To spend, or not to spend


300x200_0008_india_defence_2By Sarosh Bana

India’s defence budget is predicted to triple in the next decade from the US$50 billion already spent in the past decade, but does the Indian Government really have its finger on its military pulse?

India, with the world’s second largest standing army, of 1.13 million, after China’s 1.48 million, has for some years been the world’s biggest purchaser of arms.

The country has purchased arms worth US$50 billion in the past decade and is projected to spend triple this amount during the next decade. The average 40 to 45 percent of the defence budget – that was Rs2.04 trillion (US$33 billion) for 2013-1r – earmarked for capital acquisition and modernisation is largely expended on imports.

Imports have been the mainstay of India’s defences, as the generous outlays have been incapable of fostering a credible Defence Industrial Base (DIB), or military industry. Defence production has largely been the purview of State-controlled enterprise that has fallen grossly short of meeting the needs of the armed forces.

More than 70 percent of India’s military hardware is of foreign origin. During the last few years, the United States, as also Israel and France, have evolved as major armament suppliers to India, which until then had relied almost entirely on the erstwhile Soviet Union with which it had abiding ties bolstered by a convenient rupee-rouble trade link.

It has been a vicious cycle. Over-dependence on imports has restrained development of a substantive DIB, while the shortcomings of the Defence Public Sector Undertakings (DPSUs) in indigenising warfare systems have ensured that India remains a purchaser rather than a builder in this field.

Such drawbacks have led to failures, and prohibitive cost and time overruns, in the country’s ambitious programme for the indigenous design and production of military hardware. This has ranged from the construction of an aircraft carrier, a nuclear-powered submarine, combat and trainer aircraft, helicopter gunships, battlefield tanks and propulsion equipment.

One of the big ticket defence deals signed by India in recent years has been the US$12 billion one last year with France’s Dassault Aviation for 126 Rafale multi-role fighter aircraft, though the contract has been held up by a cost review. France also signed another deal in 2005, costing US$3.5 billion, for supplying six Scorpène class submarines.

Other deals include the US$1.1 billion one with Israel in 2004, for three Phalcon AEW&C (airborne early warning and control) radar systems, a US$1.2 billion purchase, signed in 2008, from the US’s Lockheed Martin of six C-130J Super Hercules tactical airlifters, an expected follow on order of like number and cost, a US$2.1 billion deal in 2009 for the purchase of eight Boeing P-8I long-range maritime reconnaissance (LRMR) aircraft, and one more with Boeing for 10 C-17 Globemaster-III strategic airlift aircraft, topping US$5.8 billion if the ultimate deal is for 16. Washington itself has stopped purchase of these aircraft on costs – US$200 million each, without spares and training – but the deal with India saves 5,000 American jobs.

While Indian industry is keen on participating in the defence field, it looks to foreign partnerships at this juncture to marshal the necessary capital, high-end technologies, quality production and management skills. But though India presents a lucrative market to military vendors, they have all along preferred outright sale over joint production on account of a deterrent FDI (foreign direct investment) policy.

The Government recently raised the FDI limits in a dozen sectors, but Defence minister AK Antony, countered the Commerce ministry’s proposal to hike the FDI cap in defence from the current 26 percent to 49 percent, arguing that the sector was highly sensitive and strategic. Antony informed the Commerce ministry, “Allowing foreign companies to set up manufacturing assembly facilities here will be retrograde as it will stymie the growth of indigenous design and development, and perpetuate our dependence on foreign countries and OEMs [Original Equipment Manufacturers] for modern weapons.”