Ad hoc defence

In my Business Standard column today I argue that structural reform of the armed forces is the unfinished business of Kargil:

It may appear that the country has been lucky to have escaped without too much damage for another 14 years. But the failure to restructure our armed forces in line with contemporary needs will impose strategic costs beyond just delays and scandals. The current structure, divided as it is between the army, navy and air force (and within their constituent arms), is unable to holistically conceptualise India’s strategic environment.

Take, for instance, the Cabinet’s approval for a new mountain strike corps to handle the Chinese threat along the unresolved boundary. It involves an army formation of 45,000 soldiers and a cost of Rs 62,000 crore over 2012-17, tasked with mounting an offensive in Tibet in the event of a Chinese attack. This move was widely hailed as a robust Indian response to China’s aggressive actions along the boundary and its steadfast refusal to move towards a settlement. Few asked where the money and the soldiers are going to come from. As my colleague Rohan Joshi notes, the army is already short of 10,000 officers and 30,000 soldiers. With slower economic growth, higher social expenditure and looming deficits, how does the government plan to finance this expansion?

The bigger question, though, is not the financial cost but the opportunity cost. Is an army strike corps India’s best response to the strategic threat from China?

It is possible to argue that by choosing an army strike corps, New Delhi has played right into China’s hands. Beijing has, by inexpensively raising tensions along the Himalayan boundary, managed to induce New Delhi to invest in an expensive military asset that is unlikely to be used. Nuclear deterrence makes a direct military conflict between the two countries unlikely; and a large-scale conflict necessitating the use of corps-level formations is even more unlikely.

Meanwhile, the geostrategic contest of our times is being played out in the oceans. The only regional force that can challenge the Chinese navy’s quest to dominate the Indo-Pacific waters is the Indian navy. And guess what? India has Rs 62,000 crore less to spend on the naval expansion of the kind that would have countered China’s maritime power.

Perhaps the decision to invest in a strike corps is the better one, though this columnist disagrees. Yet, absent the long-pending restructuring of the armed forces, we can never say that the big trade-offs were adequately weighed.

Fourteen years after Kargil, the country certainly cannot afford such ad hoc functioning. [Business Standard]

Coincidentally, another op-ed in another newspaper by one of India’s foremost thinkers on strategic affairs takes up this argument in greater detail. Admiral Raja Menon packs quite a punch in the pages of The Hindu when he argues that instead of a mountain strike corps, a “a flotilla of nuclear submarines and a three carrier air group” makes more sense:

Most of all, we appear not to have assessed the Chinese weakness and strengths. Their strength is the huge logistic network that they have built up in Tibet. By creating a one axis strike corps, we have played into their strengths. The Chinese weakness lies in the Indian Ocean, a fact that even Beijing will readily concede. The clash between their political system and economic prosperity requires resources and, increasingly, the Chinese resource pool is Africa, which generates massive sea lines of communication (SLOC) through the Indian Ocean. Today, they are merely SLOCs; tomorrow they will be the Chinese Jugular. Beijing’s paranoia about the Indian Ocean is therefore understandable but the threat according to its strategic commentators comes only from the U.S. Sixty thousand crore spent on strengthening the Indian Navy’s SLOC interdiction capability would have given us a stranglehold on the Chinese routes through the Indian Ocean. The Himalayan border, the entire border, could have been held hostage by our strength in the Indian Ocean with an investment of Rs.60,000 crore. [The Hindu]

While I am not a fan of aircraft carriers, I am of the same opinion as Admiral Menon on the need to invest in naval and expeditionary assets. The absence of a higher defence structure that can look at strategy in a comprehensive manner—including the nuclear dimension—is causing India to engage in linearism, incrementalism and ad hocism.

Leave it at the tactical

Media-fuelled public outrage must not determine New Delhi’s strategy on the tensions along the Line of Control

Success or failure in a contest between two states is not measured by merely by the relative numbers of soldiers killed or bits of territory gained or lost. It is measured by the relative well-being of the people in the states concerned. What is the national interest if not “the well-being, prosperity and happiness of the nation”? The Arthashastra puts this in pithy terms: “The possession of power and happiness in a greater degree makes a king superior to another; in a less degree, inferior”.

