Turning India into An Aerospace Power House to end Defence Import Scams

Radhakrishna Rao 

(Research Fellow, VIF)

Frequent eruption of scams and scandals surrounding India’s high profile defence acquisition programme, besides delivering a severe blow to the defence preparedness of the country, has brought into sharp focus the abysmal failure of the country, boasting one of the largest pools of scientific and technical manpower in the world, to develop a strong and versatile indigenous base for defence and aerospace production. Against this backdrop, the exposure of the massive kickback involved in the Rs.36,000-million deal for the acquisition of 12 VVIP helicopters from Agusta Westland, a wholly owned subsidiary of the Italian firm Finmeccanica, in which the Italian Government holds 30% stake, has sent shock waves through the defence setup and political establishment of the country. Indeed, while replying to the searching queries of the agitated members in the upper house of the Indian Parliament (Lok Sabha) Indian Defence Minister A.K. Antony was at pains to explain that India is forced to import defence hardware to meet the immediate operational requirements of the Indian defence forces and that the defence self reliance would be stepped with a greater vigour to end Indian dependence on imported hardware and equipment.

Of course, Indian Defence Minister A.K. Antony, known for his clean image and impeccable personal integrity, has asserted that no mercy will be shown to the “guilty and wrong doers”. Rightly and appropriately, Antony gave a philosophical edge to this unsavoury episode by his observation that “there was no end to human greed and still greedy people were working around the world”. But then the moral of the story that had gone sour is that India’s continued dependence on overseas vendors for meeting much of its defence requirements is at the root of “impropriety and corruption” associated with the defence procurement programme. Indeed, as one defence analyst has put it, boosting domestic defence and aerospace production base holds the key to end the lurid saga of kickbacks that have became an integral part of the defence import. Indeed, Antony has been making use of every platform to urge the state owned Defence Research and Development Organisation (DRDO) to acquire the latest technological expertise to reduce Indian dependence on foreign vendors for defence and aerospace products.

Yet another disclosure by Antony in Lok Sabha has the potential to generate a debate on the need to undertake costly upgrades of old aircraft platforms instead of going in for new platforms. The crux of Antony’s statement in Indian Parliament was that the cost of upgraded and modernized French origin Mirage-2000 aircraft in service with the Indian Air Force (IAF) could be close to its shelf price if India wished to buy these aircrafts afresh now. As it is the cost of upgrading one Mirage-2000 fighter works out to Rs.1950-million. India had signed a Rs.109, 470-milliion contract with France for upgrading the Mirage-2000 fleet way back in 2011. Incidentally, India had purchased 51 Mirage-2000 fighters way back in 2000 with per piece price of Rs.1, 300-million. The whole episode is a tribute to the poor home work done by the Indian Defence Ministry which should be more circumspect while committing public money for defence acquisition and up-gradation programmes, some of which are really questionable. It is high time the Indian Defence Ministry fine tunes its strategy for “getting right type of equipment at right time in right place.” Of course, inordinate delay and cost escalation continues to remain the scourge of the Indian defence procurement programme right from the word go.

Unfortunately, India has notched up the dubious distinction of being the world’s largest importer of defence equipment constituting about 10% of the global arms import between 2007 and 2011. In its 2005 report on defence acquisition, the Vijay Kelkar Committee quoted that a just 25% reduction on foreign dependence will lessen foreign exchange outgo by around Rs. 85-billion. For long, the Indian defence production sector has been dominated by the state controlled defence public sector undertakings (DPSUs) including HAL and BEL (Bharat Electronics Limited), the Ordnance Factory Board (OFB) and various laboratories forming part of Defence Research and Development Organisation (DRDO) with very peripheral role for the private sector industry in the exercise of producing hardware and equipment for the Indian defence forces.

Of course following the opening up of the defence and aerospace sector for private participation, a greater role for India’s privately held entities in the defence production sector is being envisaged. For instance, in a major departure from the conventional approach to defence production and acquisition, Indian Defence Ministry would soon issue a Request for Proposal (RFP) to a number of private Indian enterprises including Reliance, Tata, Larsen and Toubro and Bharat Forge, for the production of 56 aircraft in six-to eight tonne class. This aircraft, which will replace the vintage Avro planes in service with the Indian defence forces, will have a cruise speed of 800 kmph and a range of 1500-km to 2700- km. As envisaged now, it will have far superior features in comparison to Avro. However, in the backdrop of the fact that the Indian industry has a very poor track record in the design and development of flying machines, they will be required to join hands with an established global aircraft major that will do the necessary hand holding in producing this aircraft which IAF badly needs as a replacement to Avro. The idea of IAF that Avro replacement project should be handled by the Indian private industry rather than HAL augurs well for giving a boost to the Indian aerospace capability in all its manifestations.

And in what can considered a shot in the arm for India’s defence indigenization programme, an Indian version of the Swedish 155-mm Bofors Howitzer, whose acquisition by India in 1980s, had created a big political storm in the country, is to be produced by OFB. As it is, during 1999 short lived Kargil skirmish, Bofors gun had proved its mettle through the lethal fire power. The Indian Defence Ministry has placed an order worth Rs.12, 600-million with OFB for the procurement of 114 of the artillery guns being developed based on the designs obtained under the transfer of technology provision as part of the Bofors contract signed in 1986. This exercise would give India a required level of confidence and expertise to design and develop futuristic, advanced howitzers required by the Indian army.

During his inaugural address at the Aero India-2013 show held in Bangalore in February this year, Antony was quick to point out that the country should harness all options including public-private participation(PPP), joint ventures, licensed production and technology transfer to attain self reliance in all the conceivable areas of aerospace and defence production.” Zero import is not possible but maximum equipment should be indigenous. We will have a second look about our defence production as well as procurement policy so that we can speed up indigenisation on time,” was the observation of Antony. The defence procurement policy was revised as early as 2011.

