistic assessment of its own strategic interests in an anarchic international system where there are no permanent friends or enemies, only permanent interests.

But for this to happen, the Government of India will have to formulate a clear China policy and, more importantly, a broader national security strategy. Ad-hocism just won’t do. This needs to be the top priority of the government if it wants India to emerge as a global power of any reckoning. India should recognise that a merely tactical foreign policy approach without the backing of a sound strategy will lead to nowhere.

References/End Notes

1. See, for example, James F. Hoge, Jr., “A Global Power Shift in the Making,” Foreign Affairs, July/August 2004.
2. The report is available at http://www.cia.gov/nic/NIC_globaltrend2020.html
3. Indrani Bagchi, “Stage Set for Great Sino-Indian Ties?” Times of India, New Delhi, March 13, 2005.
4. For a detailed explication of the recent convergence and the continuing divergence in Sino-Indian relations, see Harsh V. Pant, “India’s China Policy: Devoid of a Strategic Framework,” South Asian Survey, 12 (2), July-December 2005, pp. 210-217.
5. For a discussion of the various interpretations of China’s ‘peaceful rise,’ see Evan S. Medeiros, “China Debates Its ‘Peaceful Rise’ Strategy?”, at http://yaleglobal.yale.edu/display.article?id=4118
6. This view was most recently articulated in a letter written by former Air Chief Marshal S.P. Tyagi to former Defence Minister Pranab Mukherjee. He wrote, “On the conventional front, our superiority over Pakistan is fast eroding.” The details can be found at http://www.ibnlive.com/news/indias-air-powercrashlands- may-lose-edge-to-pak/22834-3.html. The Indian Army’s combat ratio vis-à-vis Pakistan has also fallen to 1.22:1 compared with a level of 1.75:1 in the mid 1970s. For details, see The Military Balance 2006, IISS, London, 2006, pp. 224- 227.
7. Stephen P. Cohen, India: Emerging Power, Brookings Institution Press, Washington, DC, 2001, pp. 1, 26.
8. John W. Garver, Protracted Contest: Sino-Indian Rivalry in the Twentieth Century, University of Washington Press, Seattle, 2001.
9. Ibid., p. 8.
10. Ashley J. Tell is, “China and India in Asia,” in Francine R. Frankel and Harry Harding (eds), The India-China Relationship: What the United States Needs to Know, Columbia University Press, New York, 2004, pp. 134-177.
11. Sumit Ganguly, “India and China: Border Issues, Domestic Integration, and International Security,” in Frankel and Harding (eds), no. 10, pp. 103-133.
12. Mark W. Frazier, “Quiet Competition and the Future of Sino-Indian Relations,” in Frankel and Harding (eds), no. 10, pp. 294-320.
13. See, for example, Bharat Karnad, Nuclear Weapons and Indian Security, Macmillan India Ltd., New Delhi, 2002, pp. 540-544; Brahma Chellaney, “India, China Mend Fences,” Washington Times, April 7, 2005; G. Parthasarathy, “Diplomacy with Dignity, The Tribune, May 19, 2005.
14. This definition is borrowed from Ronald J Epperson, Alexander Wendt and Peter Katzenstein, “Norms, Identity, and Culture in National Security,” in Peter Katzenstein (ed.), The Culture of National Security: Norms and Identity in World Politics, Columbia University Press, New York, 1996, p. 56.
15. Ibid., p. 32.
16. For sources of Chinese realpolitik strategic culture, see Alastair Iain Johnston, “Cultural Realism and Strategy in Maoist China,” in Ronald Jepperson et al, no 14, pp. 216-268.
17. Alastair Iain Johnston, Cultural Realism: Strategic Culture and Grand Strategy in Chinese History, Princeton university Press, Princeton, NJ, 1995.
18. Andrew Scobell, China and Strategic Culture, University Press of the Pacific, 2004, pp. 14-20.
19. Srinjoy Chowdhury, “India: ‘A Hitler in a Dhoti’?” The Statesman, Kolkata, November 29, 2004.
20. George Tanham, Indian Strategic Thought: An Interpretive Essay, RAND, Santa Monica, CA, 1992.
21. Jaswant Singh, Defending India, St. Martin’s Press, New York, 1999, pp. 1-58.