Since the nuclear tests of 1998 and the Pakistan’s invasion of Kargil, leading to a brief border war in 1999, there has been a fairly commonplace lament in the popular discourse that India is unable to “do anything” to respond to Pakistani provocations. Let there be no doubt—Pakistani provocations have been many, they have been systematic and they have caused the nation physical, social and psychological harm. Let there be no doubt that India’s responses have been more restrained than they need to be—not least to a predilection among India’s prime ministers to see the need for “a peace process with Pakistan”. Let there also be no doubt: a flawed logic—the presumption that the Pakistan they do the peace process with is the Pakistan that attacks us—informs this policy.

Even so, by most measures, Indians in 2013 are better off than their Pakistani counterparts (see this Gapminder chart). This is despite the UPA squandering a good part of a benign decade and bringing the economy on the verge of a fiscal crisis. This is despite the neglect of governance reforms and bringing the polity into a wrenching political churn. Pakistan, for all its provocations and too-clever-by-half exploitation of its ‘geopolitical positions’ is back into the international doghouse it was in. It is being devoured by its own domestic monsters, without the need for any help from India.

So folks, we are winning this one.

Back in 2003, in a conversation with Sameer Wagle, a friend and intellectual sparring partner, this blogger had argued that the solution to our problems from Pakistan is economic reform. In fact, as argued in this Pragati cover story, Reforms 2.0 is our China policy, our America policy, our Europe policy and every-other-country policy. From this perspective, the UPA government’s abandonment of the reform agenda is its biggest foreign policy failure.

The purpose of national defence is to ensure that India’s growth and development can take place undisturbed. Defence policy is not an end in itself (a point that Pakistan has missed).

The recent escalation of tactical conflict between India and Pakistan at the Line of Control comes at a time when India is in the grip of a grand moral panic and political flux. The media and public discourse tends to rapidly end up in outrage and anger. For this reason, it is all the more important to be more careful and dispassionate and not precipitate actions that might end up being self-defeating.

First, it is important that the Indian side does not give Pakistan an opening to end the ceasefire along the Line of Control. For if the ceasefire goes, the Pakistani military-jihadi complex will rub its hands in glee and attempt its strategy of the 1990s—essentially infiltrate men and war material into Indian territory under the cover of armed conflict. The broader situation is a lot like the 1990s, as ranks of the jihadi alumni from Afghanistan begin to swell in 2014, and though the Indian armed forces are better prepared than two decades ago, who needs the resumption of a proxy war?

Second, it makes sense not to disturb the adversary when he is making a mistake. Pakistan is in deep turmoil. A number of internecine rivalries are tearing the country apart. It will get worse in 2014 when international troops leave neighbouring Afghanistan and the militants no longer have a foreign enemy to fight. It is hard to predict which way Pakistan might go, but it is smart not to give the warring factions a reason to join forces and focus on a common enemy in the shape of us.

Third, let the armed forces sort out the tactical game along the Line of Control away from the media glare. The Indian Army has been engaged in this conflict for decades and is well-aware, well-trained and well-equipped to handle the matters. General Bikram Singh’s statements make this amply clear. The army “reserves the right to retaliate at a time and place of its choosing”. This is as it should be. It is imprudent, risky and counter-productive for media-fuelled public outrage to force the army’s professional assessment.

None of this is an argument for the manufactured and contrived ‘peace process’ activities. Rather, that New Delhi must use the detente to its strategic advantage. What the public debate ought to be about is not how New Delhi plans to react to a tactical attack but to chart out how it will exploit the detente to strengthen India’s strategic advantage.

Finally, one of India’s strategic projects has to be the systematic containment and eventual dismantling of the Pakistani military-jihadi complex. So much of New Delhi’s policy is short-term, the here and the now. Worse, India’s public discourse is even shorter—momentary surges of awareness and emotion on one issue that quickly lapse and move on to the next one. All the more important then, for thinking Indians, to never forget that the military-jihadi complex must be destroyed.

Mostly dogmas

More of the same gives you more of the same

One of the positive outcomes of the controversies sparked by General V K Singh is that it has, even if it is ephemerally, triggered a public debate on defence policy. Carrying it forward is important. In today’s Business Standard, Ajai Shukla responds to my arguments for reform in defence procurement.