Air Marshal S. Sukumar, Deputy Chief of the Air Staff, Indian Air Force (IAF) while addressing the seminar “Rising with collaborative Opportunities” held as part of Aero India-2013 stated that the need of the hour is to boost the capability levels of IAF through an increased indigenous efforts in the defence and aerospace sectors of the country. Giving details, he said many Indian companies have successfully developed critical components and subsystems for many of the end products required by IAF. They include helmet mounted displays and transmit and receive modules. Home grown fourth generation supersonic fighter aircraft Tejas LCA(Light Combat Aircraft) and Indo-Russian supersonic cruise missile BrahMos stand out as classic examples of India’s growing prowess in aerospace and defence sectors.

According to Sukumar, a highly skilled, cost effective manpower pool and vibrant software and IT industry could be the major drivers of the indigenisation. There is no denying the fact that India’s prowess in Information Technology (IT) and software services industry is today recognised across the world. The striking feature of India’s IT and software success story was that, to a large extent, it was scripted by a smart group of visionary private sector entrepreneurs keen on entering the global market by exploiting the “low cost advantage” offered by India. Apparently, the Government stepped in subsequently as a facilitator to give a boost to the IT and software sector through a series of incentives and concession even as the initiative continued to be in the hands of the private sector entrepreneurs. Of course, it must be said to the credit of Government of India that it played a crucial role in introducing and popularizing the concept of Special Economic Zone (SEZ) and exclusive Technology Parks to give a” fresh thrust ” to the “human intensive” IT and software enterprise and take it to the “next level of growth”. What is more, this development implied that the scope of SEZ and technology parks was extended to embrace other nationally important sectors including aerospace and automobile industry.

Needless to mention, India’s aerospace industry is much older than its IT and software sector. The origins of the Indian aeronautical enterprise goes back to early 1940s when the visionary industrialist Walchand Hirachand established Hindustan Aircraft Company in Bangalore with a view to produce military aircraft for the then Royal Air Force. But despite such an impressive legacy, India’s state owned defence enterprise Hindustan Aeronautics Limited (HAL) could not achieve the kind of stature that country’s much younger IT and software industry could attain. That the Indian aerospace products and services account for less than 1% of the rapidly expanding multibillion dollar global aerospace market is in itself a telling commentary on the failure of the country to build up a “vibrant and versatile” aerospace industry base and position India as major aerospace hub of global standing.

Why HAL could not blossom into an enterprise on par with Brazilian Embrarer is a question that needs immediate and serious consideration. On another front, if the Indian Space Research Organisation (ISRO) could pull off a space spectacular in the form of Chandrayaan-1, India’s first mission to moon, what prevented HAL, which is much older to ISRO, from positioning India as a high profile aerospace nerve-centre is an issue that needs to be deliberated upon with all the seriousness it deserves.

Not surprisingly then Antony has chided HAL from various platforms for the “the delay and time slippages” in realizing many of the nationally important programmes. What is more, during Aero India-2013 held at Bangalore in February this year, IAF Chief Air Chief Marshal N A K Browne had stressed the point that the Intermediate Jet Trainer (IJT) being developed by HAL which is behind schedule by at least one decade, had serious problems with its engines and as such cannot be accepted in the current configuration. Further, Browne also made the point that HAL’s planned basic trainer would cost more than Swiss made Pilatus, 75 of which have been purchased by IAF. This implies that HAL would need to be serious about sprucing up its act and positioning itself as a dynamic, forward looking, aerospace entity capable of providing a serious competition to global aerospace majors.

There is no denying the fact that the virtual monopoly of HAL on India’s aerospace and defence sectors-- till a decade back when Government opened up the defence production for private participation-- was partly responsible for the sense of “complacency and smugness” permeating the vitals of this leading aerospace enterprise in South Asia. Indeed, lack of competition meant a slow and steady growth of “lethargy and incompetence” with serious consequences for nurturing the “creative talent” that HAL had in abundance. Similarly, bureaucratic interference, stranglehold of the defence establishment obsessed more with meeting its requirements than developing a home grown technology base as well as the denial of freedom for HAL to move ahead with new and innovative projects meant “creative thinking and spirit of innovation ”could no longer be sustained. Indeed, the poor performance of HAL over the years was the result of a variety of factors beyond its control. Though Government of India is planning to restructure HAL by diluting its own stake in the company, whether this move will lift this Indian aeronautical giant from its current state of mediocrity no one is sure as yet.

Further, the route of licensed production that HAL chose with a view to honour the contracts from the Indian defence forces in a timely and economically viable fashion proved to be its own undoing. For such a step resulted in the stifling of “talent and expertise” required to build up a home-grown design, development and manufacturing capability for producing a range of aircraft, helicopters and advanced aerial vehicles. Moreover, the sustained neglect of civil aviation and narrow focus on defence aerospace points out to the serious blunder committed by HAL. For civil aviation and defence aerospace have many common and shared technological elements from which HAL would have derived a synergy to build up a total aerospace eco system to position itself as a “globally competitive aerospace enterprise”.

The ground reality is that India would need to look beyond HAL to give a “new dimension and wider reach” to its aerospace sector. It is here that the SEZs could be developed as a “force multiplier” for the national aerospace enterprise which would need a global reach to survive and thrive. Through its integrated and state of the art facilities and human expertise and domain skill spanning a wide range of areas critical to defence and aerospace production, an aerospace SEZ can position itself a full-fledged high tech eco system capable of meeting the diverse requirements of a variety of customers from across the world.

India’s first aerospace SEZ at Hattargi near Belgaum in Karnataka promoted by QuEST Global is designed to serve as a well equipped eco system offering complete “design to build” services, right from the concept design to the final, finished product meeting the stringent international quality standards. The strategic advantage of having players across the value chain in the same location would be the amount of time saved in moving parts from one location to another as well as the associated cost of logistics.

