1. G2G: Govt to Govt Indian Defence Procurements
As was the practice world over in 21st century, defence trade was aligned
based on the political and strategic relations. Both these forms are manifestation of
Government-to-Government (G2G) trade. Post-independence, while India showed a
tilt to erstwhile USSR (majorly Russia) despite practicing non-aligned movement,
ample hardware was procured from the erstwhile commonwealth rulers in UK. Naval
ships Vikrant, Beas class Frigates, aircrafts Hunters, Alize, Avro, Wiley Jeeps, Guns,
Radars, Missiles etc were part of the continued dependence during the warring years
of 1947, 1962, 1965. This procurement was purely G2G as it originated from one
Government to another government, was sans open competition and was given as
part of political considerations.
India’s ally USSR played a stellar role in the truce during the 1962, 1965 and
1971 wars which made USSR a trusted strategic ally in need. Being a strategic ally,
many other things are shared which drive down the procurement cost of military
hardware, as strategic relations subsidise or offset these in some other area where
India had strength and could afford it. This led to first wave of modernisation in 70s
and 80s with the heavy Russian hardware. This was a real G2G strategic trade with
both the Government synergising on the issue, but here the cost consideration were
not the main issue. This was also the time when Indian forces experienced Russian
inventory and exploited it in the battle field. Russian hardware stood to the Indian
battle field and vagaries of the weather. Generally, Russian procurement trade was
tied to strategic considerations while the earlier UK procurement was part of
continued political dependence.
With the Glasnost (openness) and Petrovoiska (Re-structuring) visiting USSR
in late 80s, strategic trade shifted to Dollar based trade. By the end of 80s decade
and right at the start of 90s, India had slipped into worst ever monetary position
which called for a relook at dollar based trade. This called for certain reforms in
defence procurement and word indigenisation was coined in as a start for self –
While the Indian Defence Procurement reforms evolved with the emergence
of procedures in year 1992, 2002, 2005, 2006, 2008, and so on, G2G format of
procurement which was devoid of competition then, continued to be in practice in
some form or the other. Procurement of Hermes (Viraat), Andromeda (Krishna) from
UK in 1988 and 1998 respectively and LPD Jalashwa ex US Navy are Naval
During the later 2 decades (viz 1990-99 & 2000-10), two structuresprocedures got evolved, due to long pursuing Government efforts. Incidentally,
these are with the great super-powers of cold war times viz Russia and USA.
(a) Indo-Russian Inter-governmental Commission (IRIGC-MTC) was created in
2000 at the Govt level. This group is for facilitating defence cooperation and
By: Kamaljit Singh Jassal
2. G2G: Govt to Govt Indian Defence Procurements
continuing spares or long term support for the hardware bought earlier.
Indian Government for its defence forces needed a single point/ nodal agency
for discussing with various sub-vendors located in ex-USSR. This industry
coordinator was required as most of the spares/ long term product support of
earlier bought hardware were lying with production units/ companies in states
other than Russia. This was responded to by the emergence of ROSBORON
Export company or commonly called RoE, which has backing of the Russian
Govt. Today, G2G format with Russia or ex USSR does not exist formally.
While Russia has a military technical group (IRIGC-MTC) which considers all
acquisitions related issues but since entire production is not done in Russia
alone and hence relevance of ROSBORON Export comes in. Correctly
speaking, with Russia G2G format has got split with Policy/ procurement
issues being dealt with the Govt while Business/ contracting issues are dealt
by RoE. This system though not legally robust but is making the business go
as the challenges to supply side are well known as are risk to demand side. It
should be well understood that India has a long time history of strategic
reliability with Russia/ ex-USSR and hence Indo-Russia/CIS/ ex-USSR defence
trade is very much relevant.
(b) Indo-US civil trade was building up, in the intervening period, due to India’s
IT software skills. Post India’s Nuclear test explosion in 1998, US had placed a
ban on Defence trade. As a result, India had started looking at Israeli military
ware which was not only of state of art/ war but was also relatively cheap.
With thrust on indigenisation or growing self-reliance, as well as changing
Geo-political situation in Indian region (post 9/11), made USA to rethink on
NSSP with India. In 2005, USA lifted military sanctions and sought active
defence cooperation with India. As USA had an evolved structure of Foreign
Military Sales (FMS), it was very easy for India to comphrend same. Minor
changes wherever required were discussed and contracted accordingly. While
the early procurements in the year 2005 to 2008 (mainly C130J, C-17 etc)
were done in a direct G2G approach (sans competition), later part of the 2000
decade saw multi-bidding followed by FMS/DSA or a hybrid approach taking
place (for Navy’s P8I ac). While the USA hardware is well proven in the Asian
terrains, its maintenance issues costing are still to be understood. ToT and
offsets are also the issues which challenge the otherwise clean time bound
process of this acquisition.
One thing that could be seen from the above two formats is growing shift to
strategic relationships or the deals rather than political nature of them.