Mr Shukla raises two broad points. First, that we ought not to throw away indigenisation while reforming the defence public sector; and second, that economic liberalisation that gave us a modern, competitive automotive industry cannot give us a modern, competitive defence industry. Let’s consider them in turn.

The argument, as I explicitly state in my article, “is not say indigenisation is an unworthy goal. Rather, it is to suggest that the longstanding approach to indigenisation has not only met with limited success but also that the same goal can be achieved using different means.” Mr Shukla shows how reliance on foreign technology causes problems of denial, interoperability and sabotage. The answer, however, is not a “sharper focus on indigenisation” which can easily become wrapping paper for the reform-resistant status quo. No amount of tinkering with the structure and management of India’s defence PSUs can make them competitive enough to provide for our defence requirements.

In fact, the Mr Shukla’s own points support my argument that PSUs have captured our defence procurement policy. “DPSUs,” he writes “notably BEL and BEML, have undermined indigenisation by serving as fronts for the back-door induction of foreign technology through partnerships with foreign vendors.” The political economy of the Indian public sector enterprises will not make them do any better if they are given a sharper focus or placed under a different ministry.

Next, the argument that the defence industry as a whole is different from the automotive (or any other industry) is untenable. Beyond the point that the defence industry has fewer customers than other industries, they are all made of the same people, have the same economic incentives, draw capital from the same economy, react to competition in similar ways and so on. It is unfathomable why Mr Shukla should consider this naïve. Of course, you can’t expect a private sector defence industry to emerge if the government creates disincentives for it, or if it refuses to purchase from it, as happens today. I recall similar charges of naiveté being thrown about when telecommunications, banking and insurance sectors were liberalised. People deeply involved in an industry feel that their industry is different. Well, it’s not. The laws of economics apply to defence as much as they do to the vada pav industry.

Similarly, it is not at all strange to see arguments that free trade or entry of foreign players will weaken the domestic private sector. That is an argument that has been made since Nehruvian times, much to the detriment of the nation. Sadly, it continues to be made despite being proven wrong. Did allowing foreign automobile manufacturers, telecom companies or insurance providers hurt our car makers, telcos or insurance companies? The reality is quite to the contrary. You can have a debate on whether or not Indian consumers should be allowed to purchase from multi-brand retail chains owned by foreigners. But how can you have a debate on whether the Indian armed forces should be prevented from having the best possible equipment to protect us?

The danger with the kind of attempted middle-ground approaches suggested by Mr Shukla is that they end up as a cover for inaction. The onus is on those who prefer mild variations of the status quo to explain why persisting with policies that have failed us for decades will suddenly begin delivering promised results now.

The dogmas that undermine our defence

Reforming defence procurement, mindset first

This the unedited version of my op-ed in today’s Business Standard.

Why is it that on the one hand India is the world’s biggest arms buyer, and on the other, the outgoing army chief has complained that we are short of basic war-fighting equipment like tank ammunition and field guns? Why is it that our defence procurement takes years to complete and can be halted or reversed by allegations of corruption? Is corruption so rampant within the top echelons of our armed forces that the both the army chief and defence minister could shrug off a brazen attempt to bribe the general in his office? How come the defence ministry has spurned and blacklisted vendors from countries whose geopolitical interests are aligned to ours?

It is easy to treat these issues as merely the failings of individuals and the shortcomings of the latest procurement rules. It is easy to park the unholy affair under the general head of how corruption is undermining our nation. To do so would be to ignore the underlying causes of why things have some to such a pass.

The first is the dogmatic pursuit of indigenisation, a mindset that pervades the defence establishment. It has resulted both in policy capture by public sector unit (PSU) network and introduced layers of complexity in procurement rules. Ordinarily, as end users, the armed forces would want the best possible equipment for the rupee, but they too are prisoners of a narrative that involves the pursuit of a chimerical indigenisation. For in New Delhi, it is still nearly heretical to suggest that an enemy killed by a foreign-made bullet is as dead as an enemy killed by a partly-indigenous bullet.