Significantly, locations such as Wichita in USA and Toulose in France matured into widely patronised aerospace hubs through the dynamics of “cluster phenomenon”. Aerospace focussed SEZs with an eco system built around a full-fledged supply chain cluster could easily meet the diverse needs of a customer at one location, thus helping him save time, money and energy required to source his requirements from widely dispersed geographical locations. But then instances of SEZs falling by wayside after the real estate interests taking un upper hand are dime a dozen.

As things stand now, not even the sky seems to be the limit for the Indian aerospace sector. But then for the Indian aerospace sector to emerge as a major and serious player on a global scale, the country would need to bring about paradigm shift in the way the entire aerospace sector in run. A beginning towards this long journey could be made by accelerating the process of setting up a large number of aerospace SEZs with a deep domain knowledge and precision manufacturing capability.

Defence Procurement: Would You Do Business With India?

Dr M N Buch 

(Visiting Fellow, VIF)

Ever since we became independent we seem to be lurching from one crisis to another in any matter which concerns a deal or a transaction in which we make purchases or where decisions are taken regarding business. One harks back to the scandal attributed to the purchase of jeeps when Krishna Menon was High Commissioner in London. The most celebrated scandal in this behalf was the purchase of 155 mm guns from Bofors, a Swedish arms manufacturer renowned internationally for the quality of the product produced by the company. The Bofors anti aircraft gun of 40 mm, the Bofors quick firing gun version mounted on small naval vessels were the mainstays of most of the Allied Forces and even today the Bofors anti aircraft guns are widely used. The 155 mm gun is of such a superb quality that it could virtually dominate the Kargil battlefields and was a major factor in our being able to dislodge the Pakistanis. However, the purchase agreement was befouled by allegations of bribes being given by the suppliers through an Italian agent, in which the name of Rajiv Gandhi was also mentioned by V.P. Singh. The amount of bribe was Rs. 64 crores. Rajiv Gandhi denied any wrongdoing, V.P. Singh never produced any evidence which could have clinched the matter, CBI utterly failed to unearth irrefutable evidence and Quattrochi, the Italian agent, could never be brought to book. What resulted was that we virtually black-listed Bofors and every effort to purchase more guns to strengthen the artillery has been aborted by allegations of corruption, leading to blacklisting of almost all the manufacturers of a gun of this calibre and quality. The tragedy is that Bofors, despite all the mud slung at them, completed its part of the transfer of technology by making available very detailed drawings of the gun. These lay gathering dust in the Defence Ministry, despite the fact that the Ordnance Factory Board kept telling government that it could manufacture the gun on the basis of these drawings. Manufacture could have started at least eight years ago and by now the indigenous gun could have been in service with the Army. One allegation of corruption, which never led to any viable action against the persons named as the culprits, has left the Indian Army in the unenviable position of not having added a single worthwhile gun in over twenty years.

The acquisition by purchase or indigenous manufacture of warships upto the destroyer class by the Navy has had a relatively better record than weapon acquisition by the Army or the Air Force, but in terms of under water capacity the Navy has not advanced at all, whether it be the French Scorpene submarine or the German HDW. The Navy has been able to make very little progress because we just do not take any decisions in order to avoid complaints. Despite this there are serious allegations of financial irregularities. By now we should have had at least fifty submarines, including at least four or five nuclear submarines, but all we have managed is one nuclear submarine on lease from Russia and one indigenously manufactured nuclear submarine whose sea trials have yet to be conducted. Our lone aircraft carrier is now obsolete and its replacement, INS Vikramaditya (formerly Admiral Gorshkov), has had a 250 percent increase in cost and will not be delivered till the end of 2013, five years behind schedule. The keel of the indigenous aircraft has been laid but it is unlikely to be in service till 2017. Meanwhile China has acquired and put into service one aircraft carrier bought from Ukraine and is in the process of manufacturing one more carrier. Without a strong submarine fleet equipped to fire nuclear tipped missiles we cannot really boast of having a sea-land-air based nuclear deterrent in place. Those who are responsible for decision making must realise that in an environment in which our two chief opponents, Pakistan and China, have nuclear weapons and some delivery systems to target Indian cities, our delaying of decisions of purchasing or manufacturing necessary defence equipment has left the nation precariously vulnerable.

The cause celebre is a relatively minor acquisition of twelve helicopters for carriage of VVIPs. The proposal has been mooted by the Air Force about fifteen years ago because the MI8 helicopters on VIP duty are now totally obsolete, difficult to keep airborne and really not in a position to safely carry dignitaries such as the President and the Prime Minister. It was initially mandated that the new VIP helicopters would have an operational ceiling of 18,000 feet and the specifications were drawn up accordingly. Only one helicopter, the Eurocopter 200, could attain this height and this narrowed down the purchase to a single vendor. The then National Security Adviser, Brajesh Mishra, pointed out the unacceptability of a single vendor. The SPG, which guards the Prime Minister, also objected to the cabin size and said that it would not be in a position to protect the VIP unless the cabin specifications were changed. Therefore, the NSA recommended that the matter be re-examined. The file was shunted back and forth for at least five more years. Ultimately the Air Force recommended new specifications, lowering the ceiling to 15,000 feet and also stating the size and the layout of the main cabin. Now four firms give their tenders. Had the specifications not been changed the order was not large enough for any firm to change the aircraft design and also restructure the production line as this would be uneconomical. Therefore, there was no alternative but to change the specifications. It is now alleged that bribes were paid to the cousins of the Chief of Air Staff and, therefore, there was the suspicion that the specifications were altered to suit one company only, Finmeccanica, which manufacturers the Agusta Westland helicopter. The amount of bribe is stated to be in excess of Rs. 360 crores.

