Arms Procurement: Indian manufacturers gain popularity but G2G method remains best option

(Representative image)

Procuring arms from the international market is a tedious process. While there are several standard procurement methodologies, there is no established pecking order, and countries opt for different procurement options according to their strategic convenience, and operational requirements.

In this context, while an official declaration is yet to be made, the recent buzz is that the Indian Navy would buy deck-based fighter jets for its soon-to-be commissioned indigenous aircraft carrier INS Vikrant (to be commissioned on August 15) through the Government-to-Government (G2G) agreement route. This affirms its increasing popularity as the preferred procurement model.

The policy preference for a G2G contract comes at a time when there is clear inclination for domestic manufacturers. . For example, in 2022-23, nearly 68 percent of the capital head in defence budget would be sourced from domestic manufacturers. Given the emphasis on the ‘Atmanirbhar’ initiative, this percentage may increase in the coming years. However, India still remains the world’s leading arms’ importer and, therefore, the preference for the G2G gateway can become the standard procurement model for other arms-procuring countries too.

There are many visibly established benefits of the G2G model that might be missed in other procurement methods. First, the government buying the supplies does not have to depend upon the reckless and shaky conduct of suppliers in the murky world of arms trade which is often plagued by middlemen, commissions, integrity pact violations, erratic supplies, and in some cases time and cost escalations.

Since the arms market is seller-driven, the companies selling arms often dominate the production, technology, and cost part; leaving little leverage with the buyer countries. Information about arms companies is also often less reliable and some turn out to be fly-by-night suppliers. The G2G gateway absolves the buying countries from such scares.

The second benefit is that G2G is almost a hassle-free contract since the performance is guaranteed by the supplier country owning responsibilities for adherence to quantitative, qualitative, and costing factors. The payment terms are flexible and mutually agreed. For instance, one of the reasons for India’s large volume defence trade with the then Soviet Union/Russia was the flexibility to pay-off in Rubles. The supplies are also more reliable even while they are covered under the ubiquitous international commercial terms (INCOTERMS). The license-based manufacturing option is also readily available as evident in recent times.

The third benefit is that it allows the buyer country to opt for countries that are a potential strategic partner in the political arena. Such reciprocity is not guaranteed in commercial contracts that are based on the ‘Lowest vendor’ (L1) system. Perhaps that explains why most of India’s recent G2G defence contracts have been entered with countries such as the United States, Israel, and of course, Russia.

However, the G2G methodology has some problems. In occasional cases, the G2G contracts brought painful and bitter experiences for India. For instance,  the Gorshkov Aircraft Carrier procurement from Russia, became controversial due to a humongous time and cost escalation, and indeed it is a case study for avoiding the pitfalls in contract management. Additionally, there are always pangs of doubts about whether the G2G contracts are cost-effective.

Also, while the primacy of G2G contracts — vis-à-vis other procurement methodologies, is increasingly coming to the fore, it is not preferable vis-à-vis domestic procurements.  A foreign procurement may fetch the best of technology and stealth, but they lead to stagnation of the domestic military industrial complex (MIC). For instance, the naval version of Tejas is in advanced experimental stage for the last two years, and a prototype has already landed safely on INS Vikramaditya. The G2G contracts or other weapons import methods dilute, if not take away, the incentives in domestic military production and R&D.

Finally, weapons import implies more cash outflow for India due to Rupee’s decline against the US Dollar, and job creation in other countries. The Russian MIC, for instance, was largely financed by India in the past due to large-scale procurements and spare parts insourcing. The G2G and other weapons import methods cannot be the panacea for enhancing military modernisation and combat preparedness for any military, including India.

Therefore, while the G2G contracts will be handy as the last minute assured line of good quality weapons, the domestic MIC should be supported to meet the requirement in the long term. India has got the right procurement manuals, a conducive production environment where the domestic MIC is fast catching up in terms of production and exports of military weapons, and, above all, public policy preference for domestic procurements. Perhaps, it is time for better acquisition planning.

Bhartendu Kumar Singh is in the Indian Defence Accounts Service. Views are personal, and do not represent the stand of this publication.