Saturday, 21 November 2020

Moving in elite company in Exercise Malabar, Indian Navy warships are hamstrung by dire shortfalls

By Ajai Shukla

Business Standard, 21st Nov 20


The quadrilateral Exercise Malabar, involving the American, Australian, Japanese and Indian navies, terminates on Saturday and, by the accounts of India’s Ministry of Defence (MoD), has been a thumping success.


With two aircraft carrier battle groups participating – one American and one Indian – the three Indian capital warships that exercised, along with an Indian Scorpene submarine and a P-8I maritime reconnaissance aircraft, got a valuable opportunity to train with the best equipped navies of the world.


Yet, there is concern in South Block at the poor state of readiness of the navy’s 140-odd warships, which face severe shortages in sonar equipment, helicopters and torpedoes – equipment critical for a warship’s survival and combat power.


Like almost every Indian warship built after 1997, the aircraft carrier INS Vikramaditya and the two destroyers, INS Kolkata and INS Chennai, participated in Malabar without “advanced towed array sonar” (ATAS), essential for detecting enemy submarines in the shallow Arabian Sea where the peculiar temperature and salinity gradients sharply limit the effectiveness of conventional sonars.


Without ATAS, enemy submarines can sneak up to within 50-80 kilometres of these warships and launch their torpedoes from standoff ranges.


Most Indian warships also function without another vital anti-submarine warfare (ASW) platform: Naval Multi-Role Helicopters (NMRH), which fly low over the sea and lower “dunking sonar” into the water in order to listen for audio signals from enemy submarines. 


While the navy signed a contract for 24 MH-60 Romeo multi-role choppers in February, it is currently left with just about 10 obsolete Seaking helicopters, of which no more than four-to-five are usually operational at any time. In addition, there are eight Kamov-28, of which four-to-five are available. These 10-odd choppers must be distributed amongst the navy’s 40-odd capital warships.




In 2014, towards addressing the dire shortage of ATAS sonars, the MoD signed a contract with German marine electronics leader, Atlas Elektronik, for six advanced towed array sonar. Six years later, just two ATAS have been installed on warships so far. One major reason is that the navy keeps changing the warships on which they are to be installed. For example, with INS Mysore going into medium refit and likely to be out of action for a couple of years, its ATAS is being transferred to the destroyer, INS Delhi.


Transferring an ATAS from one ship to another is costly and painstaking. Cutting the helicopter deck to install the winch inside could take three months. Another six months or so are spent on pre-harbour trials harbour trials and field evaluation trials.


Nine more ATAS sonars are being procured from Atlas Elektronik in a contract that is before a cost negotiating committee. Even though this is a “follow-on contract” to the six ATAS already bought, the Defence Acquisition Procedure requires that it goes through the entire procurement procedure, except for field evaluation trials (FET). Were there an options clause in the earlier contract, the next tranche of procurement would be classified as a “repeat contract”, and would have followed a greatly simplified procedure.


Another four ATAS sonars are going through the glacial procurement procedure for the four Project 1135.6 Krivak-class frigates, the first two of which are being manufactured in Russia and the other two in Goa Shipyard Ltd, India. Bids have been submitted for the first two sonars, but the process drags on.




Given ongoing tensions with China, the navy urgently needs to equip its submarines with state-of-the-art torpedoes. But the heavyweight torpedoes (HWT) needed to equip the navy’s frontline Scorpene submarines have not been procured.


The urgency of this requirement was underlined in August 2014 when the on-going procurement of 98 Black Shark torpedoes for the Scorpene from Italian marine specialist, Whitehead Alenia Sistemi Subacquel (WASS), was scrapped after its parent company, Finmeccanica, was banned by the MoD in the wake of the VVIP helicopter scandal. 


When the Black Shark contract was put on hold, it became obvious that India’s vintage arsenal of 98 old SUT torpedoes, would be required to arm the Scorpene-class. The SUT torpedoes were bought in the 1980s and 1990s for the navy’s four Type 209 submarines. However, with some modifications, they could be used from the Scorpene as well. 


Atlas Elektronik was called in to carry out a life-cycle extension that would extend the service life of 64 SUT torpedoes by 15 years. This week, another contract was signed by the Indian Navy with Atlas Elektronik to extend the life of the remaining 32 SUT. 


With the army facing off against China in Ladakh, New Delhi has urged Atlas to hasten the life-extension of the remaining 32 torpedoes. However, Berlin requires mandatory procedures, such as the issue of a contract, for granting an export licence. 


