Arms, agents and economists

Delays in buying arms happen not only because of scandals but also because the arms business is complex. If you want a foolproof decision you keep asking questions till sellers get exhausted and go home. In the process you could delay the deal for years or even kill it. There are others waiting to help you in the process — rival sellers who want to get the deal; doubters and naysayers who want to play safe; watchdogs who may or may not know much about defence buying; the media who are always looking for a juicy story (not to forget the 24×7 channels who want to know in thirty seconds flat how to abolish commissions); even an anonymous letter sent to half a dozen people, which according to official procedures must be ignored, but invariably obliges conscientious people to verify facts. That could take months, if not years, and cost the nation plenty of money, while you keep surrendering part of the defence budget.

What can be done about this? Many important steps have been taken in recent years like the setting up of an integrated Defence Acquisition Organisation and promulgation of Defence Procurement Procedures 2006. This new organisation needs strengthening by significantly upgrading its technical skills and granting long tenures to key officials with in-situ career progression. Much can be learnt from the experience of developed countries in reforming defence management and in using principles of economics and analytical tools like Operations Research.

Defence economists advocate application of three useful principles to defence management: output, substitution and competition. While planning purchases, discussion often focuses on how many infantry regiments or aircraft squadrons or missile boats are needed. These are really means to achieving an end or a capability. The focus has to increasingly shift to outputs like protection, security or threat reduction. In planning for defence, choices need to be made in terms of capability and outputs and not inputs like warships and squadrons. One input can be substituted by others to achieve a more cost-effective output, like cruise missiles can be replaced by air force strike aircraft; or manned aircraft by unmanned air vehicles. The problem arises when one service gains and the other loses, even if the nation is the ultimate gainer. At a broader, strategic level choices may have to be made between alternatives like pre-emptive action or diplomacy. In considering substitution effects, marginal contributions of each option would need to be assessed. For instance, what might be the effect on defence output, of reducing infantry regiments by 10 per cent and instead expanding Rapid Action Force by 5 per cent.

Applying the principle of competition can help in driving down costs and minimising opportunities for corruption. In designing Qualitative Requirements (QRs) and technical specifications too narrowly, opportunities for manipulation can be created. Often, for narrowly defined QRs there is only a single vendor and price negotiations become a meaningless exercise. Well-conceived QRs promote competition, reduce costs, offer opportunities to local scientists and entrepreneurs and minimise opportunities for corruption.

We spend around Rs 35,000 crore each year on arms and equipment, but not even a fraction of this amount on using knowledge for improving management of defence acquisitions and on learning application of principles of economics and analytical tools to defence management. The US has a Defence Acquisition University. India does not even have a good, one-week training course on defence acquisition. There are hardly any case studies or research papers. Poor data bases, absence of requisite analytical skills, technical knowledge and sophisticated negotiating strategies can lead to delays, poor decisions and opportunities for corruption.

Analytical tools derived from economics and other disciplines can help in proper evaluation alternatives and more informed decision-making. They provide elaborate and convincing reasoning to audit authorities and oversight agencies. When controversies break out, documents on decision-making backed by objective analysis can vindicate decisions and prevent delays. If nothing else, analytical tools based on economic reasoning give us more value for our defence spending.

Can economists also drive out the arms’ agents? They can certainly make their task much tougher and their business much less attractive. Though for rooting out corruption, we will need to give Gandhigiri a try!

The writer is director, IDSA and a former secretary to Government of India