22. Ibid., p. 34.
23. For details, see the Election Manifesto of the National Democratic Alliance-led by the BJP for the 1999 Parliamentary elections at http://www.bjp.org
24. Ashley J. Tell is, India’s Emerging Nuclear Posture: Between Recessed Deterrent and Ready Arsenal, Oxford University Press, New York, 2001, p. 658.
25. See the Election Manifesto of the Indian National Congress for the 2004 Parliamentary Elections at http://www.congress.org.in
26. The seminal text on structural realist theory in international relations remains Kenneth N. Waltz, Theory of International Politics, Addison-Wesley, Reading, 1979.
27. “All Parties for ‘Purposeful’ Relations with China,” Press Trust of India, September 8, 2004.
28. This typology of India’s China Debate has been borrowed from Mohan Malik, “Eyeing the Dragon: India’s China Debate”, Asia-Pacific Center for Security Studies, Honolulu, December 2003, at http://www.apcss.org/Publications/SAS/ChinaDebate/ChinaDebate-Malik.pdf
29. Steven A. Hoffman, “Perception and China Policy in India,” in Frankel and Harding (eds), no. 10, pp. 39-49.
30. Some scholars define power in terms of the outcomes of interactions among states. On why it makes more sense to define power in terms of material capabilities, see John Mearsheimer, The Tragedy of Great Power Politics, W.W. Norton, New York, 2001, pp. 57-60.
31. For economic indicators, see The World Bank, World Development Indicators Database, July 2004, at http://www.worldbank.org/data/databytopic/GDP_PPP.pdf. The latest figures on military capabilities can be found in The Military Balance 2004-05, IISS, London, 2004. Also see, no. 6.
32. Ashley J. Tell is, “Future Fire: Challenges Facing Indian Defense Policy in the New Century”, Lecture delivered at the India Today Conclave, New Delhi, March 13, 2004, at http://www.ceip.org/files/pdf/futurefire.pdf
33. Robert J. Art, “To What Ends Military Power?” International Security, 4 (4), Spring
1980, pp. 4-14.
34. Andrew Scobell, no. 18, pp. 4-10.
35. Susan L. Shirk, “One-Sided Rivalry: China’s Perceptions and Policies Toward India,” in Frankel and Harding (eds), no. 10, pp. 93-94.
36. Shekhar Gupta, “A Hotline to Burkina Faso?” Indian Express, New Delhi, January 26, 2004.
37. A sense of the thinking of the Indian Communist Parties on foreign policy can be found in Harkishen Singh Surjeet, “On foreign policy, UPA has been clever by
half,” Indian Express, New Delhi, April 18, 2005. For a trenchant critique of the stance of the Communist Parties on many issues of Indian national security, see G. Parthasarthy, “Left’s Unkindly Cut,” The Tribune, Chandigarh, March 10, 2005.
38. The Prime Minister’s speech at the India Today Conclave delivered on February 25, 2005 is available at http://pmindia.nic.in/speeches.htm
39. See, for example, C. Raja Mohan, “India and China: A Shifting Paradigm,” The Hindu, July 29, 2004.
40. K. Subrahmanyam, “China Discovers Multipolarity,” The Tribune, Chandigarh, April 13, 2005.
41. Jairam Ramesh, Making Sense of Chindia: Reflections on China and India, India Research Press, New Delhi, 2005.
42. Hindi-Chini Bhai Bhai” (Indians and Chinese are brothers), was a popular slogan during the 1950s, the heydays of Sino-Indian relationship, that became discredited after the 1962 Sino-Indian war.
43. Ashley J Tellis, “A Grand Chessboard,” Foreign Policy, January/February 2005.
44. James Brook, “Japan’s Ties to China: Strong Trade, Shaky Politics,” New York Times, February 22, 2005.
45. Robert Kagan, “Those Subtle Chinese,” Washington Post, March 10, 2005.
46. Bharat Karnad, for example, warns of Chinese intentions vis-à-vis India when China has fully emerged as a global power by reaching self-sustaining rates of economic growth and has exerted complete control over its now-troublesome areas, such as Tibet and Xinjiang. See Bharat Karnad, no. 13, p. 544.

East Asia India, Foreign Policy, China