India has proposed leasing of military equipment in its revised draft of Defense Acquisition Procedure (DAP) 2020, that may enable the military to possess and operate costly platforms required for a limited period.
Leasing would be permitted in two sub-categories i.e. Lease (Indian), where Lessor is an Indian entity and is the owner of the asset, and Lease (Global) which refers to lease of equipment from foreign or Indian Lessors.
The document states that a lease option may be preferred where procurement is not feasible due to time constraint, where asset/capability is needed for a specific time or would be under-utilised if procured, where smaller numbers of assets are needed and administrative /maintenance infrastructure expenditure would be high, when service life lease rentals are a better option compared to a one-time acquisition cost, to gain experience for operational exploitation of equipment, and due to operational necessity.
The lease contract will take into consideration insurance and equipment modifications. Payments for such modifications/de- modifications must be included in the contract.
India is not new to this concept, having taken on lease a nuclear-powered cruise missile submarine from the Soviet Union in 1987-88. In March 2019, India inked a deal to lease Russia’s mothballed nuclear Akula-1 class submarine for ten years for over $3 billion (INR 21,000 crore).
Abroad, Czech Republic bought 14 JAS-Gripen jets on a 10-year lease ($750 million) after an original order to buy 24 aircraft ($1.9 billion) was cancelled. Hungary also acquired 14 JAS 39-C Gripen aircraft on a 10-year lease (2006-16) for $924 million. The deal was extended until 2026 in 2012.
The Swedish Government granted approval for the USA to lease a Gotland-class submarine for a period of twelve months, complete with crew, to participate in joint exercises with the US Navy. The submarine has been operational from bases on both the east and west coasts of the United States.
India has taken possession of a nuclear-powered submarine from Russia on a 10-year lease. The vessel which has been named the INS Chakra ll will operate from the Visakhapatnam base in the Bay of Bengal. India is also developing its own nuclear-powered submarine, which is expected to be ready by the end of the year.
Leasing was introduced as another category for acquisition in addition to the existing ‘Buy’ and ‘Make’ acquisition. “Leasing provides an innovative technique for the financing of equipment/platforms. It provides means to possess and operate the asset without owning the asset and is useful to substitute huge initial capital outlays with periodical rental payments. A longer-term lease may provide the best value for money, compared to a short(er) term lease,” Indian Ministry of Defence’s DAP 2020 says.
Capital Acquisition schemes are broadly classified as, ‘Buy’, ‘Buy and Make’,
Leasing, ‘Make’, ‘Design and Development (D & D) and Strategic Partnership Model (SPM). A Simplified Capital Expenditure Procedure (SCEP) may also be followed for replenishment or repairs or refits of recurring nature of ‘In Service’ equipment/systems, which entail high cost and longer service life. Under the ‘Buy’ scheme procurements are categorised as ‘Buy (Indian – IDDM)’, ‘Buy (Indian)’, Buy (Global – Manufacturer in India) and ‘Buy (Global)’. Under the ‘Buy and Make’ scheme, the procurements are categorised as ‘Buy and Make (Indian)’ and ‘Buy and Make’.
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