Risks in Defence Procurement: India in the 21st Century

Abstract

ABSTRACT Although there exist several remarkable theories that facilitate the understanding of procurement risks in imperfect market conditions, methods to quantify the impact and identify the most severe risks are less well known. This paper uses the method of risk analysis to discuss defence procurement challenges in India. An original dataset of 88 contracts has been created to identify the most probable and the most severe causes for poor procurement performance. A schedule performance parameter has been constructed to quantify the impact of different adverse events. The findings display a high probability of technological risks followed by contractual risks as the cause for delays in Indian defence procurement. Technological risks are concentrated in cases of indigenous procurement due to a lack of infrastructure and resources while contractual risks mostly occur in contracts where the Ministry of Defence deals with external agents like foreign suppliers. This indicates frictions and transaction costs. These and other findings from the quantitative data on procurement performance are supplemented by insights from an extensive fieldwork in India which included 53 interviews.