The above allegation is based on the statement said to have been made by two officials of Finmeccanica who were arrested in Italy on a complaint alleging corruption in the Indian transaction. No one has said that the process whereby the Agusta Westland helicopter was finally selected was in any way wrong. It is not alleged that technically and financially the best bid was not that of Finmeccanica and Russian and American (Sikorski) bids were wrongly rejected. The adherence to prescribed norms of the Agusta Westland helicopter has not been questioned, nor has its performance. It has also not been alleged that had the bribe not been paid the helicopter would be cheaper to that extent. Had this been stated then it would have meant that we were being overcharged in order to pay a bribe.

What has been the Indian reaction? The media, print and electronic, have virtually gone berserk in sniffing out and unearthing wrongdoing in the instant case. Television anchors wave papers on the screen and state that these give proof positive of wrongdoing in the helicopter deal. From this these anchors deduce that other deals not connected with this particular purchase also are suspect, that bribes have been given and that either because the same agent figured in more than one case, or because the supplying company was the same, every defence deal is based on corruption. What is written in those papers is never shown, nor is it categorically stated that they constitute the totality of documentation, nor is their any real attempt to prove that the so-called papers, which form part of a larger whole, are being read in context. Selective display of documents or use of words can be very dangerous. One recalls the story of the Giant Panda who walked into a restaurant in New York finished his meal, took out a revolver, shot dead the restaurant owner and left without paying for the food. When arrested he said, “Have you not read what we Pandas do? A Panda eats, shoots, and leaves”. Delete the commas and this would read “A Panda eats shoots and leaves”. Our Indian scribes, unfortunately, believe in retaining the commas in the above sentence, which not only changes the meaning of the context but also leads to very dangerous conclusions. There is no need to be judgemental about an issue because some television anchor waves papers in the air, pontificates holily about the evidence of wrongdoing that he has and then tries to browbeat people into saying ‘mea culpa’. If there is wrongdoing let it be investigated and the accused brought to trial. That trial will be in a court of law, not in a court of journalism.

To return to the helicopter purchase case, the need for new helicopters is amply proven and requires no clarification or elaboration. Changing of specifications, which would be universal and not confined to benefiting a particular manufacturer, is not only permitted but is normal. If the tender procedure is transparent, if bids are duly received and are examined impartially, if the product is what we need, if the price is acceptable, then the deal is complete and must be given effect to. If there are allegations that despite precautions bribes have been given, let the complaint be investigated and if a prima facie case is made out, then the accused persons must be brought to trial. However, the acquisition should be completed because it does not make sense to foreclose on a deal which is beneficial to India.

The Indian Air Force has been trying desperately to find a multi-role combat aircraft. The process of specifying norms, performance parameters, etc., has been long drawn out and the Air Force has virtually tested every alternative almost to destruction. Optimising the performance index of the aircraft, its lift and delivery capacity in the matter of weapons, the transfer of technology and the possibility of future total indigenisation, the maintenance schedule and cost, as also the operational life of the aircraft, the Air Force found the Dassault Rafale aircraft to be best suited to our needs. The American F16 and F18, The Anglo German Eurofighter and the Russian MIG-35 did not come up to the mark and were rejected. The technical and financial bids were taken into consideration when making a final selection. Over a year has passed and we have still not signed the final agreement. Meanwhile our television channels have tried to find a connection between a person who sued the Dassault Corporation over some deal for Mirage 2000 aircraft dating back to about eight to ten year. That gentleman sued the Dassault Corporation because he said he had not been paid an amount which had been promised to him by way of commission. My information is that he lost the case. Now an effort is being made to try and show that he is involved in the Rafale deal also so that even this acquisition is aborted. Are only television channels honest in this country and every one else is rotten to the core?

The process by which we arrive at conclusions is bizarre. There is a perception which we can ignore only at peril that Indian officialdom is corrupt. Let me narrate an incident dating back to 1968, when I was Director, Tribal and Harijan Welfare in Madhya Pradesh. One day my minister summoned me to the Secretariat, about ten kilometers from my office. When I entered his room I found a gentleman sitting there. The minister said that he had some problem and could I sort it out? I took the gentleman to my office where I would attend his case. I had not brought my driver and was driving the official vehicle myself. When we reached the Hamidia Hospital gate the gentleman asked me to stop. I asked him why and he said that we should have a cup of tea and some snacks before proceeding further. I told him that I would give him a cup of tea in my office but I found him still a little uneasy. Suddenly it stuck me what the man must be thinking. I was a sahib because the minister had offered me a chair. At the same time I was driving my own car and there was no attendant with me. This meant that I could not be the bada sahib who naturally would have travelled in style with paraphernalia. Therefore, unless the applicant entertained me I would not give him a proper hearing. This is what people felt about the bureaucracy even in 1968, when actually the bureaucracy was by and large honest and efficient. Today the position is that every single person is convinced that government and its minions are corrupt, despite the fact that there is a substantial number of people who are honest. The tragedy is that this perception of dishonesty is what our media is exploiting to blow things out of proportion.

Let us take the helicopter purchase case. If the aircraft is good let us buy it, but if bribes have been given let us deduct that amount from the payment to be made to Finmeccanica and also impose an equivalent fine. The aircraft acquisition, however, should go on and government out of panic should not negate the entire effort by cancelling the order. Let us have a similar attitude towards all defence requirements, which must be finalised unless there is incontrovertible proof of corruption. Waving sheets of paper before a television audience does not constitute such proof.

