Indian Defence Review

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.

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.

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.

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. 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 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.

IAF’s Capital Requirements

The LCA ‘Tejas’ is further delayed and yet does not meet all specifications. It will now join IAF in 2017. The Tejas Mk I is estimated to cost around Rs 250 crore apiece. The IAF needs six squadrons of these. Tejas Mk II with full specifications compliance with the larger and more powerful GE F-414 engine may be inducted in 2022. For the Tejas, the IAF will one day require an Active Electronically Scanned Array (AESA) radar, Infra-Red Search and Track (IRST) sensor pod, FLIR targeting pod, ECM pods, flare and chaff pod, EO/IR sensor pods and EW suite. All these will require funding. The joint Sukhoi-HAL Fifth Generation Fighter Aircraft (FGFA), a derivative of Russian PAK-FA is facing delays and disputed cost escalations.

The six additional Boeing C-17 Globemaster III heavy-lift aircraft or equivalent platform expected by 2022 would require around $2.5 billion. Six additional Lockheed C-130-J-30 Super Hercules aircraft for Special Operations would cost over $1 billion. The IAF has three Beriev A-50 platform based EL/W-2090 Phalcon AEW&C. Two more are on order at rough cost of $275 million apiece. DRDO’s Embraer ERJ-145 aircraft-based AEW&C is under development. The IAF requires 24 of them. The IAF is committed to six Airbus A-330 aerial tankers. HAL and United Aircraft Corporation (UAC) of Russia will jointly develop and build an IL-214 design-based Multirole Transport Aircraft (MTA). Initial funding required is $300 million. The IAF plans to acquire 45 MTAs with initial service entry by 2018.

Airbus Defence and Space, and Tata Advanced Systems (TASL) have bagged a
Rs 12,000-crore contract to supply 56 C-295 aircraft to replace the IAF’s fleet of Avro aircraft. The IAF is committed to 72 HAL’s Intermediate Jet Trainer (IJT) HJT-36 Sitara which is far from ready. HAL is also trying to develop the turbo trainer HTT-40 with Honeywell Garrett TPE331-12B turboprop engine, and IAF requires 68 of these. Delays in these may force purchase of more Pilatus PC-7 Mk II and Hawk AJT.

In December 2014, twin-engine Kamov Ka-226T was selected to be the Light Utility Helicopter (LUH) for the three services and some other government departments. Kamov will set up a plant in India to manufacture these with an Indian partner. Around 400, likely to cost $7 million apiece, will be required. Attack helicopters Mi-25/Mi-35 are planned to be replaced by 22 Boeing AH-64E Apache attack helicopters through a $1.4 billion deal including air-to-ground and air-to-air weapons. In a deal priced at $897 million, 15 Boeing CH-47F Chinook helicopters are to be acquired for heavy lift duties. HAL is also developing the Light Combat Helicopter (LCH) for the IAF based on the basic Dhruv platform. Initially, 68 are required but additional ALH Dhruv helicopters are on order and the IAF plans to finally acquire more than 100 aircraft.

S-125 Pechora and OSA-AK SAM-8 Surface-to-Air Missiles (SAM) are under replacement by indigenous Akash medium range system. The DRDO and Israeli Aerospace Industries (IAI) are also developing the Barak-8 SAM. The IAF has also ordered 18 Israeli SPYDER SAM units. DRDO, in a joint venture with Russia, is developing the air-launched version of the BrahMos cruise missile. The DRDO has also developed the nuclear-capable Nirbhay cruise missile with a range of 1,100 km. The DRDO is likely to develop the Maitri Low Level Quick Reaction Missile (LLQRM) in collaboration with MBDA. The Indigenous Astra Beyond Visual Range (BVR) air-to-air missile firing was demonstrated on Su-30 MKI during Exercise Iron-Fist 2016. The in-service indigenous Rohini and Reporter ground-based radars are planned to grow in numbers. After the induction of 19 Israeli Elta 2284 Medium Powered Radars (MPR), the IAF awaits DRDO’s ‘Anudhra’ MPR. The procurement of mountain radars is crucial for the Northern border.

The IAF has ordered the IAI Harop UCAVs. The DRDO is developing a Medium Altitude Long Endurance (MALE) UAV named ‘Rustam’ to replace/supplement the Heron UAVs in service. India is looking at more sophisticated large footprint systems such as the RQ-4 Global Hawks or Predators. The MoD has issued a global Request For Proposal (RFP) for procuring 95 mini-unmanned UAVs for the IAF and the Indian Navy. The IAF has sent out an RFI for an UCAV with low radar cross-section, high service ceiling, 925 km range and capability to carry precision-guided weapons in an internal weapons bay. The above wish list requires funding.