Procurements are being driven by the need or SQR rather than political opportunity.
Also, the market has shifted to being a Buyer market rather than a Sellers’ market.
India’s growing stature and evolving structures that deal the procurements is getting
professionalised with more thinking and rationality brought to forth in decision
making. Procurement is not stand alone today but is coupled with discovery of cost,
offsets, transfer of technology, co-production concepts etc.
By: Kamaljit Singh Jassal
3. G2G: Govt to Govt Indian Defence Procurements
Need of G2G
Need of G2G or Inter Government Agreement has been defined in DPP2013
(since 2006) and it states as follows:
Inter Government Agreement
There may be occasions when procurements would have to be done from
friendly foreign countries which may be necessitated due to geo-strategic advantages
that are likely to accrue to our country. Such procurements would not classically
follow the Standard Procurement Procedure and the Standard Contract Document
but would be based on mutually agreed provisions by the Governments of both the
countries. Such procurements will be done based on an Inter-Governmental
Agreement after clearance from CFA. The following cases would fall under the
preview of this provision:(a)
There are occasions when equipment of proven technology and
capabilities belonging to a friendly foreign country is identified by our Armed
Forces while participating in joint international exercises. Such equipment can
be procured from that country which may provide the same, ex their stocks or by
using Standard Contracting Procedure as existing in that country. In case of
multiple choices, a delegation may be deputed to select the one, which best meets
the operational requirements.
There may be cases where a very large value weapon system /
platform, which was in service in a friendly foreign country, is available for
transfer or sale. Such procurements would normally be at a much lesser cost than
the cost of the original platform/ weapon system mainly due to its present
condition. In such cases, a composite delegation would be deputed to ascertain
its acceptability in its present condition. The cost of its acquisition and its repairs
/ modifications would be negotiated based on Inter-Governmental Agreement.
In certain cases, there may be a requirement of procuring a specific
state of the art equipment/platform, however, the Government of the OEM’s
country might have imposed restriction on its sale and thus the equipment cannot
be evaluated on ‘No Cost No Commitment’ basis. Such equipment may be
obtained on lease for a specific period by signing an Inter-Governmental
Agreement before a decision is taken for its purchase.
In cases of large value acquisition, especially that requiring product support
over a long period of time, it may be advisable to enter into a separate Inter
Government Agreement (if not already covered under an umbrella agreement
covering all cases) with the Govt of the country from which the equipment is proposed
to be procured after the requisite inter-ministerial consultation. Such an InterGovernmental Agreement is expected to safeguard the interests of the Govt of India
and should also provide for assistance of the foreign Govt in case the contract(s) runs
into an unforeseen problem.
By: Kamaljit Singh Jassal
4. G2G: Govt to Govt Indian Defence Procurements
By the name of it, G2G deals means a direct Govt to Govt deal or requirement
which originated from the Govt and proposed to/ accepted by other Govt. However,
in practice this does not happen as it is the ‘user’ which has been defined as the king
in defining the needs/ SQRs and hence a ‘need’ generally originates from the field/
SHQs and moves upwards and then laterally. This system is going to steady up for
most of the future G2G procurements. Clearly, earlier definition was good for striking
political deals, but with growing essence to relevance of equipment or matching
requirements of the hardware, value for money, strategic considerations etc have
out-weighed the earlier political based G2G methodology. With the Indian MoD and
Defence Forces, realising the need of technology for production at home and
retaining the production for long term product support, there is growing shift
towards co-production and absorbing offsets in technology.
Future G2G & ‘User’ Requirements.
Indian Defence Production has
not taken off and Indian R&D is nowhere to provide it the take-off. ‘User’ of the
Defence/ Security is going to look at an existing platform or system or equipment
which can provide him the edge. This proven equipment or platform may not meet
the Indian environment conditions and hence a user trial would be called for. As
detailed in the above paragraphs that DPP allows such procurement under Para 71
(a) & (b). This G2G user oriented procurement shall continue to stay and get
consolidated in one or the other form.
Future G2G & VFM.
User requirement would continue be the mainstay
for all future military procurements. While the user may not find his all the
requirements in the existing platform or equipment but modification to the existing
platform or equipment would get him the best value for money. Para 72 (b) of DPP13 covers this for an existing platform or equipment. We could have a new platform
or equipment being produced simultaneously in such a manner.
Future G2G & Price Discovery.
Generally, when G2G procurements
happen, they are provided at prices which are due to strategic nature and can be
called as ‘strategic cost’. In the world of arms procurement, discovery of correct cost
is allways Buyer’s dilemma. When the procurement of arms is put to open bidding
process, it is said that price discovery takes place. However, in the world of Indian
arms procurements, it has been seen that bribe and other misuse/ abuse takes place
in due process, which results in cancellation of the open competition deal.
