Government Makes A Difference

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The latest edition of Defexpo opens in Goa at a time when there is a churn in the Indian defence sector. Government to Government deals it would appear, are now seen as the way forward to cut delays in procurement. By SURYA GANGADHARAN

Goa has always been about sun, sea, sand, shacks on the beach, beer by the barrel or as much cashew feni as you can swallow. In other words, as a tourism destination not many places can beat Goa. But if the 9th edition of Defexpo, India’s land, naval and homeland security show turns out successful, Goa may well develop another side to it.

The decision to move Defexpo from dowdy PragatiMaidan in Delhi was taken in 2012, when it became clear the site was to undergo major re-development. So there are misgivings, whether Delhi’s civil and military brass will turn up in strength in Goa; whether Goa’s airport (derisively dubbed as ‘mickey mouse’ by some) will be able to cope with the flood of delegations from all over the world along with their equipment; whether the state’s roads will crumble under the ton weight of all kinds of military hardware; will it be too hot (not for nothing does the Defexpo website carry a stern warning against “nudism in any form”).

Indian jugaad will probably overcome every obstacle, although the end result may not be of the standard that similar shows abroad can boast of. Still, in today’s weak international market conditions, there are few bright spots for arms merchants and to Goa they will come.

Foreign OEMs have noticed the visible churn for some time in India’s defence sector. The Narendra Modi government is set to unveil a re-worked defence procurement policy; it has already freed up stalled procurement and pushed private sector involvement with the aim of boosting employment and GDP figures.

Interesting here is what is being touted as the “return to G2G” or Government to Government deals that had been the norm for several years until 2002, when the Defence Procurement Procedures (DPP) came into effect.

The DPP was born in the wake of the scandal over payments of commissions to agents in the supply of Bofors artillery for the Indian Army. The DPP has undergone many amendments since then (its latest avatar is in the works) but the complaints against it are akin to a deluge. Senior officers across the three services say it has slowed procurement, delayed decision making and the desire (more likely fear) of the politicians and bureaucracy to get everything right (so there are no corruption allegations later), resulted in a backlog of proposals that never saw the light of the day. It led to companies being blacklisted (Denel, Israel Military Industries, Rheinmetall, Singapore Technologies) on mere suspicion of wrongdoing. That backfired on India as some of these OEMs made equipment already in service with the armed forces, but further procurement could no longer go ahead.

The “return to G2G” signal was sent by no less than the prime minister, when during a visit to Paris last year, he decided to cancel further negotiations on the MMRCA (Medium Multi-Role Combat Aircraft) programme and opted to buy 36 Rafale fighters in a direct sale. Reports say the prime minister was of the view that acquisitions like the Rafale are “strategic” and therefore it is better the government does the “heavy lifting”.

The armed forces are quietly cheering the “return to G2G”, as they expect the delays of the past to be redressed. It also means an end to issues like lifecycle cost, a point which Defence Ministry insiders admit, was never fully understood but the inability to grasp it led to more delays.

G2G has a long and impressive history. If one goes back to the decades of the 1960s and 1970s, all military hardware was bought in G2G deals. These included the MiG series fighters, T-90 tanks, Mirage 2000-H jets or the Anglo-French Jaguars.

It was a G2G deal between India and Russia which saw the decision to develop the Su-30MKI, a fighter tailor made for the Indian Air Force. It was again a G2G deal that saw Delhi and Moscow set up a joint venture to design and build the Brahmos supersonic cruise missile, with each side bringing in money and merging technological strengths.

The entry of the DPP in 2002 did not entirely close the door on G2G. That route alone saw India acquire some genuinely strategic platforms, such as the nuclear submarine INS Chakra in 2012; and the aircraft carrier Vikramaditya in 2013. Around the same time, the decision was taken to buy the C-130 Hercules cargo aircraft for the air force given that age had depleted its cargo platforms: Result the C-130 Hercules joined the Indian Air Force in 2010 while the C-17 strategic airlifters entered squadron service in 2013.

Clearly, the government thought it prudent not to put all its procurement eggs in the DPP basket and ensure that at all times, one procurement window remained open.

Indian jugaad will probably overcome every obstacle, although the end result may not be of the standard that similar shows abroad can boast of. Still, in today’s weak international market conditions, there are few bright spots for arms merchants and to Goa they will come

The “return of G2G” has added to the buzz about India’s defence sector. Recent projections suggest defence spending will touch $100 bn in the next decade with the focus on making locally. Then there’s the government’s efforts to draw the private sector into the large scale manufacture of weapons and equipment, which is starting to make headway; it also requires foreign OEMs to shift their strategy.

“Global OEMs are forging relationships to ‘Make in India’,” writes Anurag Gupta, Director PWC Strategy & Defence, “and to be seen as ‘originating’ from here rather than ‘exporting’ into India to (a) drive growth, (b) leverage low manufacturing cost for global supply chain, and (c) improve efficiency on current platforms via ER&D as new platforms are not coming up due to declining global budgets.”

SUV maker Mahindra has bagged a prestigious assembly, integration and testing deal from BAE Systems for the M-777 ultralight weight howitzer; L&T is partnering Samsung for the K-9 Vajra self-propelled gun; Tata Advanced Systems’ facility in Hyderabad is building helicopter cabins for Sikorsky, components for the C-130 Hercules and could also build parts for Boeing’s range of Apache and Chinook helicopters.

Leaving aside the foreign collaborations, the OEMs are also eyeing indigenous programmes that have been going slow for a number of reasons. The LCA Tejas, for instance, is being fast tracked and players like the Swedish company Saab is offering help (besides holding out the carrot of the already developed and flying Gripen fighter). Another programme is the Aeronautical Development Agency’s Advanced Medium Combat Aircraft concept which was recently cleared by the air force. Given India’s weakness in jet engine technology and other areas, foreign OEMs have an opportunity to partner in its long term development.

Similarly, the DRDO’s development of a future artillery gun holds out opportunities for foreign vendors; the next generation tank could be another option; the navy has an ambitious plan for no less than six conventional (over and above the French Scorpenes now rolling out) and six nuclear submarines. The US is in a dialogue with India on its aircraft carrier technology.

Across the land, naval and air platforms India is open for business but it should be Make in India. G2G will buttress that and when the revamped DPP formally rolls out, the defence business environment in India may no longer be the exercise in uncertainty it is now.

Summary

  • Successive avatars of the Defence Procurement Procedures have failed to address delays in decision making and procurement
  • The decision to buy 36 Rafale jet fighters outright is seen as signaling return to Government to Government (G2G) deals in defence
  • DPP however never actually replaced G2G as strategic and urgent acquisitions were done through official channels
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