A Comparison of Global Defence Budgets

Beijing’s 2016 official defence budget announced on March 05 this year was 954 billion yuan ($146 billion). At 7.6 per cent increase over last year, it is the lowest increase in the last six years. China’s military expenditure accounts for around 1.35 per cent of the GDP. Her defence outlay is 3.8 times that of India. It is a well-known fact that China’s nearly another 40 per cent military activities like cyber, intelligence and dual use acquisitions are not reflected in her defence budget. IHS Jane’s Defence Weekly estimates China’s budget at $192 billion or 1.77 per cent of GDP. China is today the world’s third largest arms exporter.

US defence budget for 2016-2017 is $534 billion (3.3 per cent of its GDP) as base budget and is 3.8 times China’s. Additionally, the US allocates $230 billion for oversees wars and other miscellaneous expenditure code-heads. Pakistan’s last defence budget in June 2015 was $7.7 billion. Pakistan too has a large hidden defence budget and traditionally separate funds are allocated for new acquisitions. Pakistan also has monetary support from Arab countries and is a recipient of huge military aid from USA as part of the Afghanistan coalition support fund. Recently, the USA announced the sale of additional F-16s, nine AH-1Z Viper Attack helicopters and weapons costing $952 million to Pakistan.

IAF – Two Front War Requirements

The Pakistan Air Force (PAF) operates nearly 450 combat aircraft essentially of three major types in 22 Squadrons. PAF has nearly 90 F-16s which are under upgrade with APG-69v9 radar and new avionics, and 36 FC-20 (Chinese J-10 variant) which will go up to 150 one day. PAF has inducted nearly 70 of the initial JF-17 Thunder indigenous fighters. One day, 300 are planned. PAF is talking to the Russians for Su-35 air-superiority fighters and China for J-31 stealth fighters. It has Saab-2000 Erieye and Chinese ZDK-03 AEW&C and IL-78 aerial refuelling aircraft. The People’s Liberation Army Air Force (PLAAF) has around 2,000 combat aircraft of which nearly 600 are fourth generation plus and include the Su-27, Su-30MKK, J-10, J-11, J-16 and are soon to induct Stealth J-20 and J-31.

A US Air Force study estimates that one day the PLAAF will have over 1,000 modern fighters. It has indigenous heavy transport Y-20, stealth bomber H-18 and AEW&C KJ-2000 programs and is building a large number of helicopters and UAVs. The IAF currently has 33 combat squadrons nearly 30 of which will be required on the Western border for any semblance of air superiority. The IAF faces seven Chinese airbases (Kashgar, Hotan, Gongar, Pangta, Linchi, Hoping, and Gar Gunsa) in the TAR region and many more in the Chengdu Military Region, East of Myanmar. Even at full strength of 42 squadrons two decades from now, the IAF will be able to spare at best 12 squadrons against the PLAAF which would be woefully inadequate. To field even a defensive number of around 20 squadrons, the IAF combat strength must go up to 50 squadrons.

With the PAF likely to go up to 28 squadrons, requirement of the IAF could go up to 55 squadrons. Synchronisation of equipment and strategy between the PLAAF and the PAF would require the IAF to acquire advanced fighters, sophisticated support platforms and smart long-range weapons. Inter-theatre movement of troops and heavy equipment will require more heavy lift transport aircraft. Since battles will be more mountain-centric, inter-valley movement of heavy guns/equipment will require more heavy-lift helicopters. India will also require more aerial refuellers and AEW&C aircraft, plans for some of which are still in the pipeline.

Future Challenges and Opportunities

Build up of India’s military strength has not kept apace the external threat. For modernisation, technology-intensive IAF is the most affected because of faster obsolescence. At the current pace of finalising contracts and indigenous systems development, it may take over 20 years to reach the authorised 42 squadrons. To bridge the gap of nine squadrons and to cater for the phasing out of at least six more squadrons the next five years, would mean 14 new squadrons. With the LCA costing $40 million apiece, a mid-sized fighter aircraft would cost around $60 million. To acquire just 14 squadrons over next ten years, $15 billion will be required just for new combat aircraft. Weapons, ground infrastructure, spares and training will add up to much more.

The IAF also needs to invest significantly in UAVs, ground-based air defence radars and weapon systems. Most analysts have opined that India needs to allocate 2.5 per cent of GDP; up from current 1.65., for at least next ten years to bridge the gap to some respectable levels and catch up on modernisation. Will such funds be allocated? Nonetheless, India’s long-term budgetary prospects have improved and are expected to strengthen further over the next five years.

Click to buy: IDR Apr-Jun 2016 issue

IHS Jane’s analyst Craig Caffrey believes that the Indian defence budget is expected to reach $64.8 billion by 2020 with procurement expenditure expected to grow faster than overall spending. Increases in capital expenditure will be driven by extensive modernisation requirements including the IAF’s need to make good the deficient squadrons. With the geo-political situation being most complex, someday India will have to bite the defence budget bullet.