How Indian Military Acquisitions are Changing and why that's a Good Thing
The procurement mechanism of the defence sector in India finally seems to be heading in the right direction.
In 1940, legendary Indian industrialist Walchand Hirachand struck a deal with an American businessman to produce combat aircraft in India. One of the investors in the project was the Maharaja of Mysore, who agreed to invest Rs 25 lakh and also gave 700 acres of land free for the project. Just eight months later Hindustan Aircraft flight tested its first product, a trainer aircraft. And then the British pulled the plug.
Sumit K. Majumdar explains what happened. In his book India’s Late, Late Industrial Revolution: Democratizing Entrepreneurship, he says:
“The British government in Whitehall tried to scuttle the project because Indian firms were not considered capable enough to manufacture combat aircraft…..Hindustan Aircraft was taken over by the government in 1942.”
India got independence in 1947 but the government of Jawaharlal Nehru retained the same level of hostility towards private Indian enterprise. Here’s what noted Gandhian Acharya Kripalani said on the defence budget in Parliament in 1957:
“The mounting expenses on the army must be cut down. The followers of Gandhi and adherents of universal peace should not increase military expenditure.”
Five years later when the Chinese attack caught India napping, the same Kripalani was calling for heads to roll. It never occurred to him that he was one of the playmakers of the debacle.
Muddled thinking and Gandhian attitudes clearly played a role in stunting the growth of India’s defence industry for decades, but the real reason India continues to import high-octane hardware lies elsewhere. “Preferential treatment of the public sector is the single most important reason,” Major General (retired) Mrinal Suman told this writer. “With assured orders and a captive customer base, the public sector never felt the need to exert and modernise.”
Suman, an expert on defence procurement and procedures, heads the Defence Technical Assessment and Adivsory Service of the Confederation of Indian Industry. He writes in an earlier article:
“Militaries seek to maintain a well-balanced equipment profile at all times. Perhaps, a mix of 30 per cent modern, 40 per cent matured and 30 per cent obsolescent equipment. Disconcertingly, in our case, as much as 85 per cent of the equipment with the Indian military today is decades-old and needs to be replaced/upgraded.”
With neighbours like China and Pakistan, India’s armed forces do need high-octane military hardware. But here’s the rub: not only are we overwhelmingly dependent on imports, but the approvals for everything – from snow boots to fighter jets – have to grind their way through a notoriously slow procurement bureaucracy. This can cause peculiar problems.
To illustrate, in the 1950s when Pakistan received brand new Sabre and Starfighter jets from the US, India rushed to acquire outdated aircraft such as the Hunter, Ouragon and Mystere from Britain and France. Not surprisingly, during the 1965 War these British-French aircraft became easy targets for the Pakistan Air Force (PAF).
Again, in the early 1980s, in response to the American sale of the F-16 to Pakistan, India decided to go for the French Mirage 2000. But realising Mirage 2000 deliveries wouldn’t happen until 1987, even as the F-16s were flying into Islamabad, India opted to buy the MiG-29 from Russia.
Basically, Pakistan was accepting what was available and its generals were being proactive about it. On the other hand, the Indian procurement nightmare was on, with MoD bureaucrats acting like clueless zombies.
Perhaps it was less zombie and more acting – aimed at bilking the exchequer to the tune of hundreds of billions of rupees.
Take the selection of a new rifle for the Indian Army. After cancelling an Indian design, the army has invited foreign vendors to supply 66,000 new rifles for an estimated $3 billion to $4 billion.
Danvir Singh, former Commanding Officer of the Indian Army, writes in Indian Defence Review that he is in no doubt the deal is gamed:
“It should come as no surprise if probed, that there are forces supported by the politico-bureaucratic-military nexus serving the designs of the arms mafia, who deliberately want this indigenous effort quashed. It may be surprising, but not really though, that our scientists can develop and launch a probe to Mars but fail to produce an assault rifle.”
Indeed, almost every weapon produced by the DRDO has been rejected by the defence forces, forcing the government to release funds for imports. Take the Augusta Westland scandal. Initially, former air chief marshal S.P. Tyagi was under investigation for allegedly tweaking the technical requirements of VVIP helicopters. Later it transpired that the specifications were changed on the orders of Brajesh Mishra, the National Security Adviser, who was reporting directly to former Prime Minister Atal Bihari Vajpayee.
The scandal shows that it is in the interests of a clique comprising the military brass, politicians and middlemen to scuttle indigenous defence projects. R.S.N. Singh, a former military intelligence officer who later served in the Research & Analysis Wing, writes in Canary Trap about the Chandigarh Gang that surfaced as the “mainstay of the international arms lobby” during the decade long UPA rule. “This gang is not necessarily in Chandigarh alone, but nevertheless is centered around it,” Singh writes. “It comprises some retired officers, politicians, journalists and prominent newspapers.”
Offsets: How successful?
The government’s new procurement policy is banking on offsets to breathe new life into the Indian defence industry. But the key problem with offsets is the enormity of the purchases. India is expected to import over $100 billion worth of equipment in the next five years, so the offsets are in the region of $30 billion.
Because government companies monopolise India’s defence industry, and until now the private sector was kept at a distance, foreign vendors were unsure if the Indian defence industry could absorb such huge offsets. The foreign arms manufacturers, with powerful lobbyists working for them, wanted India to widen the scope of offset activities to include fields that were unrelated to defence. For instance, France could theoretically sell us $10 billion worth of aircraft and purchase $3 billion worth of potatoes in lieu. Yes, it’s a bit farfetched idea, but you get the picture.