Meanwhile the procurement of new HWTs drags on, the choice reduced to a two-horse race between Atlas Elektronik’s Seahake torpedo; and French firm, Naval Group’s F-21. 


As defence minister, Manohar Parrikar pushed in 2015-16 for a straightforward government-to-government arrangement with Berlin to buy Atlas Elektronik’s Seahake. That was scuttled by his return to Goa as chief minister in 2017. Arun Jaitley, who succeeded him, was too preoccupied with his finance portfolio. Nirmala Sitharaman, the next defence minister, took time to settle down, by when the elections took place and Rajnath Singh replaced her. He has reverted to pursuing a global tender.


However, the procurement has been derailed by the Covid-19 pandemic. The technical evaluation of the torpedoes has been completed, but the live testing, which has to be done in Germany, is held up since no foreign visitors are being permitted into German military facilities.




Also floundering is the Project 75I project to construct six submarines with air independent propulsion (AIP) in India. With slow progress, the navy is considering upgrading and giving life cycle extensions to the Kilo-class, Type 209 and Scorpene submarines, to maintain capability till the Project 75I submarines are inducted. 


Many believe it is unrealistic to plan to fit lithium-iron batteries and AIP into these old submarines. Even so, this is now probably inescapable since, even if the RFP is released immediately for Project 75I and the procurement goes according to plan it would still be 10-12 years before the first Project 75I submarine becomes operationally available.

Thursday, 19 November 2020

Mixed opinions on “leasing” of defence equipment

By Ajai Shukla

Business Standard, 19th Nov 20


With the Defence Acquisition Policy of 2020 (DAP 2020) introducing “leasing” as a new option for equipment acquisition, senior Ministry of Defence (MoD) officers discussed the pros and cons with defence industry executives at a webinar organized by Ficci on Tuesday.


DAP 2020 defines leasing as a “means to possess and operate [a military] asset without owning the asset” and says it provides a useful way “to substitute huge initial capital outlays with periodical rental payments.”


The only one of the three services that has significant experience of leasing defence equipment is the navy, which has successively leased two nuclear-powered submarines from Moscow. The second of them, which was leased in 2012 for a ten-year period, is still in the Indian Navy fleet.


Opinion is divided on whether leasing provides a viable acquisition option for defence equipment. Former secretary (defence finance), Gargi Kaul, expressed strong reservations about the way the new leasing policy “tied the hands” of the defence ministry bureaucrats and opined that it could, at best, be a government-to-government arrangement.


Kaul also stated that competitive procurement in the leasing category would be difficult since there would be, in most cases, just one vendor eligible. She pointed out that there is not a single Indian company that is in the business of leasing military equipment.


In contrast, Vice Chief of Naval Staff, Vice Admiral G Ashok Kumar termed leasing as “a path breaking change that provides an opportunity to mitigate short-term capability gaps, considering the long gestation period of shipbuilding contracts.”


He said the navy would primarily lease “operational support assets and auxiliary vessels to enhance our operational capabilities and yet avoid huge investments in manning and maintaining them.”


The navy will lease “multi-role platforms, where specific capabilities can be slapped on,” says Kumar, so that there is an end to “using high-end platforms for low-end tasks.”


Towards this end, the navy will lease vessels for coastal security patrols, minesweeping, seabed mapping, and auxiliary vessels such as tankers, barges and tugs. “We could also look at operational enablers such as utility helicopters, unmanned solution and high-speed aerial and surface targets for operational preparedness of the navy,” said Kumar.


DAP 2020 stipulates conditions where leasing – of either new or used equipment – could be a better option than outright purchase. These include circumstances where traditional procurement is not feasible due to time constraints; where the equipment is needed only for a limited time or would be under-utilised if purchased; or where only small numbers of the equipment are needed and it would require a large expenditure to set up infrastructure for those small numbers.


Leasing is also recommended for when lease rentals would be more economical than paying a large, one-time acquisition cost; or to gain experience in the operational exploitation of a particular equipment. 


Kaul said there are not many examples of successful leasing of defence platforms. She said it would be difficult to make the case to the department of defence finance that, for a particular platform, leasing would be more economical than an outright purchase.


Kumar, however, pointed out that leasing has been adopted by many armed forces around the world. He said the US had leased ships to augment military capability in World War II, the Korean War (1950-53) as well as the Vietnam War in the 1970s. The US Navy has a long history of leasing several categories of “off-the-shelf auxiliary support equipment,” he said.