This is not say indigenisation is an unworthy goal. Rather, it is to suggest that the longstanding approach to indigenisation has not only met with limited success but also that the same goal can be achieved using different means. Back in the 1970s and 1980s the government couldn’t produce an indigenous passenger car no matter how many it purchased from Hindustan Motors and Premier Automobiles. It was only after the liberalisation of the economy and the entry of foreign competitors that Tata Motors, Mahindra and others could produce automobiles that are not only indigenous but also in the same league as their foreign competitors. The route to effective indigenisation, therefore, is counter-intuitive. We must open our defence sector to foreign investors so that Indian industry can acquire the capabilities to produce the equipment our armed forces need.

This cannot be achieved by offsets that require foreign suppliers to spend part of the contract price in India. Offsets might re-inject part of the defence expenditure into the domestic economy but will not result in the transfer of knowledge, skills and human capital that are essential for India to build a modern defence industry. The most effective way to get there is to open doors for foreign direct investment in defence manufacturing. Capping the foreign equity at 26% has attracted few investors. Instead of arguing over another arbitrary level at which to set the cap, we should do away with it altogether.

The second is the equally dogmatic anti-middleman mindset. Going by the statements of the defence minister, it would appear that middlemen—like their lobbyist cousins—are uniformly evil and therefore ought to be banned outright. Yet middlemen are not the cause of corruption. Rather, both middlemen and corruption are the twin offspring of the same parent—complex procurement rules.

The more complex a set of rules, the more the need for ‘specialists’ to help navigate through them. The reason lawyers and chartered accountants exist is because the law and the tax code are complex. Middlemen exist because they perform a useful economic role. There’s nothing intrinsically wrong or immoral about them. It is our rules that make them so, driving underground a genuine economic activity.

Why do we have complex procurement rules? Because we have overcrowded them with multiple, sometimes conflicting objectives. Changing our approach to indigenisation as argued earlier can simplify them to some extent. Even so, it is unlikely that they can be simplified enough to eliminate the need for agents. That is why instead of prohibiting middlemen in defence procurement, a far better policy would be to create a regulatory framework under which they can operate legitimately.

Agents could be required to declare their past and current affiliations, and disclose relevant family connections. Former defence officers and their civilian counterparts could be required to serve out a cooling off period before getting into the business. The policy objective ought to be to align—to the extent possible—the economic incentives of the middlemen to the organisational interests of the armed forces. We don’t have to like lawyers and chartered accountants in order for us to let them discharge their economic roles. Why should it be any different with middlemen?

The final cause of the mess in our defence procurement is that we often ignore the geopolitical consequences of our purchases. Awarding the tender to the lowest bidder might be the best method to resurface parade grounds but not for billion dollar purchases of equipment. To treat both purchases the same way would be to lose strategic leverage that comes from being able favour a country which can give us something else that we need. Blacklisting companies from friendly powers exposes us to purchases from less friendly ones.

The biggest argument for indigenisation is that reliance on foreign suppliers is risky because supplies can be withheld in order to coerce us. That risk can be mitigated if we procure military equipment from countries with which we have extensive economic ties, and vice versa. Reducing the incongruence between our top trading partners and our top arms suppliers ought to be an important policy goal.

The ghost of Bofors continues to haunt our defence procurement. Avoiding stepping on the dung on the road is now more important than getting to the destination. As the defence minister admitted in parliament, the pace of modernisation is slow because every allegation of corruption is investigated. This leaves us with the unfortunate implication that that anyone, from an inimical foreign power to a disgruntled equipment vendor, can apply brakes on the modernisation process. The ghost must be exorcised by liberalising the defence manufacturing sector and getting rid of the superstition that passes off as strategy.

Copyright © 2012. Business Standard. All rights reserved.

Time to restructure the Indian armed forces

The controversies around the army chief are symptoms of a deeper malaise

(This is the unedited draft of today’s op-ed in Indian Express)

Like the metaphorical iceberg, what is visible to us in the ongoing controversy involving the army chief and the defence ministry is just the small fraction floating above the line. Much of the public debate has been occupied by trivial issues like his date of birth or scandalous matters like corruption in defence procurement. While the service tenure of an individual officer is of little relevance to national security, corruption among the top brass most certainly is.

What lies below the line is bigger, more dangerous and invisible to the naked eye: the controversies triggered by General V K Singh are manifestations of an organisational structure and culture that is in dire need for change.