According to Suman, 19 offset contracts worth Rs 16,000 crore were signed between 2006 and 2012 – fourteen for air force purchases and five for naval hardware. As all contracts entailed export of “low-tech components/sub-assemblies” Indian industry did not gain at all, he points out.
New deal: Make in India
All militaries in the world seek the best equipment they can get. In reality they fight with the best equipment they have. After splurging on gold plated weapons for decades, the Indian military is facing up to that reality.
With Make in India now gaining traction, the days of multibillion dollar defence deals are over. This will have major implications for the defence forces, foreign weapons manufacturers, contractors and Indian industry.
One of Prime Minister Narendra Modi’s first major decisions was to downsize the $20 billion-plus Rafale contract. This was a signal to the armed forces that from here on they have to look at homebuilt options. Like it or not, the Indian Air Force will have to accept the Tejas light combat aircraft. Similarly, the Indian Army can no longer reject the home built howitzer. (Thankfully, the Indian Navy has embraced indigenisation with open arms.)
Modi is right in pushing Make in India because an insane amount of money is involved here. Due to the need for updated equipment, India is set to undertake one of the largest procurement cycles in the world. India’s armed forces are projected to buy weaponry worth over $150 billion in the next 10 years, and more than $100 billion of those purchases will be directed towards domestic companies.
Recognising the potential in defence, a number of private companies have rushed in. Here’s a short list:
*Anil Ambani’s Reliance Aerospace is in talks with Russian Helicopters to manufacture 200 Kamov-226T helicopters in India in a deal worth Rs 6,500 crore. The number of choppers could potentially go up to 400 choppers.
*Tata Advanced Systems will be the lead production agency for making 40 C-295 Airbus aircraft in India in a deal worth Rs12,000 crore.
*Mahindra Defence Naval Systems has tied up with the UK’s Ultra Electronics to build equipment for underwater warfare.
* Anil Ambani is partnering with Germany’s Atlas Elektronik GmbH to make an advanced torpedo in India.
*Larsen & Toubro is investing $400 million into a yard to build ships for the navy.
*Hindustan Aeronautics will offload large chunks of the Tejas programme to 12 large private sector players. The move will increase production and delivery rates to the IAF.
Government to government
To be sure, while tweaking its defence procurement policy there’s no need for India to re-invent the wheel. “In today’s world, even the United States and Russia don’t create airplanes and helicopters from scratch, but actively use components from other countries,” Oleg Panteleev, head of Russia’s Analytical Services Agency, says in an interview with Russia & India Report.
“India’s challenge is not to do everything on its own, but to reach competency as an integrator. To become the party that develops the overall product, but takes certain components and elements ready-made, getting the best deal, while saving time and money. Each unit signifies unique technological and costly solutions and knowhow, and neither India, nor more prosperous countries, can afford to deal with every single thing.”
Last week, India’s Defence Acquisition Council (DAC) announced that it was looking at the S-400 air defence system made in Russia. Since the missile system has no analogues and India is wiser after the drawn out Rafale drama – it was a commendable decision not to go for a global tender. The DAC has done the same with the Apache and Chinook helicopters and American howitzers.
Strategic deals such as the lease of the Akula-II submarine from Russia is yet another example of procurement in the fast lane. The point is to avoid the rigidity of the A.K. Antony years when the Defence Ministry avoided taking decisions for some inexplicable reason.
Quantity has a quality all its own. This is best illustrated by China’s laborious efforts at building a vast defence industrial ecosystem that is now capable of delivering bleeding edge systems including stealth aircraft.
In the 1960s after its break with Russia, the Chinese had to go it alone. Today China is almost self-sufficient, with advanced aircraft engines being one of the few categories they haven’t yet mastered. Where the Chinese lack quality, they make up for that with raw numbers.
India’s procurement nightmare will end when it will be able to emulate the Chinese model. Having a solid defence industry means you won’t worry about war attrition.
You lose a Tejas, no worries, order a new one that same afternoon. India can send in swarms of these $30 million jets –with top cover provided by the Su-30MKI – deep into Pakistan and overwhelm enemy air defences.
On the other hand, you have Pakistan which threw in the towel during the 1965 War when its hardware – or morale – ran low because it couldn’t easily replace its war losses.
There is another lesson from that war – brand new isn’t necessarily better. Poorly trained Pakistan tank crews couldn’t use their latest Pattons to full effect whereas India’s tankmen who were familiar with their outdated Centurions were able to take that all important shot. The upshot: in key battles, the Indian Army beat the living daylights out of the better equipped Pakistan Army.
Although the defence sector looks promising, these are early days yet. According to the procurement website Defense Industry Daily:
“Ultimately, the real question in India is the extent of true domestic competition for defense funding. Will the new government open the market sufficiently to allow the private sector to compete and win, resulting in greater non-public sector investment in R&D and production capabilities? The circumstances seem favourable: this government is more committed to competition, has a more instinctive understanding of for-profit industry, and harbours greater awareness of the severe capacity constraints of the traditional public sector undertakings.”
It is through this prism that industry should consider its opportunities. “The desire for more indigenous development and production will continue in an avowedly nationalist government,” DID concludes. “Nevertheless, global defence firms may be able to develop deeper and more fruitful partnerships with emerging private sector defence firms in India, perhaps even leading to greater exports of Indian content – much praised, but rarely experienced to date.”