Flaws exposed in country’s procurement policy.
By Rajiv Theodore
NEW DELHI: India’s defence sector saw a slew of hectic activity this month. The fanfare was much evident among the Navy – the launches of air-craft carrier INS Vikrant and INS Arihant, the first home-made N-submarine, has placed the country among an exclusive club of “blue-water” navies – a term given to such forces for their ability to project power around the world. India, an emerging Asian power-house presumably has a defense sector larger than even China’s and as experts argue could even impact the destiny of Asia, and the U.S.’s influence in the region.
Given that it still deploys plenty of Russian/Soviet military hardware, but India has recently developed some lethal designs of its own. A case in point has been the Navy’s new 40,000 ton INS Vikrant launched this month followed by INS Vishal, with even a larger tonnage at 65,000 tons. The combined strength of these two ships would be around 1,400 officers and sailors, and a capacity to carry 30 aircrafts each. Also, with the INS Arihant under its belt, the Navy will be one of the few forces in the world to have such a capability. The state-owned Hindustan Aeronautics Limited (HAL) is also busy developing India’s first stealth fighter.
India’s growing military might has a direct bearing on China which is also mounting a naval buildup of its own, including the purchase of at least two aircraft carriers from Russia. In addition, China has at least four to six nuclear-powered ballistic missile submarines. Defence experts say this arms race will re-shape the entire geopolitical landscape of Asia for the next 75 to 100 years.
“As both China and India seek to enhance their military capabilities, each will check the power of the other, as well as that of the United States,” Professor Anirudh Deshpande from the University of Delhi, said in an interview.
But the recent submarine explosion of the 16-year old—INS Sindhurakshak has pushed the clock back all of a sudden and has also revealed certain chinks in India’s defence procurement policy. India still relies on Russia for more than 60 percent of its defence equipment needs, and its army, air force and navy have vital Russian equipment that is often decades old and of increasingly poor quality.
After gaining its independence from Great Britain in 1947, India has been a close client state of the old Soviet Union, and the influence is still apparent today in the sheer number of Sukhoi, MiG, and Ilyushin aircraft operated by the Indian Air Force and Naval aviation
The Sindhurakshak is one of 10 Russian-made Kilo-class submarines that India has as part of its front-line maritime defenses, but only six of India’s submarines are operational at any given time – far fewer than are needed to protect the nation’s vast coastline.
India has fewer than 100 ships, compared with China’s 260. Although it is the world’s largest weapons buyer, but with its economy under stress and foreign currency reserves increasingly shrinking, that level of purchases will be increasingly hard to sustain.
Efforts to build its own weapons have largely been a failure while a growing number of scams have tainted its foreign purchases which included a recent deal to buy AgustaWestland helicopters from Italy. Unable to build or buy, India is becoming dangerously short of vital defence equipment, says Deshpande.
This reaches us to the heart of the matter—the crucial issue of policy factor in India’s defence sector. It may be recalled that among a slew of norms for FDI announced recently by the government the proposed relaxation for foreign investors in India’s defence sector had hogged the limelight.
What the government intended was to lift the cap currently prevailing at 26 % formulated in 2001, to 49 % and which could be scaled to 74 % under the automatic route. But, thanks to a back-tracking prompted due to political pressures, the final announcement put the FDI cap at 26 % only under the automatic route.
The new norms simply added that higher FDI would only be allowed after consultations by a Committee on a case-by-case basis whenever state-of the-art technologies are involved. In other words only where advanced technologies come into play that FDI ceiling would be raised. As per current provisions, the foreign supplier is obliged to offset 30% of the contract value, or 50% in very large projects through domestic sub-contracting. This is initiated under an official perception that a fair proportion of manufacturing in defence would be routed to India. India introduced the offset policy in 2005. Defence Minister A.K. Antony had told Parliament in May that the country had already attracted over $4.27 billion through defence “offsets” through arms contracts inked since October 2007.
The defence procurement policy specified that a foreign armament company, which bagged an arms deal over Rs. 300 crore, must plough back at least 30 per cent of the contract value back into India as offsets.
But a lawyer who also deals in defence issues Rahul Singh says that “expectations that this will bring high-tech into the country have been belied. No country parts with its core high technology. But what we can do, by taking bold steps like permitting 100 per cent FDI in defence industry, is to incentivize them to set up plants in India. This way you can ensure that key technology will not be denied to you at a crucial time, and Indian vendors would have the opportunity to get into the global supply chains of high-tech companies.’’
The new FDI policy in defence could jeopardise India’s quest for self-reliance and its need to upgrade military technology and additional armaments. But, before taking the plunge, outmost caution need to be maintained as foreign manufacturers increase their investments and control, they will also increase their control over technology transfer. The question then remains how Indian industry both public and private would upgrade their capability in manufacturing under such circumstances as per the new policy frameworks.
To contact the author, email to editor@americanbazaaronline.com