Similarly, the Royal Air Force in the UK has leased aircraft, including P-8 maritime reconnaissance aircraft; the Italian Air Force has leased 34 F-16 fighters from the US Air Force to ease pilot transition from the F-104 to the Eurofighter, and the Philippines have leased the TC-90 trainer from Japan. Norway and Denmark are using leased aircraft for maritime patrol and oil pollution detection at sea.


DAP 2020 permits leasing in two categories: Lease (Indian), the preferred category, where the lessor is an Indian entity and owns the asset; and Lease (Global), which refers to lease of equipment from foreign or Indian Lessors.

Monday, 16 November 2020

US, Indian aircraft carriers to feature, Scorpene submarine to debut in Exercise Malabar Phase 2

For the first time, the naval exercise is being held off both East and West coasts


By Ajai Shukla

Business Standard, 17th Nov 20


Signalling the growing prominence of the Indian Ocean region in the security calculus of the four Quadrilateral (Quad) member-countries, their navies will conduct the second phase of joint Exercise Malabar 2020 from Tuesday to Friday in the Northern Arabian Sea.


The first phase was conducted in the Bay of Bengal from November 3 to 6. This is the first time that Exercise Malabar will be conducted off India’s eastern as well as western seaboards in the same year.


“Taking forward the synergy achieved in the recently concluded Phase 1 of Exercise Malabar 2020, which was conducted in the Bay of Bengal from November 03 to 06, this phase will involve coordinated operations of increasing complexity between the navies of Australia, India, Japan and the United States,” stated a Ministry of Defence (MoD) release on Monday.


After a relatively low-key first phase, the second phase will see the muscular participation of two aircraft carrier battle groups – centred on the US navy’s strike carrier, USS Nimitz; and the Indian Navy’s lone carrier, INS Vikramaditya.


For the first time in a joint exercise with foreign partners, India will field its latest Scorpene submarine, INS Khanderi, which was commissioned in September 2019. The navy’s willingness to expose this frontline platform to intensive monitoring by all participants in the exercise denotes a high level of mutual trust.


Besides INS Vikramaditya and INS Khanderi, the Indian Navy will also field two indigenous destroyers, INS Kolkata and INS Chennai, a frigate, INS Talwar, and a Fleet Support Ship, INS Deepak. The air complement will include each ship’s integral helicopters and P-8I maritime reconnaissance aircraft.


From the US Navy, the aircraft carrier Nimitz will be accompanied by a cruiser, USS Princeton and a destroyer USS Sterett. In addition, US Navy P-8A maritime reconnaissance aircraft will also participate. 


Australia will participate with the frigate HMAS Ballarat, while Japan will field a destroyer, Japan Maritime Self Defence Ship (JMSDF) Onami.


The four-day exercise will see the participants rehearsing “high intensity naval operations… of increasing complexity,” stated the MoD. “These include cross-deck flying operations and advanced air defence exercises by MIG 29K fighters of INS Vikramaditya and F-18 fighters and E2C Hawkeye from USS Nimitz.”


In its essentials, that will involve coordinating ways of controlling airspace. The E2C Hawkeye airborne early warning (AEW) aircraft, flying from USS Nimitz, would be used for detecting over-the-horizon enemy airborne threats. The information would then be passed onto Indian Navy MiG-29K and US Navy F-18E/F Super Hornet fighters, which would attack and destroy the enemy aircraft.


“In addition, advanced surface and anti-submarine warfare exercises, seamanship evolutions and weapon firings will also be undertaken to further enhance inter-operability and synergy between the four friendly navies,” said the MoD.


Cooperation between the navies is also enhanced through logistics agreements that India has signed with the other participating countries and through a communications security pact and geo-spatial cooperation agreement that New Delhi has signed with Washington.


For the Indian Navy, the exercise provides a valuable opportunity to learn aircraft carrier and anti-submarine operations from the US Navy, which is the acknowledged world leader in these fields. 


At the political level, a quadrilateral Exercise Malabar powerfully signals the emergence of resistance to China’s growing assertiveness. The bilateral US-India joint exercise that first began in 1992 became a trilateral exercise when Japan joined in 2015, and a quadrilateral exercise with Australia joining this year.


“The 24th edition of Malabar, which is being presently undertaken, highlights enhanced convergence of views amongst the four vibrant democracies on maritime issues, and showcases their commitment to an open, inclusive Indo-Pacific and a rules-based international order,” stated the MoD.