Actually, it has been in dire need for change for decades. Ten years ago, the Vajpayee government constituted a committee of experts to study India’s war effort in Kargil. That committee, chaired by the late K Subrahmanyam noted that “an objective assessment of the last 52 years will show that the country is lucky to have scraped through various national security threats without too much damage, except in 1962. The country can no longer afford such an ad hoc functioning.” It proposed a slew of important reforms, few of which have been implemented in spirit. The UPA government instituted another committee under Naresh Chandra last year which is in final stages of submitted its report. We have all the reports. We just don’t have the reforms.

India is facing the strategic environment of the twenty-first century with its armed forces structured largely as they were during the Second World War. The reduced likelihood of a big conventional war—thanks to nuclear deterrence—means that our complacency in not restructuring the armed forces is unlikely to punished in the battlefields that easily. What is more likely is that the outdated structure will eat our armed forces inside out, through corruption, cronyism, indiscipline and inefficiency. Ossified structures seldom reward initiative, risk taking and integrity.

Unfortunately, these have begun affecting the Indian armed forces. Quotas in all but names have emerged for everything from gallantry awards to promotions. While in principle the government can appoint the best man for the job, in practice it is seniority that determines who becomes the army chief. Lower down the hierarchy informal rules determine the speed at which officers in various combat arms are promoted. Not even the comptroller and auditor general can fathom the notional loss to the nation in terms of wasted talent and human capital. What is fathomable is that despite setting aside a defence budget to make India the world’s biggest arms importer, the army chief has complained of shortages in the most basic of warfighting material.

We cannot allow this to go on. We must change the way our armed forces are structured. We must change how our service personnel are trained, equipped and promoted. We must change now.

Such a change can only come from the top — it must be driven by the Union Cabinet with the Prime Minister’s imprimatur. The current moment opens a window of opportunity to carry out transformational change. The doubts and uncertainties created among the higher levels of the army due to the question of General V K Singh’s birth date cannot be left unresolved. There is a risk that it will create deep divisions within the echelons of the army, especially if the losers in this round of the army’s ‘office politics’ feel victimised. Shaking up the organisation is a one good way to put it in order.

As K Subrahmanyam had consistently argued, India needs a Chairman, Joint Chiefs of Staff and theatre commanders. We should adapt the US model to our specific context. Instead of the army, navy and air force operating separately in their own independent commands, we should reorganized them into five theatre commands (Northern, Western, Southern, Eastern and Expeditionary). Brigadier-equivalents must serve outside their respective services in order to qualify for command positions in the combined joint commands.

The roles of military advisors, service chiefs and theatre commanders must be separated. This allows us to balance seniority, experience and talent by placing the right person in the right job.

We also need to rebalance the civil-military relationship. The chairman of the joint chiefs of staff, as the principal military advisor to the government, must report directly to the Prime Minister and carry ex-officio cabinet rank. This will ensure that the chief executive has direct access to military advice without upsetting civilian supremacy over the armed forces.

Obviously, restructuring the armed forces is not a miracle cure to the problems that plague our defence policy. However, it is the first step. The rest will follow. In the coming months, everyone involved will find it tempting to rejig the procurement process some more, order a few enquiries, appoint another high-level commission and set aside more money for flashy new equipment. That would exactly the kind of ad hoc functioning that the Kargil Review Committee warned that the country can no longer afford. Not least because the armed forces are at great risk of losing in the battleground of public trust.

Copyright © 2012. Indian Express. All Rights Reserved

Making defence procurement uncontroversial

Fixing complex procurement rules and getting over our hypocrisy over middlemen

Sadly but unsurprisingly public debate over General V K Singh’s comments to the media is overwhelmingly concerned with personal motives, interests and conduct of the individuals involved. Given what has made it to the public domain is a fraction of a whole saga most “Why?” questions have no known answers, forcing people to impute motives and connect dots. Since everyone loves a good ‘scam’ we can expect the heat and decibel levels to go up in the coming days. [See a related post on “What to debate while debating in the dark.”]

The most important question though has answers that are not cloaked in secrecy but are in plain sight. That question is: Why are there endless controversies over defence procurement, for things ranging from frozen meat to coffins, from trucks to helicopters? Inability to make defence procurements uncontroversial is not merely a corruption-related issue. It is a national security issue. If all you need to do to slow down India’s military modernisation is a plausible scandal, everyone from India’s strategic adversaries to disgruntled equipment vendors have an inexpensive option to do us in.

