Opportunity cost of delays

Recent news reports suggest that the final operational clearance for  India’s homegrown Light Combat Vehicle might be delayed. If this is indeed true, this is not good news.  There is also news about handing over the entire project to the private sector. Irrespective of whether the LCA will be delayed or not, most newspapers and reports suggest that the Indian government has spent enormous amounts of money on this project.

Although the losses are significant,merely looking at a huge rupee number does not complete the story. The concept of opportunity costs has to be factored in while analysing such delays in projects. Opportunity cost in simple terms can be defined as the loss of the next best opportunity. In case of the LCA or any other delayed projects the question that must be raised is “What is the next best thing we could have done with the money”?

In an area like defence, the opportunity costs are exacerbated because delays inevitably reduce combat preparedness. A logical question to raise therefore is to track how many such delays have affected India in the numerous conflicts that it has had to face in the past.

As this ET report suggests

Sources said discussions have taken place in the top echelons of the government on the best ways to inject urgency into the Tejas programme, possibly even with the involvement of a private sector player that would be clearly incentivised to deliver a new aircraft on time and within budget

One wonders why the government has decided to bring in private players so late in the game(Depending on how the timelines are viewed, there has been a delay of more than 10 years in the LCA project).  The idea about only state-run firms handling  strategic programmes has not been a success. It is time the defence ministry and the defence establishment views efficiency, as opposed to ownership, as the metric while choosing vendors/partners.

Better late than never. Hopefully.

Varun Ramachandra is a policy analyst at Takshashila Institution and tweets @_quale

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