General N.C. Vij, former Chief of Army Staff, once told me that the process of weapon acquisition is so tortuous in India that by the time the weapon is received its half life is over. The following time frame for weapon purchase is suggested:-

1. The Service Headquarters submits a proposal to government for acquisition of a certain weapon system, together with full justification, the cost estimate and tentative specification parameters. The process of preparing this proposal should not exceed one year.
2. Examination of the proposal by government and a decision on the acquisition in principle, with a provisional budgetary allocation. The period for this should not exceed six months.
3. Detailed specifications to be finalised by the Service Headquarters, acquisition of prototypes and the testing to destruction under different physical and weather conditions. This process should be completed within two years
4. Stage two technical and administrative estimates and proposals to be submitted by the Service Headquarters to government. The process of decision making in this behalf must be completed within six months.
5. Preparation of tender documents, issue of notice inviting tenders, receipt of tenders and the preparation of a comparative chart by the Service Headquarters, assisted by the Defence Ministry, together with short-listing of providers. This process should not take more six months.
6. Examination of the scrutinised bids and the comparative statement, the short-listed providers of the systems and a final decision on acceptance of the bid by government. This should not take more than six months.
7. Finalisation of whatever documentation is needed for the contract and issue of the work order. This should not exceed six months.

If the above scheduled is followed, then within six years from the proposal having been mooted the inflow of equipment concerned should begin and the whole process should be completed within seven to eight years from start to finish. If this happens our acquisition process would be within the given time frame, there would be no delays and because the process is continuous, the need or the possibility of giving bribes would be substantially reduced. Then people would be encouraged do business with India.

Let us take this whole issue very seriously because if the present trend continues we might as well disarm and disband the armed forces, deploy village kotwals or chowkidars armed with lathis to guard us and practise how to behave like slaves before the new conquerors who would inevitably make us captive. To obviate such an eventuality we need a government which is firm in its resolve and which refuses to be swayed merely because some complaints have been made, we need a machinery for quick investigation of complaints, but we also need a media which is responsible in its behaviour, exercises restraint where it is necessary in our national interest and which at least in defence matters puts the interests of the nation before its own hunger for attention.

Indo-European Relations: Strategic Alliances

Kanwal Sibal
Member Advisory Board, VIF

To appreciate better the subject of India’s defence relations with Europe some reflections of a general nature would be pertinent. The point needs to be made right at the start that India does not have defence relations with Europe as such; it has them with individual European countries. Europe has forged a strong economic personality in the form of the European Union, but it has failed to develop a common foreign and defense policy in the true sense. When it comes to economic issues India, like other countries, has to deal with Brussels.

In foreign affairs Europe has acquired some role as an interlocutor through the High Representative of the Union for Foreign Affairs and Security Policy, with India holding a regular dialogue with the EU as a dialogue partner. But in defence relations India deals, not with Brussels, but with individual capitals.

It also needs to be pointed out that even though the EU exists as a shared economic space protected by common external tariffs, individual European countries commercially compete with each other intensely in foreign markets. In the defence area such competition is even more spirited as the overall cake is much smaller, the opportunity to win sizable contracts is not many, the contracts are generally high-valued and the margins are considerable. Also, the contracts create a long term relationship, with provision of spare parts, training, overhauling, periodic upgrades, modernization etc. providing plentiful returns.

Defence ties, besides, have a political element that comercial exchanges do not have. Countries with serious political differences, including the potential of conflict, can have flourishing economic ties, as is the case between US and China or Japan and China, not to mention political differences between Russia and Europe not standing in the way of their close energy ties. In such cases defence ties are excluded because that pre-supposes a degree of geo-political understanding beforehand.

Such ties also give the country that sells arms a degree of political leverage over the recipient country because the latter becomes dependent on the former for its defence preparedness. The danger is always there that at a critical moment spare parts may not be released or needed ordnance may not be available because of imposition of sanctions or the existence of a conflict situation. All these aspects are very relevant to India’s defence ties with European and other countries.

India’s defence relations with European countries have reflected, over the years, India’s foreign policy choices, its adherence to the policy of non-alignment during the Cold War and the impact of the Cold war on our region with Pakistan deciding to join western military pacts and receiving military aid from the West. The position taken by European countries and others on India-Pakistan differences, especially on J&K, that taken by individual European countries on sanctions imposed on India because of India-Pakistan hostilities or the degree of reticence in selling arms in order to avoid sharpening tensions in a region seen as unstable. India’s nuclear and missile programmes have also had a bearing on the policies of European countries with regard to transfer of sensitive or dual use technologies barred under the technology denial regimes set up by the West.

Not many countries, even in Europe, manufacture advanced defence systems that can be sold in the international market. Defence manufacturing is a high-cost enterprise as very advanced technologies are involved, which, in turn, require huge outlays on R&D for development. The need to export in order has some economies of scale and amortizes development costs is therefore a pressing one. All the more so because in the absence of any real external threat European countries have had to reduce their defence budgets and the size of their standing armed forces, with the consequence that domestic orders for defence equipment are not sufficient to achieve the wanted economies of scale.

Conflict-Free Space

Europe’s great success is, in fact, the creation of a genuinely conflict free geographical space in a continent that has witnessed the most inhumane and destructive wars in the past. No European country is threatened with aggression by a neighbour. This should have argued in favour of a massive contraction of the European defence sector. Ironically, outside the US which maintains a gargantuan defence sector and Russia which inherited an oversized defence manufacturing base from the Soviet Union but which has declined considerably, individual European countries still retain impressive defence manufacturing capabilities. There is little relationship between the external threat European countries face and the wherewithal they maintain to defend themselves.

For the bigger European powers which have wielded power internationally for a very long period and are habituated to it, and which have fought with each other and with others in order to advance or preserve their interests or impose their will, the possession of a sizable defence industry is an expression of their continued big power status. It gives credibility to their role in maintaining international peace and security whether institutionalized in the Security Council, within the ambit of NATO, a “coalition of the willing” or self-assumed in the light of their national interests. Their military capabilties give them the means to project their power outside. Besides this, the civilian off-shoots of defence technologies are also very important as they have a bearing on the efforts of these countries to remain in the forefront of global-level technological innovation.

