The Indian Air Force (IAF) may evoke a ring of royalty amongst lay observers, thanks to there once being a Royal Air Force in public salience, but the complexity of the acquisition procedures for aircraft would leave you feeling sorry for this vital part of the country?s defence armoury. The proposed acquisition of 126 medium-range multi-role combat aircraft (MMRCA), as discussed in my earlier article (?Air assurance is essential?, Sept 26) began with the issuance of a request for proposal (RFP) which asked for a single-stage, two-bid quotation from bidders?separate quotes, that is, for technical and commercial evaluation, but in a single envelope.

Although the Defence Procurement Procedure (DPP-2006) rules out any change in commercial pricing quotations as submitted at the time of bid submission, one is not sure whether the final price of a product would be the same at the time of award of contract. In 2005, the reported MMRCA deal was hovering around $6-7 billion, while the formal price announcement by the ministry of defence (MoD) is $10.2 billion. Although prudence would suggest that the price should not matter if the deal entails the desired strategic dividends (which means that quality must not be compromised and the lowest bidder need not necessarily get the contract), too much of a price difference between original quotations and the accepted price could set a bad precedent for future deals. The latest price controversy on Russian equipment should act as a reminder for Indian negotiators.

The defence minister?s third principle of facilitating maximum benefits for the private sector is perhaps the most challenging. This needs careful examination. The government has adopted a policy of active participation by the private sector in defence production to maximise self-reliance in defence. Accordingly, it has come up with an offset policy, by which any foreign acquisition deal worth Rs 300 crore or more would oblige the seller to award sub-contracts worth at least 30% of the deal value to local vendors in India. This has been raised to 50% for the MMRCA deal. This has raised private sector expectations in India to an all-time high. The RFP also includes terms and parameters for technology transfer (ToT) under licensed production of the item to be manufactured in India.

Some defence analysts and government officials have created the impression that defence offset obligations will boost private sector technological expertise via JVs, outsourcing arrangements and the like. While it is true that $5 billion is a hefty sum, whether any mission-critical technology will come India?s way remains doubtful. The offset policy, unless crafted with specific technologies in view, could at best create a secondary assembly market, not a systems integrator base in the country.

Similarly, the MMRCA deal?s ToT conditionalities need to be clearly examined. If the ToT comes through the licensed production route, then it will just be a repetition of the same old story. The licencing experience in the history of Indian defence industrialisation has been pathetic. In fact, India?s record of design technology acquisition, the most critical element of any military technology, has been unspeakably bad. The very purpose of nurturing the country?s rakshya udyog ratnas (RURs) as future system integrators will be defeated from day one if they are occupied with low-end offset outsourcing work. The bulk of the offsets should be earmarked for medium-sized private firms that could go on to form a secondary industrial base.

The most important of all considerations are the MMRCA deal?s ?strategic aspects?. Within a day of the RFP issuance, India?s defence minister is reported to have rubbished the linkage between the Indo-US 123 deal and this one, the ?126 deal?. Whether they are linked or not is a subject of debate that refuses to die down for obvious reasons. Both qualitative and quantitative aspects of the MMRCA proposal qualify it for treatment as an ?arms card? in India?s hand, and strategic considerations have now been institutionalised as a factor in arms procurement. The DPP-2006 even has a section on ?Procedure for Procurement on Strategic Considerations? (page 24), which says: ?In certain acquisition cases, imperatives of strategic partnership or major diplomatic, political, economic, technological or military benefits deriving from a particular procurement may be the principal factor determining the choice of a specific platform or equipment on a single vendor basis. These considerations may also dictate the selection of particular equipment offered by a vendor not necessarily be the lowest bidder. The decision on all such acquisitions would be taken by the Cabinet Committee on Security (CCS) on the recommendation of the DPB?.

If strategic issues are to decide the fate of the MMRCA, then complex geopolitical factors will also find addressal. Then, there are domestic stakeholders, too. In all, it is not as simple as the numbers 126 suggest. The deal will test the wisdom of India?s decision-makers. The aspirations of the IAF must not be left out in the cold.

(Concluded)

?The author is senior fellow in security studies at Observer Research Foundation, New Delhi.

Email: deba205@gmail.com. These are his personal views