Deal to see Indian defense spending
soar By Siddharth Srivastava
NEW DELHI - In the past few years, India
has emerged as one of the world's biggest
importers of military armament. And the South
Asian country is just gathering steam.
Indian defense officials, who generally
prefer not to be identified, have said that the
Indian Air Force (IAF) should float within two
months a long-delayed global tender for 126
multi-role combat jets in a deal believed to be
worth close to US$10 billion.
"There are
certain procedural issues that need to be resolved
before we float a request for
proposal [RFP] for the aircraft," said an
official. "This should happen in a month or two."
There are also indications that the
Defense Ministry could fast-track the process by
issuing an RFQ (request for quotation) instead of
an RFP for the fighter-jet contract.
India's import of military hardware and
software will reach $30 billion within the next
five years, the Associated Chambers of Commerce
and Industry (Assocham) said in a recent study,
"Private Sector Participation in Defense".
The big deals include the 126 fighter
jets, a variety of helicopters and long-range
maritime spy aircraft. In the past three years,
India spent as much as $10.5 billion, making it
the largest arms importer in the developing world.
Big purchases include Israeli Phalcon
radars in 2004 for $1.1 billion, and six French
Scorpene diesel attack submarines for $3.5 billion
in 2005.
The study has also recommended
outsourcing for many defense activities to the
domestic private sector. "The target of achieving
70% self-reliance in defense production 10 years
ago has fallen short of the target by 40
[percentage points], as only 30% of defense
production has become self-reliant until now,"
Assocham said.
Nations lobby for
fighter-jet contract The race for the IAF
order is seen to be between the US F-16 and F/A-18
Super Hornet and Swedish, French and Russian
fighter jets. Intensive lobbying is in progress.
Swedish Foreign Minister Carl Bildt
recently visited India and met with Prime Minister
Manmohan Singh, Defense Minister A K Antony and
External Affairs Minister Pranab Mukherjee. An
agreement was signed to deepen defense ties.
Discussions centered on a new contract for Swedish
SWS Bofors 155-millimeter guns for the army and
the JAS 39 Gripen fighter aircraft by Saab
Avionics for the IAF.
Sweden, being a
member of the 45-Nation Nuclear Suppliers Group,
has adopted a flexible approach toward the
India-US nuclear deal.
It is well known
that Washington, with President George W Bush at
the forefront of such efforts, is keen to leverage
the deal that will allow India to access
international nuclear-power technology, to enable
the US to garner several defense contracts with
India. Bush recently called Manmohan to assure him
about the nuclear pact.
Communication at
the highest level is an indication of the comfort
level that the two countries now enjoy. It also
makes it that much more difficult for any other
nation in a competing business position.
The US is said to be looking at defense
deals worth $30 billion over the next few years.
In military aviation, the Indian armed forces are
looking to seal deals for more than 500 aircraft,
helicopters and unmanned aerial vehicles.
Among nations involved in arms deals with
India, factors such as state-of-the-art
technology, geostrategy and slush funds come into
play. In a clear indication of behind-the-scenes
dealings, an Austrian firm recently told the
Indian Supreme Court that Russian armaments
manufacturer Kazan Helicopters paid Rs290 million
(more than $7 million) in kickbacks to swing a
Rs1.8 billion deal to supply 16 Mi-17 helicopters.
Israel has overtaken France, the United
Kingdom and other countries to become the
second-largest defense supplier to India, with the
value of its military arsenal close to $1 billion
each year for the past three years.
Russia
has managed to retain its position as India's
biggest defense partner, notching more than $1.5
billion a year because of the deeply entrenched
relations between the two countries. But the US,
the latest to join the fray, could well make
things difficult for the established players.
India and the US inked a 10-year defense
agreement in June 2005, "the New Framework for the
US-India Defense Relationship", signed by then
defense chiefs Donald Rumsfeld and Pranab
Mukherjee.
However, it could be at least
five years before jet-fighter price negotiations
are concluded and another five years before the
first of the new aircraft start arriving, experts
say.
The IAF is also procuring 40 Sukhoi
multi-role jets from Russia as a stopgap measure.
The problem areas The inability
of the private sector to meet expectations is a
cause for worry, according to Assocham. As far
back as 2001, 26% foreign direct investment (FDI)
was allowed in the defense sector.
The
government has ruled out allowing multinational
armament companies to go in for indirect offsets
(investments in non-defense sectors such as the
high-profit information technology industry) in
defense deals worth more than Rs3 billion ($73
million). The bulk of the offsets business will be
in the aerospace sector.
"Any company
vying for supplying defense weapons to India will
have to invest 30% of the order in Indian public-
and private-sector companies," Indian Defense
Secretary Shekhar Dutt said last week.
India signed its first offset contract of
more than $5 million under the new rules in March
last year when it purchased Israeli Elta
medium-powered ground radars. The company placed
orders from private Indian companies Larsen and
Toubro and Astra Microwave of Hyderabad.
To take advantage of offsets in aerospace,
Bharat Forge Ltd, already a global player in the
auto-components sector, is setting up a Rs3.5
billion Center for Advanced Manufacturing in Pune,
Maharashtra state. The plant is scheduled to
commence production next April.
However,
despite the broad picture provided by the Assocham
study, defense procurement continues to be mired
in delays.
The Parliamentary Standing
Committee on Defense recently said that the
formalities of several deals should be completed
by September. These include 197 helicopters for an
estimated $700 million for which US firms Textron
and Eurocopter are bidding. Though the initial
formalities have been completed, the deal has yet
to be cleared.
The decision to procure 400
upgraded towed 155mm guns at an estimated $3
billion is on hold despite an unprecedented four
performance trials.
"Failure to complete
major armament deals is leading to a cut in the
acquisition budget,'' observed the committee.
"There is a need to allocate more funds for new
schemes."
Siddharth Srivastava
is a New Delhi-based journalist.
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