For Europe, rivalry with the US, which is both an ally and a competitor, is a powerful reason to maintain a sizable, independent defence manufacturing base. If, on the one hand, the trans-Atlantic alliance in the form of NATO provides Europe with the US defence umbrella and allows it to reduce its defence expenditure, fears of loss of independence in foreign policy making and subservience to the US makes the major European countries retain sizable defence capabilities.

With the lessons from the conflict in Yugoslavia in mind, these countries also want to be able to maintain peace at least on the periphery of Europe largely on their own rather than relying entirely on the US for this. The French, for example, have long pushed for a common European defence policy, but without much success because of the NATO factor and the opposition of many European countries, especially those from the erstwhile Soviet block, not to mention the UK, to any dilution of the US role in European defence.

One needs to keep also in mind that while India and others deal with individual European countries for defence cooperation and purchases, in actual fact Europe’s defence manufacturing has become mostly “multinational”. Much of this sector has either been privatized in Europe or enterprises are jointly owned by governments and private capital.

The economies of scale are sought to be obtained within Europe itself by various countries pooling requirements and jointly funding defence production programmes. Work is shared between countries often in proportion to the size of the procurement orders placed by them. Equipment manufactured by one country has in it components manufactured in other countries, such is the nature of collaboration in defence manufacturing today.

In view of all the acquisitions and mergers that have taken place as part of a consolidation process the industry has undergone in the face of high costs, competition and declining orders. Hardly any product is now purely “national”. Even when a European product is being bought it is likely to have US made components in it. At the level of tie-ups in capital, the trans-national nature of major European defence manufacturing companies is even more of a reality.

The European Aeronautics, Defence and Space company (EADS), for example, was created in 2000 by merging French (Aerospatiale-Matra), German (DASA) and Spanish (CASA) companies. Its missile branch was merged with BAE systems of the UK and Finmeccanica of Italy to form the MBDA. The Eurofighter, the other contender for our MMRCA contract, is jointly produced by Germany (DASA), Britain (BAE), Italy (Aeritalia) and Spain (CASA). Dassault, whose Rafale has been selected for negotiations for the acquisition of 126 combat aircraft by India, is owned by Dassault Group (50.55%) and EADS(46.33%), which means that even if the Eurofighter has been excluded from the 126 aircraft competition, EADS, the manufacturer of the Eurofighter, will financially benefit from the Rafale deal.

Augusta Westland, which has signed a joint venture agreement with Tata Sons to assemble its AW 119 helicopters is an Anglo-Italian company. Turbomeca, the French aircraft engine maker is tied up with Rolls Royce. Thales, another French company, which is involved in India defence programmes, is tied up with Raytheon from the US and BAE from the UK. BAE, the manufacturer of the Hawk trainer aircraft sold to India, the Ultra Light Howitzers that India has decided to acquire through the US FMS route and a parther in the Eurofighter, has made several acquisitions in the US.

For historical reasons India had close defence ties with the UK for some years after 1947, to the extent that India’s Naval Chief was a Britisher till April 1958, with Britishers also the Air Chief till April 1954 and Army Chief till January 1949. India’s Centurion tanks, Vampires, Canberra, Hunter and Gnat aircraft, and Leander class frigates were of British origin. But Cold war politics, British support for Pakistan and interference in the Kashmir issue in Pakistan’s favour, a reluctance to strengthen India miltarily against Pakistan, inevitably led to a dilution of the defence relationship.

Within Europe, France, whose commitment to Pakistan was not of the same order and which was not mentally hostage to any colonial era responsibilities towards Pakistan or the sub-continent, was an alternative source. India acquired from France, in the 1950s itself, Ouragan, Mystere and Alize aircraft, AMX tanks and air to surface and anti-tank missiles. In the 1960s India went in for licensed production of French Alouette helicopters, to which were added Lama helicopters for high-altitude operations in the 1970s.

The biggest consequence of Cold War politics was India’s turn towards the Soviet Union beginning in the 1960s for defence supplies and licensed production of equipment, to the point that Russia accounts today for almost 70% of India’s military hardware.

France, amongst all the European countries, has been seen as the most reliable partner. It has studiously avoided imposing sanctions on India whether because of India-Pakistan tensions or even in the wake of India’s nuclear tests in 1998, besides being the first to establish a strategic partnership with India, indicating clearly how it perceived India’s role in a developing multipolar world. In the 1980s India signed the agreement to procure Mirage aircraft from France. A $2.4 billion deal was inked in July 2011 with Dassault Aviation and Thales to upgrade 51 of these Mirage aircraft.

The selection of Rafale for final negotiations for the MMRCA contract, even if done strictly on the basis of technical and commercial parameters, testifies to the underlying confidence in the stability and security of defence ties with France.

In December 2005 India and France signed the $3 billion Scorpene deal, opening up cooperation in an area the French were especially keen on, in part to obtain orders for their state-owned naval shipyard, the DCN, and, in part, to attenuate negative feelings in India about their considerable naval cooperation with Pakistan.

The element of competition with Germany, which had supplied 4 type 209 submarines to India between 1986 and 1994, was strong. Two of these German submarines were built in Germany and two assembled in Mazagaon docks. In 1991, however, HDW, the manufacturers of the submarines, was blacklisted by India, which opened up space for France to enter the Indian submarine market.

The bagging of the Scorpene contract was a political success for France, given that Germany had greater experience and a more established reputation in submarine building and technology. This success was not unconnected with the goodwill France had earned by its accommodative position on India’s 1998 nuclear tests. The delay in implementing the Scorpene project did cause some bickering about where the responsibility lay, but this has been overcome.

Other projects with France include development of engines for the ALH, the Kaveri engine for the LCA and the Shakti engine for Dhruv. A major project involving substantial technology transfer that has been negotiated with MBDA and awaits governmental approval is joint development and manufacture of the SR-SAM, the short range surface to air missile. A successful implementation of this project can open up more cooperation in the missile field, including, potentially, ballistic missile defence.

