By far the largest importer of arms in the world, India is poised to spend an estimated $310 billion by 2022 on upgrading its arsenal. Vying for these sweepstakes are global arms vendors and also domestic suppliers who are exploring all viable options, such as forming consortia, joint ventures (JVs), public-private partnerships (PPPs) and outright sales.
Facilitating such partnerships will be the Defense Procurement Procedure (DPP) 2016, launched on March 28 by Defense Minister Manohar Parrikar at the Defense Expo 2016 in Goa. Unveiled before a gathering that included 224 representatives from 48 countries and 1,055 defense-related companies, DPP 2016 seeks to foster a credible Defense Industrial Base (DIB), or military industry, that will serve India’s armed forces as well as exports. Parrikar was confident that the Procedure, effective from April 2, would ensure probity in, and streamline and simplify, acquisition procedures so as to boost the government’s “Make in India” mission through indigenous design and production of military hardware.
With a resurgent India pursuing robust militarization that aims at addressing the complex security challenges it faces, its Union Budget 2016-17 presented to Parliament on February 29 apportioned $38.4b. for the defense sector. The “guns versus bread” votaries are questioning this largesse, considering that allocations were but $1.08b. for the education sector, $579 million for Public Health and $535.5m. for Agriculture and Farmers’ Welfare.
The Stockholm International Peace Research Institute (SIPRI) rates India the largest importer of arms, with a 14 percent share in global arms imports between 2011 and 2015. India’s mobilization has been driven by concerns about the critical gaps in the tactical and strategic defenses of its armed forces that have hitherto been largely served by vintage Soviet-era equipment.
Another worry has been the concerted expansion of the offensive capabilities of both Pakistan and China on India’s frontiers.
Parrikar has directed his officials to ensure the sanction of 86 pending acquisition proposals worth $22.3b.
within the first quarter of the current fiscal, namely, by June 30, 2016.
Three “Made in India” defense contracts worth $3.7b. were cleared last May. One was worth $2b. for joint production of C-295 transport aircraft by Airbus and Tata Advanced Systems (TAS) to replace the IAF’S aging Avros. The initial order is for 56 aircraft, with options for eight more. UK’s BAE Systems plc is partnering Mahindra Defense Systems (MDS) on a $700m. contract for local production of 145 M777 howitzers for the Indian Army. A joint venture between Russia’s Rostec State Corp. and Hindustan Aeronautics Ltd (HAL) will licensebuild 200 Ka-226T twin-engine light multipurpose helicopters, in a deal worth $1b. and which will replace the aging Cheetahs and Chetaks – Indian versions of Aérospatiale SA 315B Lama and SA 319 Alouette III – deployed by the Indian armed forces for high-altitude operations, particularly in Siachen.
Imports have hitherto been the mainstay of India’s defenses – 70% of the defense capital budget is imported – as generous outlays to the defense public sector undertakings (DPSUs) and the Ministry of Defense’s (MOD’S) Defense Research and Development Organization (DRDO) failed to nurture any noteworthy military industry.
Curiously, budgetary allocations under capital acquisition are often not fully utilized, resulting in withdrawal at the RE (revised estimates) stage. Of the $5.2b. forfeited over the past four years, $1.7b. remained unspent in 2015-16 alone, from an allocation that year of $11.5b.
While India’s dependence on defense imports seems likely to continue in the foreseeable future, Prime Minister Narendra Modi desires the country to become a major arms exporter, targeting a value of $3b. within a decade. The fact is that India’s arms purchases far overshadow its exports. Parrikar informed Parliament that “direct payments to foreign vendors for capital acquisitions” for the three services over the previous five years totaled $15.4b. In contrast, the five DPSUs, four defense shipyards, 39 ordnance factories as well as the private sector combined managed to export defense equipment worth only $245m. in the past three years.
In February, the “Make in India” policy got a boost when two Indian consortia were selected for the $5.95b. Battlefield Management System (BMS) contract for integrating all surveillance resources available at the battalion or regiment level, including from locally launched UAVs and ground sensors. Fourteen contenders had formed four consortia to vie for this prestigious contract.