Cancellation of Augusta Westland VVIP chopper deal in recent times (2013), is an
example of multi-vendor bidding process going wrong. In the future, multi-vendor
bidding process would be the order of day. After due technical qualifications and L1/
price discovery, contracting could proceed in G2G format. While the FMS process of
USA did offer the proven equipment under a discovered price but better discovery of
the price takes place when an equipment procurement is placed in open bidding by
multi vendors. Indian MoD is likely to use this multi-vendor bidding process followed
by G2G contracting rather than existing discovered price G2G. It is here that existing
FMS of USA would have to be tailored. Instead of FMS offering the equipment or the
By: Kamaljit Singh Jassal
5. G2G: Govt to Govt Indian Defence Procurements
platform at discovered cost, they would have to compete in the open competition
with multi-vendors and it is only after having bagged the order, would Govt like the
contract to proceed under Govt monitoring. This will satisfy the price discovery as
also proof against the mud-slinging. For this reasons, many of the lead countries like
Germany, Japan, Italy, Israel, France, UK etc would have to formulate a G2G
procedure or tailor their so called ‘Foreign Defence Sales’ programme or procedure
in line with this methodology.
It is very likely that an equipment or platform being sold under or offered
under an existing FMS or such G2G procedure of a technologically advanced nation
for a discovered price may be asked for a value less than such price. It would be the
ability of the offering nation to do such a deal for its strategic & business
considerations to strike a deal to keep the competition out ab-inito. Such nations
may take advantage of the running production lines (for economy of scales) or near
finishing production line (due to change in technology/ up gradation) of such military
wares to strike this kind of deal. Clearly, this would be kind of strategic+cost
consideration, as well as to keep the tap dry of other competitors.
Future G2G & D&D Projects
Today, the scope exists for various advanced nations of doing the G2G deals
wherein not just the finished hardware is sold to India but also they can leverage of
each other’s strengths as well as the total numbers (for economy of scales).
An example to this effect is FGFA (5th Generation Fighter Aircraft) deal which
is a joint production project wherein the final aircraft would be inducted in the
Russia and India at the same time. In this strategic format, pooling of funds for R&D
is done by both the countries with the existing Russian Design Bureau and final
product is produced in large numbers which provide economy of scales.
A differentiated structure of G2G deal is seen in the BrahMos. A joint stock
company was created wherein near equal share holding was held by India and
Russia. Today this company has designed and produced the missiles which are being
used in defence forces on either side. This is an example where in combined R&D
mind pool was used and production is done in India to meet its requirements.
BrahMos and FGFA models are different from earlier procurement oriented
G2G format. In the procurement oriented format, Licensed Production, Transfer of
Technology is sought/ paid for while in this new format, sans competition,
Government goes with the strategic partner wherein the sharing of technology and
long term product support is built in to wholesome procurement/ production/
modernising the versions thereof/ implicit knowledge as ToT etc. This G2G format,
sans competition, can be the future of Indian defence procurements with the nations
who have technological strengths but don’t have the numbers to make it as a
business case but yet see India as an ally if not a long term strategic partner. It is in
this case, any nation may see their technological strengths in design/ production of
Nuclear Aircraft Carrier, Nuclear Submarine, Mechanised Vehicles, A-A Missiles,
By: Kamaljit Singh Jassal
6. G2G: Govt to Govt Indian Defence Procurements
fighter aircrafts, fighter helicopters, communications etc and seek joint production
and meaningful/ time-bound parallel induction into each other forces.
This Design & Development cum Production oriented G2G would be the best
G2G deals in future. This has its own benefits. Best part of this G2G format is that if
a lead foreign company or Nation shows such inclination for the Indian programme
(mentioned in TPCR) then it can get hands down a long term contract for 15 years
requirement numbers listed in LTIPP(2012-27) or TPCR. Many of the good defence
companies and lead technology company in the Europe and USA are going through
the downturn. Few of the Indian Industrialist had tried to buy these low technology
companies to bring in defence manufacturing in India. While the lead foreign
defence companies have the technological prowess but they donot have the
economy of scales or simply put cost of production is too high for them to compete
in small quantities open bidding process. Risk of cancellation not only escalates the
uncertainties but also increases the cost of bidding. As it is many lead companies
find the cost of NCNC trials high. In order to beat these uncertainties, thwart the
open competition, have economy of scales for host & guest country, G2G deals
under D&D projects would rise. Best part of this format is that mind boggling hassles
of Offsets procedure are also subsumed.
About the author:
Kamaljit Singh Jassal retired from active Naval Service, in the rank of Commander, on
31 Dec 12. As Joint Director in Ministry of Defence, he was formulated LTIPP 2012-27 (Long Term Integrated
Perspective Plan – a tri-service plan), 12th Defence Plan and was also part of executive committee that
formulated Revised Offset Policy 2012, TPCR and 12th Defence Manufacturing Plan. As member SCAPCC, he has
processed around 400 to 450 tri-service proposals. He is freelance consultant on Planning, Finance and
By: Kamaljit Singh Jassal