The forces see leasing as a win-win situation because they are able to get past the long procurement process that moves at a snail's pace

Last month, India inducted two American high-altitude long endurance drones into the Navy — Sea Guardian, the unarmed version of the deadly Predator series — on lease. While these were procured under a one-year contract from an American firm, the Navy has also gone in for leasing of a logistics ship from an Indian firm.

The drones and the vessel were the first two equipment procured under the leasing option that was introduced in the new Defence Acquisition Procedure (DAP) 2020 unveiled in September.

The DAP describes leasing as a “means to possess and operate (a military) asset without owning the asset” and adds that it provides a useful way “to substitute huge initial capital outlays with periodical rental payments”.

While India has on-lease Russian nuclear submarine Chakra, it is a special case and is being used for strategic purposes.

Being the first to kick off the leasing process under new rules, the Navy is also looking at leasing some more critical equipment. And it is not alone. The Air Force and the Army, too, are actively looking at leasing equipment.

As Navy chief Admiral Karambir Singh said during his annual press conference Thursday, the lease option could be used in case there’s a gap found in achieving critical capabilities.

A Win-Win Situation For Forces

The forces see this as a win-win situation, because they are able to get past the long procurement processes that move at a snail’s pace. This also helps them in times of budget crunch — leasing enables the use of equipment without making large initial capital outlay.

A senior Naval officer told me that the leasing process for the two drones from the US was completed in just two months. Indian defence procurement processes are known to drag for years and, hence, the two-month period ‘deal’ is unprecedented.

The Air Force is looking at leasing mid-air refuelers to fill up the capability gap even as it pursues a long pending demand for more such aircraft. It is also looking to lease light utility helicopters and trainer aircraft till the time indigenous systems are inducted.

The Army is understood to be looking at leasing certain systems, including those that offer armoured mobility.

The Downside

While leasing is a welcome step, there are many within the defence establishment who fear that this is a double-edged sword.

Former secretary, defence finance, Gargi Kaul had last month expressed strong reservations with the new leasing policy, saying it “tied the hands” of defence ministry bureaucrats. According to Kaul, the competitive procurement in the leasing category would become difficult since there would be, in most cases, just one vendor eligible. Other officers, too, point out that leasing will put the forces into single-vendor situations.

However, experts also say that there have been occasions when critical equipment could not be purchased because of the single-vendor situation. Under India’s procurement rules, single-vendor deals are not allowed. The Army is still trying to procure carbines for its infantry soldiers, the procurement process for which was initiated in 2011.

A global tender for procurement of over 44,000 Closer Quarter Battle rifles (carbines) was issued in 2011 in which four companies — Israel’s IWI, Italian Beretta, and American firms Colt and Sig Sauer — participated. However, only IWI could qualify, fulfilling the qualitative requirements pertaining to night vision mounting systems. This left India in a single-vendor situation, and hence, the Ministry of Defence could not go ahead with the deal.

To circumvent this, in 2017, a global Request for Information (RFI) was issued by the Army for the purchase of two lakh carbines, while a separate process was rolled out to procure 93,895 rifles under the Fast Track Procurement process.

Both are yet to see the light of the day.

While officers in the Services largely welcome the leasing approach, some fear that it could become an easy way out for the government to cater to the needs of the armed forces. They argue that the urgency of the actual procurement process could further take a back seat because the critical gap will be fulfilled by leasing.

A serving officer explained that most procurement is finalised when demand criticality reaches its worst. But with leasing, which is not a long-term exercise, the defence ministry and the bureaucracy get a cushion.

Another argument against leasing is that this could pave the way for foreign companies to get in through the back door. This is because the forces will become dependent on the procured system or machinery, and eventually end up buying them in large numbers from the same manufacturer rather than being open for any other similar systems.