The two selected – one comprising Tata Power Strategic Engineering Division (SED) and L&T, and the other, Rolta India and the DPSU, Bharat Electricals Ltd (BEL) – will each develop four BMS prototypes for mountain, jungle, plains and desert operations. The BMS will pinpoint the locations of Indian and enemy troops and key weapons platforms as well as facilitate terrain analysis to achieve improved situational awareness.
Tata Power SED-L&T along with the consortium of HCL Infosystems- BEL have been selected for another major contract, the $1.5b.
Tactical Communication System (TCS), which will replace the aging Army Radio Engineering Network (AREN). It was in 1996 that the army had sought to replace this backbone of its communication grid on an urgent and critical basis. The two selected teams will build two prototypes of the TCS, seven of which will be produced for the seven army commands. The two prototypes will be put to trials and the selected competitor will produce the entire TCS.
Ten Indian companies that have formed consortia are competing for the country’s largest ever indigenous contract, for $8.93b. worth of supply of 2,610 Future Infantry Combat Vehicles (FICVs). While Tata Motors has entered into a strategic agreement with Bharat Forge Ltd and the US’s General Dynamics Land Systems (GDLS), L&T has tied up with Mahindra. Tata Power SED is going it alone, while the others include Reliance Defense, Rolta, Punj Lloyd, Titagarh Wagons and the public sector Ordnance Factory Board (OFB).
This contract was conceived in 2009, but the letter of intent (LoI) was suddenly withdrawn in 2012, only to be revived recently. The FICV will be an amphibious, armored, tracked and air-transportable troop-carrier that can fire four-kilometer range anti-tank missiles and will replace the Indian Army’s Russian-made BMP II second-generation infantry fighting vehicles in use since the 1980s. Each of the three shortlisted consortia will develop an FICV prototype, with the Defense Ministry contributing 80% of the cost.
The Tata Group is among those Indian companies positioning themselves to take advantage of the military bounty. India’s largest private sector conglomerate with $108.8b.
revenue in 2014-15 is investing substantially in this field and its defense and aerospace business expects to earn $398.3m. in 2015-16. For instance, Tata Power SED, which has a $74.4m. facility in Bangalore, is setting up a new factory of a like amount at Vemagal in Karnataka.
The unit will open next year, and a further $29.8m. will be invested in the second phase. The group’s 14 companies engaged in the sector have an order book exceeding $1.3b.
Vernon Noronha, vice-president of Tata Motors’ defense & government business, sees defense contributing 15% to his company’s revenue, up from the current 3%, if it wins the FICV order.
The latest Indian company to foray into defense is the $10b. diversified Adani Group, with its newly- formed subsidiary, Adani Aero Defense Systems & Technologies Ltd, signing a statement of intent on March 30 with Israel’s Elbit-ISTAR and Bangalore’s Alpha Design Technologies Pvt Ltd to collaborate on Unmanned Aircraft Systems (UAS).
Adani believes UAS will be the next frontier of technology, providing multi-functional capability, especially that of “see & hear,” to provide information advantage to the military and Internet security providers.
Anil Ambani-controlled Reliance Infrastructure entered the defense sector last year by picking up an 18% stake in Pipavav Defense and Offshore Engineering Company Ltd for $123.1m., after announcing plans to acquire a controlling stake for up to $313m. It followed up in December with an additional 17% for $127.8.m and made an open offer for a further 26%. Rechristened Reliance Defense and Engineering Ltd (RDEL) On March 3, the company is setting up a $751.6m. shipyard on the east coast in Rambilli, near the Indian naval base at Visakhapatnam in Andhra Pradesh to build nuclear vessels and aircraft carriers. It will also be taking on its board veterans like retired air chief marshall Fali Homi Major and Lt. Gen. (ret.) Syed Ata Hasnain. The company secured 12 industrial licenses last year from the Department of Industrial Policy and Promotion and is hoping for orders worth $18b. over the next five years.
