Defence Industry

Defence Budget 2016: Hits and Misses for the IAF
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Issue Vol. 31.2 Apr-Jun 2016 | Date : 09 Jul , 2016

As a percentage of government expenditure the defence budget is down to 12.6 per cent from 13.9 per cent last year. Interestingly, 15 per cent of Ministry of Defence (MoD) capital budget remained unspent last year, once again indicating the complexity in Defence Procurement Procedures. Hopefully, the new DPP 2016 will change things for the better. The MoD gets Rs 3.40 lakh crore including pay and pensions. The overall outlay increase is also due to hikes in military pay and the introduction of One Rank, One Pension (OROP). Interestingly, 37 per cent of the MoD’s budget goes to pay and allowances.

India is the world’s fourth largest spender on defence this year after Russia and Saudi Arabia…

March 2016 was an eventful month for the Indian Air Force (IAF) on many counts. The Indian defence forces were still recovering from the lower than expected increase in the defence allocation in Budget 2016-2017. In fact, the Finance Minister for the first time did not even mention the allocation for defence in his speech in the Parliament. With dithering modernisation, the capital fund allotments were considered rather meagre. The IAF’s Exercise Iron-Fist 2016 on March 18 was the largest ever show of air power. In spite of it being a great event, there were a few clearly visible weapon misses that were critically talked about.

The DefExpo at Goa on March 28, 2016, had 1,055 defence companies from 48 participating countries, clearly indicating that India was being wooed by many. The most talked about subject was the new Defence Procurement Procedure 2016 (DPP-2016) which was later uploaded on Ministry of Defence (MoD) website on April 02, 2016. Earlier, India had a very big defence manufacturer participation in the Make-in-India week in Mumbai in February.

Amongst all this, on March 28, came an article titled ‘Troubles, They Come in Battalions: The Manifold Travails of the Indian Air Force’ published by India specialist analyst Dr Ashley Tellis of the Carnegie Foundation. He said, “The Indian Air Force’s falling end strength and problematic force structure, combined with its troubled acquisition and development programs, threaten India’s air superiority over its rapidly modernising rivals.” With one stroke of the pen, he had put in public domain what the Chief of the Air Staff of the IAF has been repeatedly telling the government for long. Finally, the end of the month saw the IAF flagging off a large contingent to take part in the famous Exercise Red Flag in Alaska, yet again moving India closer to the USA in the global political game.

The rising US dollar will actually further reduce India’s funds for modernisation…

Defence Budget 2016

For the second time, the defence allocations were found low on capital outlay. The Indian armed forces need a steroid level infusion of funds to even partially close the modernisation gap. The figures tell much more than they hide. Defence outlay at Rs 2.49 lakh crore is a meagre 0.96 per cent hike over last year’s Budget Estimates (BE) of Rs 2.47 lakh crore. Albeit it is around a ten per cent jump over the Revised Estimates (RE) of Rs 2.25 lakh crore. The capital outlay has been reduced 8.7 per cent to Rs 86,340 crore from Rs 94,588 crore although once again it is up 6.1 per cent from RE of Rs 81,400 crore. The defence budget was 1.82 per cent of GDP last year and is around 1.65 per cent this year.

As a percentage of government expenditure the defence budget is down to 12.6 per cent from 13.9 per cent last year. Interestingly, 15 per cent of Ministry of Defence (MoD) capital budget remained unspent last year, once again indicating the complexity in Defence Procurement Procedures. Hopefully, the new DPP 2016 will change things for the better. The MoD gets Rs 3.40 lakh crore including pay and pensions. The overall outlay increase is also due to hikes in military pay and the introduction of One Rank, One Pension (OROP). Interestingly, 37 per cent of the MoD’s budget goes to pay and allowances.

The rising US dollar will actually further reduce India’s funds for modernisation. Yet, India is the world’s fourth largest spender on defence this year after Russia and Saudi Arabia have cut down on defence spending due to low oil prices and resultant strained finances. Spending on acquisition of military equipment remained largely static and in real terms, it is lower than the peak it reached in 2013-2014.

Defence is among the core areas of Prime Minister Narendra Modi’s India grand plan and the slow pace of defence acquisitions has been a cause of worry…

IAF Modernisation Funds

The combat resources of the IAF have been depleting since early 1990s with retiring old fleets and slow acquisitions combined with delays in the indigenous Tejas LCA. The IAF is down to 33 combat squadrons from the authorised 42. The helicopter fleet is critically short. Ground-based radars and air defence systems are ageing. The IAF’s share of the defence budget is Rs 53,451 crore, with Rs 27,556 crore for capital expenditure, down 12.5 per cent from last year’s Rs 31,481 crore. Only Rs 17,883 crore is for aircraft and aero-engine acquisitions. Bulk of this will be used for committed liabilities of previous purchases.

The IAF’s long talked of purchases waiting for funds include, 36 Rafale jets, six Airbus aerial refuellers, 15 Chinook heavy-lift helicopters, 22 Apache attack helicopters, additional SU-30 MKI, C-17s and C-130s. Fifth Generation Fighter Aircraft (FGFA) and Tejas need funding and so do Avro replacement and the Light Utility Helicopter (LUH). The IAF needs an Intermediate Jet Trainer (IJT) immediately. China has over double the number of combat aircraft than India has. The IAF’s edge over PAF is at an all-time low of 1.5:1. Air Marshal B S Dhanoa, Vice Chief of the Air Staff, has publically stated that IAF numbers were inadequate for a two-front conflict. Needed capital allocation for the IAF is around Rs 50,000 crore a year.