Friday, 13 November 2020

After firing setback, indigenous artillery gun set to roar again (Part 2 of series on Enhancing Indian Firepower)

By Ajai Shukla


Business Standard, 13th Nov 20


Until April, the Advanced Towed Artillery Gun System (ATAGS) was well on track to be inducted into service as an indigenous solution to the artillery’s requirement of thousands of 155 millimetre (mm) guns. 


Sanctioned in September 2012, the ATAGS gun first fired in December 2016, taking just four years in development. In subsequent firing trials the ATAGS demonstrated it was a world-class gun, consistently exceeding the ranges the army demanded.


The gun is unique in its ability to fire a five-round burst, while no other contemporary gun exceeds three-round bursts. This brings down a greater quantity of explosive onto the target before enemy soldiers can take cover.


Before entering large-scale production, the ATAGS was readying for hot weather trials in the Pokhran Field Firing Ranges (PFFR) from 15th May to 15th June, followed by cold weather trials and mobility trials in Sikkim in January 2021.


The Defence Research & Development Organisation (DRDO) scientists in the ATAGS project were confident. The gun had already performed well in high altitude trials in January 2018 at the 12,000-foot-high Menla Firing Range in Sikkim, where night time temperatures drop to minus 16 degrees Centigrade.


But their hopes of a smooth path into operational service for ATAGS were scuttled by two events. First, summer trials were called off because of the Covid-19 pandemic. Then, when the gun went for trials in September, a gun barrel burst while being fired.


Now, after a detailed probe by a multi-agency Failure Investigation Committee, the gun has undergone changes and is ready to fire again. Business Standard was briefed on the ATAGS programme at the Armament R&D Establishment Pune.


ATAGS Project Manager, Shailendra Gade, explained that the gun’s ability to achieve a world-record breaking range of 48 kilometres comes from a specially designed gun chamber that has a unique 25-litre capacity.


In other contemporary 155 millimetre guns, chamber capacity is never more than 23 litres. As a consequence, other guns can use a maximum of six modules (measures) of propellant to hurl the projectile to the target. The ATAGS’ additional two-litre chamber capacity has space for a seventh propellant module. This hurls the projectile an additional distance. 


Looking at the ATAGS in the ARDE’s weapons bays is enough to discern that it is an unusually beefy artillery gun. Weighing in at 19-tonnes, it is a full two tonnes heavier than comparable 155 millimetre, 52 calibre Nexter and Elbit towed guns the artillery has evaluated.


But the army has willingly accepted the reduced mobility that comes with greater weight. The additional propellant it fires requires a heavier barrel, breech and recoil system.


The weight of the ATAGS has also risen because of its all-electric drive – another unique feature of the gun. This electrically powers 11 moving parts, such as the automatic ammunition loader. In other guns, these systems are operated through hydraulic systems, which are messy and unreliable, require

hydraulic drives, oil tanks for hydraulic fluid and rubber gaskets that have to be changed frequently. Hydraulic systems also require more maintenance than electrical systems and are less sensitive.


Electrical systems have added an estimated two tonnes to the weight of ATAGS because an extra actuator and motor is required for each of the 11 moving parts. The ATAGS’ stack of electrical batteries also adds to the weight of the gun. 


Another advantage of electrical systems is that the gun can fire without switching on the engines – essential for powering hydraulic systems. In the ATAGS the gun can fire in “silent mode”, with the batteries providing sufficient electrical power to fire the gun for an hour, without the engine running.


The ATAGS is towed by the standard, in-service Ashok Leyland Stallion field artillery tractor (FAT). However, it can be decoupled from the gun, and then move for short distances powered by its on-board engine, built by Pune-based firm, Cummins.


The ATAGS has a world-class, digital control and communications system. Each battery command post issues commands to the six guns it controls through state-of-the-art software defined radio (SDR). The command & control and communications systems have been developed by two DRDO laboratories: Defence Electronics Applications Laboratory (DEAL), Dehradun and Centre for Artificial Intelligence and Robotics, Bangalore (CAIR).


There is significant “Make in India” prestige riding on the ATAGS. It has been displayed to the public during the Republic Day Parade. Numerous VIPs have witnessed it firing, including Nirmala Sitharaman, who travelled to Pokhran in September 2017, two weeks after taking over as defence minister. 


But, most importantly, the ATAGS has a major place in the army’s Field Artillery Rationalisation Plan, which envisages the acquisition of about 3,000 155 millimetre, 52-calibre guns. At least half of these are to be ATAGS. 