During the Indian Prime Minister’s visit to France in July 2009, President Sarkozy had reportedly promised to open all doors for Indo-French defence cooperation. The Indian decision in favour of Rafale creates a favourable ground for India to press for implementation of that promise. For the time being, French attention is focussed on finalizing the Rafale contract and other major steps in defence cooperation, especially in restricted technologies, will probably have to wait till then.

In 1979, with India ordering around 130 aircraft Anglo-French Jaguar aircraft, with licence production and transfer of technology as part of the package, the British made a sizable come-back into the Indian market. In February 2003 India ordered 66 Hawk trainer jets from Britain worth $1.7 billion. India insisted these planes carry no US parts because of the experience with its Harrier aircraft detained in Britain after the imposition on nuclear sanctions on India in 1998.

In July 2010, during Prime Minister Cameron’s visit India India placed an order for an additional 57 Hawk aircraft worth $1.1 billion to be built by HAL, with Indian complaints about delays in transfer of technology for the earlier contract apparently resolved. Apart from defence sales, India and Britain have held air and naval exercises.

In the area of R&D, the tie-up between DRDO and the British DSTL (Defence Science and Technology Lab) is of potential interest. Britain is offering participation to India in the Global Combat Ship (GCS), a flexible role frigate. Britain, as we know, has a very large defence manufacturing base, the largest in Europe, with almost 2600 defence companies. BAE systems, which have contracted to sell 140 Ultra Light Howitzers to India, is looking at a role in artillery modernization in India, for which it has tied up with the Mahindra Group to create a Centre for Excellence for artillery projects.

The German Connection

Germany’s Kurt tank was involved in the manufacture of HAL’s Marut jet fighter in the 1950s. Since 1999 Germany, which is the fifth largest exporter of defence items to India, has been providing parts for construction of ships and submarines, such as fire control systems, sonar and navigation systems, parts for planes, helicopters and tanks. Apart from supplying 4 Type 209 submarines, it has supplied a large number of Dornier 228 aircraft. India and Germany signed a new Defence and Security agreement in 2006; an Indo-German High Defence Committee has been formed; visits of service chiefs have been exchanged. In 2008, the first joint naval exercise was held off Kochi.

Of course the Germans have had their set-backs in defence deals, having lost the submarine contract to the French and failing to win the MMRCA contract for which they were the lead country for negotiations. Earlier, in December 2007, they saw the cancellation of the $ 500 million 197 helicopter deal that had been won by Eurocopter. The result of the re-tender remains uncertain because of competition from the Russia’s Kamov helicopter. Similarly, in the first tender for 6 Refuelling Aircraft, EADS’s Airbus 330 (military version), for which the lead country is Spain (but Germany is a big shareholder of EADS), came out lowest in price but this tender too was cancelled in 2009 and has been re-tendered. The competition is again with a Russian aircraft, the IL76 with new engines, with uncertain result.

India’s defence relations with Italy are relatively limited. Italy’s Alenia Aeronautica has 21% share in the Eurofighter, but this plane lost out in the MMRCA race, as we know. Italy is providing consultancy to our Navy for our indigenous aircraft carrier. Finmeccanica of Italy is providing its propulsion system. India is obtaining heavy weight torpedoes for its submarines and frigates from Italy. Finmeccanica’s subsidiary Augusta Westland won the tender for supply of 12 AW101 helicopters to serve as executive transport helicopters for the Indian VIPs. Augusta Westland has established a joint venture with Tata Sons to assemble the 8 seat AW 119 Ke light helicopter in India. In 2003 India and Italy renewed their 1994 MOU on defence cooperation. The India-Italy Joint defence Committee has met once, in January 2010.

India has the dubious distinction of being the world’s largest importer of arms. This reflects extremely poorly on the state of indigenous defence manufacturing. That a large country like ours, with such huge security challenges from China and Pakistan combined aggravated by US and western arming of Pakistan and subjecting India to technology regimes, should have been impelled to build domestic capability on an accelerated basis. No country can follow a truly independent policy without an independent defence base of its own. There can be no strategic autonomy without an independent self-defence capacity. We have not been able to leverage our large scale imports for obtaining the level of transfers of technology needed by us. Fortunately, the allure of the Indian market has persuaded countries like France and Germany not to enter into any new major defence contracts with Pakistan.

Changing Attitudes

Today the situation has improved for us. India has been liberated from nuclear sanctions and our western partners are, in principle, supportive of our membership of the various technology regimes set up by them. This changed attitude towards India should progressively make it easier for us to insist and obtain meaningful technology transfers. The policy on offsets will contribute to building a larger defence manufacturing base, but it would be on a sub-contractual basis and is not likely to lead to the kind of transfers we want. For this a change in our rules on FDI in the defence sector is required. The present 26% ceiling needs to be increased to 49% as a first step. The private sector should be given all encouragement to enter the defence sector.

The entry of the US in the Indian defence market and its success in bagging contracts worth $ 9 billion in the last 5 to 6 years is impressive. This shows that India does not think that the use of sanctions against India is a serious threat anymore. Meanwhile, Pakistan’s relations with the US and the West in general have seriously deteriorated.

US has now begun to focus on the Asia-Pacific region to potentially counter a threat from rising China. These developments are in our favour in terms of building up our defence potential. The technology transfer problems will not be easy to deal with as the defence sector in western countries has been largely privatized and private companies cannot be compelled to part with proprietary technologies. Where governments are standing in the way through export controls that is where India needs to exert pressure.

European countries have to contend with Russia’s entrenched position in our defence sector, the impressive share Israel has carved out for itself- the second largest-in this sector and the advances the US is making. India is caught between the need to limit the inventory of equipment it has for operational and maintenance reasons, and the need to diversify so as not to create over-dependence on any one country.