So why, despite endless revisions of procurement policies and rules, despite putting personally incorruptible ministers in charge, despite the efforts of honourable general officers to clear things up, do we still have a situation where someone can allegedly walk up to the army chief’s office and offer him a bribe? [See Nitin Gokhale’s report]

The answer is because our defence procurement rules are too complex and we have made it illegal for those who can help navigate through these byzantine rules to operate openly. As I wrote in a 2007 op-ed in Mint:

Given their remarkable resilience, there has been no attempt towards examining why middlemen exist in the first place. Ironically, is this inability to come to terms with the fact that middlemen might play a useful economic role in a system with complex regulations has not prevented this government from further complicating regulations to keep them at bay. [Mint]

To make defence procurements uncontroversial then either we must simplify the procurement procedures or allow middlemen to operate under a regulatory framework. But why are procurement procedures complicated in the first place? That’s because we add too many objectives to a single purchase. Beyond whether a given purchase is effective, we are concerned about indigenisation, technology transfer, offsets and suchlike. At the same time we are frequently oblivious to the geopolitical implications of large purchases. My colleagues and I have argued in favour of liberalising the defence procurement regime so that the armed forces get the best bang for the buck. [See this Takshashila Discussion Document]

Others might disagree with the need to liberalise defence procurement and that argue that complex procurement rules are unavoidable. Even in this case, the policy on middlemen must still change. If rules are complex there will be those who can make money from navigating through them. That’s how lawyers, chartered accountants and travel agents make a living. There’s nothing intrinsically wrong or immoral about middlemen, agents and lobbyists. It is our rules that make them so, driving underground a genuine economic activity.

Instead of prohibiting middlemen in defence procurement, a far better policy would be to create a regulatory framework under which they can operate legitimately. Agents could be required to declare their past and current affiliations, and disclose relevant family connections. Former defence officers and their civilian counterparts could be required to serve out a cooling off period before getting into the business. The policy objective ought to be to align—to the extent possible—the economic incentives of the middlemen to the organisational interests of the armed forces.

While there can be a genuine debate over the best approach to military modernisation—on what is the right balance between liberalisation, indigenisation, public and private sectors—it is hard to see how we can continue to justify the failed policy on middlemen. Unless you are blind to reality, blinkered by sanctimoniousness or bound by hypocrisy, it should be clear that the consequences of the anti-middleman mindset are eating into the moral fabric of our defence services.

Related Post: A military modernisation manifesto

A military modernisation manifesto

What needs to be done to promote India’s interests

Excerpts from my article in the 60th issue of Pragati:

A decade after the Kargil Review Committee (KRC) submitted its recommendations not much has changed. The report had argued that India’s defence structures are woefully outdated and need to be modernised in a purposeful, determined manner. Yet, in the second decade of the twenty-first century, the way India organises, equips, manages, employs and rewards its armed forces has remains largely the same as Lord Mountbatten’s staff officer had recommended in the 1940s. Big-ticket arms purchases, development of indigenous weapon systems, new procurement policies and a token change in the form of a integrated defence headquarters might provide political, bureaucratic and military leaders with talking points on military modernisation, but they fall short even by the standards of the 2002 KRC report.

India’s strategic environment has changed not merely in the geopolitical sense. Its nature itself has changed. India’s national interests have an increasing global footprint, making geoeconomics far more important in our strategic calculus. As K Subrahmanyam noted in an interview with this magazine in May 2008, knowledge is the currency of power in the twenty-first century.

Each one of these by itself is a profound development requiring a substantial review of how it affects the way India manages its armed forces. In reality, these developments are all simultaneously under way, calling for urgent attention to military reforms. The UPA government instituted a high-level task force headed by Naresh Chandra last year to review and update the Kargil Committee Report. It is unclear if the UPA government intends to move forward on a major defence reform agenda. [Pragati]

A military modernisation manifesto calls for a doctrine on the use of force, develop defence economics, institute joint theatre commands, invest in new capacities and master the information environment. Read on Read on to see what must change.

