• PAGE ONE
• INDEX
• HOME

Beyond mere buying Defence hardware

Prem Kumar

OVER five decades of the national objective of `self-reliance' have created 40 ordnance factories, 50 R&D laboratories and a significant number of DPSUs. But these agencies are constantly grappling with obsolete technology, cost over-runs, schedule delay s of 10-15 years, financial crunches, international sanctions, etc. Consequently, the armed forces have been forced to depend on imported equipment/systems for frontline use. Billions of dollars have been spent on importing defence hardware such as aircr aft, ships, tanks, submarines; conventional ammunition and support equipment such as communication sets, radar, sonar electronic warfare suites and protective gears for personnel.

Large-scale import reveals the gap between the nation's `actual' indigenous capability and the `posture' statements/claims periodically communicated to the media. Under these circumstances, `intermediate' purchases from abroad have become mandatory to es tablish a `self-sufficient' inventory. It was reported that more than Rs 400 crore of Defence hardware had to be imported within a week of the Kargil conflict. Such a situation lends itself to acquisition of imported Defence hardware due to `omissions' o f the indigenous infrastructure that leads to payment of ``commissions'' to middlemen to hasten the deals -- all in the name of preparedness and national security objectives.

With `omissions' and `commissions' part of Defence deals since Independence, the Government's recent attempt to push through wide-ranging administrative and acquisition reforms appears justified.

While dealing with acquisitions from abroad, the Defence Ministry needs to learn from the West Asian and South-East nations. They have initiated a military-economic process that combines economic necessities and military needs to produce a corporate effo rt vital for effective evolution (growth) of the local defence-industrial complex. All major deals (abroad) have an obligation in the form of industrial compensation (off-sets).

In 1999, Israel entered into a contract with one of the world's leading aerospace firm, Lockheed Martin, for the supply of 50 F-16s, commencing September 2003. The firm bagged the $2.5-billion Israel Air Force modernisation programme after competing with Boeing. An interesting aspect of the deal involved an `offset' package spread over 10 years, whereby Lockheed Martin would invest $850 million in local industry. Nearly 30 per cent of the commitment, totalling $200 million had already been invested by e nd-2000, in a dozen Israeli firms.

Apart from purchasing Israeli-made components and sub-systems for its F-16 fleet, the firm is also investing in new development programmes such as flight simulators and helmet-mounted display system. According to the Israeli Defence Ministry spokesperson , the commitment by Lockheed Martin is expected to exceed $850 million and extend beyond the aeronautical sector into space systems, naval weaponry and electronics. Since Israel has to exercise the option clause for an additional 50 F-16s by September 20 01, the additional `offset' commitment by Lockheed is on the cards and is expected to be exploited to the full.

Industrial co-operation between an American aircraft manufacturer and Israeli's Industrial Co-operation Authority was realised after tough negotiations. If Israel can wangle a $850-million offset package, why cannot India?

The Ministry needs to explore similar `opportunities' while negotiating the 25-year-old Advanced Jet Trainer (AJT) requirement with British Aerospace, the second largest defence firm in the world. It has been reported that the Indian Air Force requires 6 6 AJTs; while 24 will be required within one year of the contract, the additional aircraft must be made available within the next three years. When one considers the fact that the services operate nearly 170 HAL Kiran and 50 PZL Iskras, the Hawk fleet wo uld be significant on the sub-continent. Merely involving HAL in component manufacture and assembly line activities of Hawk 100 will neither enhance nor improve the image of Indian aerospace Industry. A short-term phased increase in HAL turnover will be the only outcome as it happened to Mazagoan Dockyard in the 1980s for building SSKs.

The South Korean Government first abandoned plans to acquire three Kilo-Class 636 second-hand submarines from Russia, as part-payment for an outstanding loan of $1.75 billion. Valuing the submarines at $1.1 billion after inspection, the Korean team concl uded the boats did not meet the quality requirement what with serious battery temperature problems, inadequate navigation systems, communication and logistics support. The Korean Defence Ministry selected the German Submarine Consortium (GSC), led by HDW , to partner a local shipyard (to be decided between Daewoo and Hyundai) for the construction of the submarines.

The GSC proposal was selected on grounds of price, superior technology and better logistics package. Korean Navy operates nine Type 209 submarines. The current venture involves three Type 214 submarines fitted with a fully integrated fuel cell AIP (air i ndependent propulsion) using two 120 kV-polymer electrolyte membrane modules. The programme involved $1.1 billion investment by South Korea and $711 million by the Consortium. Though the subs enter service in 2007, the local industry is getting fully gea red to participate and absorb the engineering practices of superior technology.

In spite of a headstart in the 1980s to build submarines, India does not seem to have achieved any industrial co-operation with the German firm on a reciprocal basis. All it has managed is build two subs in Germany, two in India followed by purchase of t wo more abroad.

The Army too faces a similar situation. Kargil proved the effectiveness of the 155 mm Bofors howitzers. The Western press reports that the Army plans to buy 200 howitzers, to gradually build-up an inventory of 1,500 guns through licensed production at an estimated cost of $2.5 billion (Rs 100 crore). Though these guns and conventional ammunition have been with the Army for over two decades, the nation had to import them urgently during the Kargil war. This was in spite of having received the complete ma nufacturing details of the gun from the mid-1980s. During Kargil, not only ammunition but the spares for guns were also in short supply.

The Confederation of Indian Industry (CII) had in 1998, under its then president, Mr Rahul Bajaj, made a set of recommendations to the government for ensuring industrial participation in a significant manner to meet Defence needs. It would be appropriate for the CII to assume the role, responsibility and accountability on the lines of the Israel Industrial Co-operation Authority, and give the desired impetus to the latest government decision, permitting 26 per cent FDI in the Defence sector.

Adequate safeguards, such as offsets/industrial compensation, would need to be linked with Defence contracts and supported by the enactment of suitable laws on the lines of the US False Claims Act. This would enable the industry to absorb superior techno logy within the desired time-frame.

Over a dozen automakers, out of the 19 major global players, have established units in India. Drawing inspiration from the sub-continent's automotive experience, it should be possible to attract such mega-Defence firms as Lockheed Martin, BAe, Boeing, Ra ytheon, and others to participate in joint ventures in the opened up Defence sector.

The Government, in turn, needs to demonstrate an unprecedented political commitment that would remove all hurdles and create a credible atmosphere of trust to attract investments and also acknowledge the significance of industrial compensation (offsets). Only if this is ensured, can privatisation become a commercially functional reality.

In the UK, the Industrial Participation Policy has ensured transparency of the Defence procurement system and countered the potential outflow of the capital. Above all, it has made all defence acquisitions politically acceptable. Defence companies within the European Union want every acquisition to contribute towards economic development by facilitating and fostering business. Developing nations should -- by extending this into `globalisation' -- stop seeing themselves merely as markets, and negotiate f or partnership ventures whereby every major deal is accompanied by an offset/industrial compensation. The CII and the Defence Ministry need to work out the modalities to create job opportunities and enhance the competitive edge of the private Defence ind ustry.

(The author, a retired Commodore, is a Chennai-based freelance writer.)