We are expected to import $200 billion worth of arms in the next 12 years. European countries will certainly have a share of this. They should, as European cooperation comes with much less intrusive demands and fewer chances of disruption of supplies for extraneous reasons. And we have tested our cooperation with European countries for long years now.

Arms and The Country

Kanwal Sibal
Member Advisory Board, VIF

European nations compete for defence ties with India

When listing India’s defence partners Europe is mentioned, but it would be more accurate to speak of individual European countries as partners. Europe is unified economically but not in the defence domain. Unlike on economic issues, on defence issues India deals with individual capitals and not Brussels.

Some points are pertinent to our defence ties with European countries. One, these countries compete even more intensely with one another for defence contracts abroad than they do for commercial ones, as the former are fewer in number, the margins are bigger and the supply of spare parts and periodic upgrades provide large long-term returns. European countries compete with one another as zealously in India as they do with Russia, Israel or the United States of America, our other major defence partners.

Two, defence ties have a much more pronounced political element than commercial exchanges. Countries with serious political differences can have extensive economic ties, as is the case of the US and Japan with China. However, for defence ties, some geo-political understanding has to exist. The country supplying arms acquires a degree of political leverage over the recipient country. At critical moments, spare parts or ordnance could be denied because of sanctions. These considerations are important for India because of our past experience and potential concerns for the future. In this respect, France is considered more reliable than other European countries because it has eschewed sanctions on India, even for our 1998 decision to go nuclear. The United Kingdom’s record is tainted while Germany has been squeamish about defence trade for humanitarian or conflict-prevention reasons. The sanctions issue has, however, lost its previous edge because of the lifting of nuclear sanctions on India by the US and the Nuclear Suppliers Group, the deterioration of US/Nato-Pakistan relations and the receding of the Kashmir issue from the forefront of Western concerns.

Ultra Light Howitzers

Three, defence manufacturing is a high-cost industry as very advanced technologies and huge outlays on research and development are required. Exports help to achieve economies of scale and amortize development costs. European countries are maintaining large defence industries in spite of the absence of any real external military threat and dwindling domestic orders because of reduced defence budgets. Exports therefore become vital. We have so far failed to extract the maximum advantage for ourselves from this compulsion they have by way of obtaining genuine transfers of technology. This is in large part because all European countries adhere rather strictly to technology denial regimes individually, and some intra-European coordination exists on this score. In general, on issues of technology transfer, all of them are restrictive, with the latest generation technologies made almost impossible of access. We have also not used our bargaining power effectively enough because of systemic deficiencies which prevent us from integrating the opportunities we provide to European countries in diverse domains with a view to wresting concessions through cross-bargaining.

Four, the bigger European entities are habituated to wielding power internationally — such has been their domination of world affairs in previous centuries. Their big power status is intimately linked to the possession of a large defence industry. Its existence enables them to discharge their dominant role in maintaining international peace and security, whether through the Security Council, the North Atlantic Treaty Organization or a “coalition of the willing”. In the race for technological innovation, the civilian off-shoots of defence technologies are an important factor too, for retaining a large defence manufacturing base. This may not be a material factor in bilateral defence ties, but is relevant in the larger context of global power equations.

Five, rivalry with the US, which is both an ally and a competitor, is a powerful reason for major European countries to maintain a sizable, independent defence manufacturing base. This allows a degree of independence in foreign policy making and avoids complete subservience to the US. This rivalry with the US is being sharpened in relation to India because of improving India-US defence ties and the US success in bagging major defence contracts. In fact, the foreign military sales route is giving the US an edge as it excludes middlemen and, consequently, the problem of allegations of corruption that hobble acquisition decisions is avoided.

Six, it is important to note the increasingly ‘multinational’ nature of the European defence industry resulting from its consolidation through mergers and acquisitions on account of high costs of production, reduced domestic orders, the need for economies of scale and international competition. Various European countries have been forced to pool defence requirements and jointly fund production programmes. It is not only that complex defence products are now seldom purely ‘national’, but also that European products are likely to contain even US-made components.

Of European companies active in India, the European Aeronautics, Defence and Space company, for instance, combines some leading French, German and Spanish companies. Its missile branch was merged with the UK’s BAE systems and Italy’s Finmeccanica to form the MBDA. The Eurofighter is jointly produced by Germany, Britain, Italy and Spain. Dassault, whose Rafale has been selected in preference to the Eurofighter, is owned by the Dassault Group (50.55 per cent) and the EADS (46.33 per cent), the manufacturer of the Eurofighter. Thales, another French company involved in major Indian defence programmes, is tied up with the US’s Raytheon and the UK’s BAE which, in turn, is the manufacturer of the Hawk trainer aircraft sold to India and will supply Ultra Light Howitzers to India through the FMS route on account of its several American acquisitions. In view of these links between European defence companies — and this sector has been largely privatized — the reality of dealing with ‘individual’ European countries gets diluted, although at the political level the commitment of individual governments to forging defence ties with India in depth can be differentiated.

That India should be the world’s largest importer of arms is a serious indictment of the state of indigenous defence manufacturing. India should have built domestic capability on an accelerated basis in view of the enduring combined threat from China and Pakistan and Western technology denial regimes applied to us. India cannot have genuine strategic autonomy without possessing an independent defence production base. We have, unfortunately, not been able to leverage our large-scale imports for obtaining the level of transfers of technology needed by us. Fortunately, the size of the Indian market has persuaded countries like France and Germany to reduce their defence supplies to Pakistan.

With the lifting of the nuclear sanctions on us and Western support for our membership of key technology denial regimes, meaningful technology transfers to us are now more possible in principle. The offsets policy can enlarge our domestic manufacturing base with participation by European companies, but unless the present 26 per cent ceiling on foreign direct investment is increased to at least 49 per cent, it would be on a sub-contractual basis, with serious technology transfers remaining elusive.