What to debate when you are debating in the dark

The General’s birthday lawsuit is a red herring

Much is being said and written, often with great passion, about the controversy over General V K Singh’s age. [See Mint’s editorial, Manoj Joshi’s article in Mail Today and this report in the New York Times for a background.]

That it has taken the Indian Republic into hitherto uncharted territory is not in doubt. Without real political leadership and competent management of the behemoth called government, it is likely that matters will end up in court. That has happened. If the Supreme Court decides on the issue (or whatever it decides, including referring it to the Armed Forces Tribunal), a legal precedent would be set. Now, both unwritten norms and legal precedents can be decorous and inexpensive ways for organisations to function. But the transition from norms to legal precedents often gets complicated, ugly and dirty. It is a test for the Indian system, and on the face of it, there is no reason to believe that it will fail.

On the public debate itself, the fact is that very little about what happens behind the closed walls of the army headquarters and the defence ministry is in the public domain. Few people outside the defence establishment, and some of those within, know what the real motivations of the various parties involved are. The phrase “those who know, won’t talk; and those who talk don’t know”, is relevant to this case. So we end up with gossip, speculative commentary or an opportunity for people to unleash their own biases and take potshots at their favourite targets.

Does this information asymmetry mean we don’t debate the matter at all? Far from it. It merely means that the issue must be framed in a manner so as to hold to account those in government who ought to know the facts and are accountable to us. In this case, the Defence Minister. What was A K Antony doing all this while and why? That is the governance issue here. The army chief’s age is itself an procedural, administrative or legal matter, but for purposes of overall governance, it is a red herring. The incompetence, inability or unwillingness of the Defence Minister and the Cabinet Committee on Security, and through collective responsibility—the Prime Minister and his Cabinet—to handle this matter before it blew up is the question that we both can and should debate.

Can a government that manages an administrative matter in so cavalier a manner be trusted to manage matters relating to national defence any more effectively?

Scrap offsets and foreign investment caps

Galvanising military modernisation requires radical changes to the procurement mindset

Sushant K Singh, head of Takshashila’s national security programme and an editor of Pragati has an op-ed in the Wall Street Journal’s Asian edition, commenting on the Indian government’s new, more-of-the-same, defence procurement policy. Excerpt:

The defense ministry in New Delhi won’t admit it, but the turn-around is not just a tacit acknowledgment of India’s limited capacity to absorb offsets, but also an indictment of the offsets policy itself. If the policy is to succeed, the foreign vendor should want to operate in a country where it actually derives commercial benefits from partnering with locals. But in India, the poor quality of the state-run defense units and ordnance factories rules them out as partners. The country simply does not also have a large enough private defense manufacturing sector that a Boeing or Lockheed could buy parts from or invest in.

The final nail in the offset coffin is India’s FDI policy. Which among the decrepit public-sector companies or near-absent private ones would Boeing choose from to invest in? Or, rather, which local manufacturer does it trust enough to share its proprietary technology with? A joint venture could be trustworthy, but because of the FDI cap, a local firm will have to put up 74% equity—no small potatoes in an industry where contracts easily total $100 million and upward. This is why over 10 years the 26% FDI regime brought in only $150,000 of investment.

If the Indian government wants to use offsets as an interim measure to bring in foreign manufacturers, it should do away with the FDI cap. Higher stakes in companies could help add value to the offsets policy: Boeing’s purchase of 34% of Aero Vodochody, a Czech firm, as an offset deal in 1998 is a good example.

The FDI regime has wrecked such opportunities. A proposal last year by India’s Ministry of Commerce to increase the FDI cap in defense manufacturing was rejected outright by the defense ministry. By both sheltering local firms from real competition and yet requiring foreigners to invest in them with offsets, the government wants the best of the old socialist way of nurturing its infant industries and the new capitalist way of acquiring foreign know-how. So far it has failed to secure either. [WSJ]

Takshashila’s first discussion document

Allow greater foreign direct investment in the defence industry

Takshashila’s policy research programme has its first output—Sushant K Singh, Fellow for Defence Policy at Takshashila and an editor of Pragati has written a discussion document calling for raising or removing the caps on foreign equity in India’s defence industry.

Get the paper here.

You are welcome to discuss it in the comments section.