DPP 2016

Defence is among the core areas of Prime Minister Narendra Modi’s India grand plan. The slow pace of defence acquisitions has been a cause of worry. The contract worth $8.8 billion (Rs 59,000 crore) for 36 Rafale jets, for which an agreement has been signed, is yet to be finalised. In spite of a massive defence R&D structure and Indian scientists dominating NASA, India has little to show in end-use defence products. FDI increase to 49 per cent has still to bring anything substantial on the table. The private sector continues to tip-toe into this high-risk area. International tie-ups and investments are their only hope.

The Modi government is aggressively pushing Make-in-India in defence manufacturing…

The Modi government is aggressively pushing Make-in-India in defence manufacturing. Indian and foreign defence manufacturers had been pressing simplification and rationalisation of procurement procedures. DPP-2016 evolved as a document that clearly spells the operational context, acquisition categories and plans under various ‘Buy’ or ‘Make’ categories, including the Fast-Track acquisition procedures. Concept of strategic-partnerships is proposed to be clearly defined. Defence procurements often get linked to kick-backs and therefore, there was a need for transparency and public accountability.

A balance was required between expeditious procurement, quality and cost-effectiveness. Self-reliance in defence manufacturing was to be the cornerstone. There was need to leverage indigenous manpower and engineering capability, utilise and consolidate design and manufacturing infrastructure within the country. DPP-2016 ‘Make’ procedure should ensure increased participation of the Indian industry, especially MSMEs. The DPP encourages quicker decision making and delegates powers to the appropriate authorities. DPP will ensure a level playing field while keeping self-reliance as the key aim.

Acquisition would now be under Buy, Buy & Make, Make, Buy (Indian indigenously designed, developed and manufactured – IDDM), Buy (Indian), and Buy (Global) categories. ‘Buy & Make’ essentially means procurement of equipment in Fully Formed (FF) state followed by indigenous production through Transfer of Technology (ToT). Buy Indian or IDDM must have at least 40 per cent indigenous content. ‘Make’ portion of the contract has to be minimum 50 per cent. ‘Buy (Global)’ is the outright purchase of equipment from foreign vendors and the Government to Government route is likely to be adopted.

The six additional Boeing C-17 Globemaster III heavy-lift aircraft expected by 2022 require around $2.5 billion…

The MoD will make public, the 15-year Long Term Integrated Perspective Plan (LTIPP), the five-year Services Capital Acquisition Plan (SCAP) and Annual Acquisition Plan (AAP). Designation of “strategic partners” for manufacturing aircraft, warships, helicopters, submarines and tanks based on foreign technology will be a priority. Defence Minister Parrikar said that DPP 2016 will break new ground. New ‘penalisation provisions’ will replace the reactive ‘blacklisting’ of arms vendors policy with a more appropriate range of penalties. He emphasized, however, that foreign vendors would not be allowed to get away with paying bribes.

According to Parrikar, the government would reimburse 90 per cent of the development cost in the ‘Make’ procedure. After developing a prototype, if the vendor does not get an order, his ten per cent expenditure would be refunded. DPP-2016 would ensure steps for merit-driven acquisitions and will promote global and Indian companies to forge partnership. He said that the DPP-2016 had just been a warm up; the final game was yet to begin. He stated that suggestions and recommendations from all players would be encouraged and things fixed quickly adding that the status of Acceptance of Necessity (AON) forwarded by Service HQs was being analysed and would be hastened.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Air Marshal Anil Chopra

Air Marshal Anil Chopra, commanded a Mirage Squadron, two operational air bases and the IAF’s Flight Test Centre ASTE

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4 thoughts on “Defence Budget 2016: Hits and Misses for the IAF

  1. The defense officers idea about economics, the Govt officials and, the people like me are ientirely deffirent . Indias defense budgest should not be based on GDP. Unlike super powers India has no plan to attack any country. No body in the defense, do not know the number of equipment required to fight war against Pakistan and China. IAF does not know the number of fighter planes requird. They will tell 42 squadron . If we asked how they arrived this figure, no one will give a logical reply. The word squadron is vague because in a squadron there will be 6 to 18 sae type of fighter plane. To create a squdron only six numbers of planes requred. In 1971 war IAF had only 34 effective squadrons, each of which consisted of 12 planes . IAF had 16 air craft per combat squadron but the effective availability during the 1971 war was 12 per squadron. So in 1971 IAF had 408 effective planes. We were able to achieve air superiority in east and west. Now IAF has 535 planes. excluding Mig 21 and Mig- 27. All these planes can conduct sorties indipedently. with the help of AWACs or GPS. The other day i read an article LCA Tejas role for IAF – View from a simple sortie rate model”. This is a very good article , Using comuter programes defences forces should reduce the inventory. So budjet should be prepared on actuals and not on GDP.

      • Some of the supporters of Modi Govt. like me did not expect anything in return because God has given more than enough in the present life. One has to follow Bhagavad Gita. I have never worked in the Army , Airforce , and Navy . But I have very good experience in the engineering field. Since childhood. Bhagwan Sri Krishna showed the people by example more than 5000 years back that war can be fought by army commanders without taking up any weapon in the hand. All the modern-day warfare is being fought by the army commanders in the same method. I was very much interested to know different war strategy adopted by Bhagavan Shi. Krishna. in the great war of Kurukshetra. Not only that I used to read details of Yuhas used in the Mahabarath Yudh and later on details of war strategy adopted since second world war and equipment for the last six years. My only aim is to stop unwanted expenditure in the defense department. IAF will never get any Rafael plane. It will remain as a dream to the officers helped the UPA Govt to float a tender of 126 planes.

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