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India’s premier industry institution, the Confederation of Indian Industry (CII), and the consultancy firm KPMG, have conducted a study which has found that fifty percent of Indian military equipment is ‘obsolete’. The current finding only corroborates the Indian Army’s recently made statement in the Parliament, admitting that it had just over fifty per cent of the required capability.
As per the standards laid down by the Indian Defence Ministry, 30 per cent of the equipment should be “state-of-the-art”, 40 per cent should be “mature” and only 30 per cent “obsolete”. According to the CII-KPMG study, only 15 per cent equipment is “state-of-the-art”, 35 per cent “mature” and 50% “obsolete”.
According to the study, due to the dire situation which the Indian Armed Forces is facing, India is set to undertake one of the largest procurement cycles in the world. The current cycle, which includes the acquisitions drafted under the long-term integrated perspective plan (LTIPP), is expected to include procurements worth $100 billion by 2022. The thrust area where the Indian government must focus and give its inputs includes the procurement process, the need for a defence industrial strategy for India and tax and regulatory incentives. The report also suggested improvement in the predictably and flexibility of the procurement process and reduction in bidders’ costs.
Defending the Ministry’s procedures and policies in terms of procurement, Defence Minister A.K. Antony made a surprise statement addressing an industry seminar, saying that the Ministry of Defence (MoD) would implement a new procurement policy this year. He added that the new Defence Procurement Policy 2010 (DPP-2010) would be more effective and faster than the current DPP-2008.
Defence Minister A.K Anthony also clarified that there is room for the private and public sector to co-exist in the defence sector and that there is no policy bias working against the private players.
However, the report points out that the Defence Ministry does not provide even established private vendors with its long-term equipment procurement plan, thereby denying the private industry the lead-time to develop the equipment needed in the future. A KPMG survey states that 85 per cent of the member-companies of CII’s defence and aerospace division believe that the playing field is loaded in favour of the defence public sector undertakings (DPSUs).The report recommends that the private sector should be extended the same tax benefits that DPSUs enjoy.
The CII-KPMG has also exposed the Indian Defence sector scenario for the future and criticised the state of defence procurement procedures. The report predicts that by 2022, India will purchase Rs 4,50,000 crore ($100 billion) worth of military equipment. Another Rs 44,000 crore ($9.7 billion) will be spent by 2016 on India’s homeland security. The report highlights that India’s private sector gets just 14 per cent of this business. Foreign arms corporation’s service 70 per cent of the annual shopping list of the Ministry of Defence and the rest goes, usually without competition, to MoD’s business empire of eight defence public sector undertakings (DPSUs) and 40 ordnance factories (OFs).
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