L&T, the $9.22b. turnover engineering and construction giant, sees award opportunity of $18b.-$20b.
each in army and navy. Since 2002, L&T is India’s only corporation with licenses to manufacture the entire range of defense equipment for all four services, including the Coast Guard. The company fabricated the hull and other critical components of India’s first indigenous nuclear- powered submarine, Arihant, and has invested $594m. in the 1,225- acre Kutapalli shipyard on the east coast where it intends to build the P 75I submarines – if it wins the imminent contract estimated at between $8b.-$10b. – and other naval orders.
India’s largest defense deal was to have been the $22b. contract won in January 2012 by France’s Dassault Aviation for 126 Rafale medium multi-role combat aircraft (MMRCA) for the Indian Air Force (IAF). The process began in 2005 with a request for information (RFI) issued by the IAF for a new frontline jetfighter to replace the out-of-date Soviet-built MiG-21s that had been its mainstay since the early ‘80s. The IAF is hamstrung by a depleted fleet of just 34 combat squadrons against the authorized strength of 42. Negotiations had stalled over pricing and the guarantee clause when Prime Minister Narendra Modi on his April 2015 visit to France officiated the outright purchase of 36 Rafales at an as-yet undetermined price. It is unclear what will happen to the rest of the MMRCA deal, which originally entailed outright purchase of 18 Rafales, the remaining 108 to be built under transfer of technology by HAL.
France’s other major ongoing military program with India is the $3.73b. transfer of technology Project 75 (P 75) by its state-owned DCNS with India’s public sector Mazagon Dock Ltd (MDL) for constructing six Scorpene attack submarines.
The first submarine, Kalvari, is set for launch in September and for commissioning a year thereafter, the remaining five joining service at intervals of one year.
The Indian Navy has a particularly robust program of modernization, with 41 ships on order from Indian yards at a combined cost of about $16b., including P 75.
DCNS, MDL and other defense-oriented enterprises like L&T and RDEL, which have invested heavily in creating and expanding their warship- building competencies, are also aspiring for the imminent $7.44b. P 75 India (P 75I) tender for building six more diesel-electric submarines.
Last September, India signed a $2.5b. deal with Boeing for procuring 22 Apache AH-64E combat and 15 Chinook CH-47F heavy lift helicopters. With large sections of the Chinook fuselage already being made in India and talks on to make Apache parts as well, Boeing chairman Jim McNerney said his company may assemble either of these helicopters in India and also proposed to manufacture a current fighter jet of Boeing in the country.
Russia, according to SIPRI, remains India’s steadfast arms supplier, accounting for 70% of India’s arms imports between 2011 and 2015.
India, in turn, remains the largest purchaser of Russian arms, with 39% of Moscow’s military exports in the same five-year period. “Based on existing orders and weapons, Russia will remain, by a significant distance, the main supplier of major arms to India for the foreseeable future,” the SIPRI report adds.
Last December, India’s Defense Acquisition Council (DAC) cleared the purchase of five Russian S-400 Triumph (NATO reporting name SA-21 Growler) missile defense systems estimated at $6b. India could reportedly buy 12 of these 400-km range surface-to-air missiles that can simultaneously engage up to 36 targets, like tactical and strategic aircraft as well as ballistic and cruise missiles, firing 72 missiles toward them. China is the first buyer of S-400, which is one of the most advanced anti-aircraft missile systems in the Russian inventory.
The DRDO and Israeli Aerospace Industries (IAI) are partnering on the $1.5b. project for developing a medium-range surface-to-air missile (MR-SAM) system for the IAF and on the $388m. project for developing a long-range SAM (LR-SAM) for both the Indian and Israeli armed forces. Both the SAM systems will be inducted from this year.
There is a growing view that India needs to adequately militarize in the context of the threat scenario it faces on two fronts. Apart from defense modernization and indigenization, it needs to focus on future technologies like stealth, unmanned systems, satellite surveillance and cyber-warfare. China, for instance, is a generation ahead when it comes to militarization and the gap is increasing. Beijing has successfully raised indigenization after decades of dependence on Soviet imports and reverse engineering. China also supplies more than half the defense equipment required by Pakistan under “the enemy of my enemy is my friend” theory.
The author is executive editor of Business India.