Thursday, 12 November 2020

New, deadly Pinaka rocket gives army cross-border options: (Part 1 of series on Enhancing Indian Firepower)

The Guided Pinaka rocket rivals the US Army’s M270 Multiple Launch Rocket System (M270 MLRS), in range and accuracy

By Ajai Shukla

ARDE, Pune

Business Standard, 12th Nov 20


The Pune-based Armament Research and Development Establishment (ARDE) has long been one of the most productive laboratories of the Defence Research and Development Organisation (DRDO). It has now scored another success with a copybook test of the Enhanced Pinaka rocket. 


The Pinaka multi-barrelled rocket launcher (MBRL) is an important indigenous project aimed at providing the army with firepower superiority that would reduce casualties to soldiers in war.


Each Pinaka launcher has twelve tubes, each one firing a rocket that plasters the enemy with 100 kilogrammes of high explosive. A salvo from a Pinaka battery, which fields six launchers, brings down on the enemy more than seven tonnes of high explosive in just 44 seconds. 


So far, the army has fielded the Pinaka Mark I, with a range of 37.5 kilometres and limited accuracy of about 500 metres. The Enhanced Pinaka has demonstrated twice that range and an ability to strike within 10 metres of where it is aimed.


“[The] Enhanced Pinaka rocket, developed by the DRDO, has been successfully flight-tested from Integrated Test Range, Chandipur off the coast of Odisha [last Wednesday]. A total of six rockets were launched in quick succession and the tests met complete mission objectives”, stated a Ministry of Defence (MoD) release last Wednesday


Business Standard visited ARDE Pune, and its sister laboratory, High Energy Materials Research Laboratory (HEMRL), for a rare briefing on the Pinaka MBRL programme. HEMRL has developed the Pinaka's propulsion.


The Pinaka Mark I entered development in 1988 and a prototype version was deployed in combat in the Kargil War of 1999. After it was proven in user trials in 2002, production orders were placed. Currently four Pinaka regiments are in service and another six are under procurement.


In 2016, the army realised that the “free-flight” Pinaka Mark I rockets would have only a limited accuracy and asked the DRDO to try and provide a guidance kit to each individual rocket. ARDE took up the “Enhanced Pinaka” project, setting goals that would make the Pinaka a world-class rocket.


In January 2017, ARDE demonstrated the first flight of the Enhanced Pinaka. The army had asked for a range of 60 kilometres, but ARDE achieved 75 kilometres in the very first flight. Against a desired accuracy of 30 metres, the Pinaka proved it could strike within 10 metres of the target.


“This high accuracy means that just two Enhanced Pinaka rockets must be fired to assure a kill probability of more than 99 per cent,” says Dr V Venkateswara Rao, the ARDE director.


The accuracy and range that the DRDO claims for the Guided Pinaka, puts it on par with the US Army’s M270 Multiple Launch Rocket System (M270 MLRS), which boasts the same accuracy figures.


Key to the Enhanced Pinaka’s success is a guidance system that combines an inertial navigation system (INS) with satellite navigation. The rocket’s guidance system has been integrated with the Indian Regional Navigation Satellite System (IRNSS) – the Indian version of the Global Positioning System (GPS) that the US invented. A constellation of IRNSS satellites is already deployed.


“Most rockets and missiles, which are not tube-launched, have plenty of space on board. But, in the Pinaka, which is launched from a 214 millimetre-wide tube, space is critical. It is a technological challenge to house the on-board computer, telemetry, power supply and navigation system inside such a small rocket,” explains Rao.


The continuous in-flight guidance the Enhanced Pinaka receives, corrects for inaccuracies imposed by meteorological conditions such as stiff winds. This eliminates the requirement of a meteorological radar.


So far, the Ordnance Factory Board (OFB) has been manufacturing the Pinaka Mark I rocket, but the army and the DRDO have decided to create a second source of supply in the private sector. The army has already floated a tender with the private industry for about 11,000 Pinaka Mark I rockets.


“[The Enhanced Pinaka] rockets tested [on Wednesday] have been manufactured by M/s Economic Explosives Limited, Nagpur, to whom the technology has been transferred”, stated the MoD.


The army’s total requirement of Pinaka units is of the order of 22 regiments, all of which will be modified with electronic kits. That will allow them to fire both Pinaka Mark I and Guided Pinaka rockets. 


The Enhanced Pinaka provides the army with a weapon for accurately striking deep-lying targets, such as terrorist camps across the Line of Control, eliminating the need to risk soldiers or aircraft in cross-border “surgical strikes”.


This weapon could also support wartime attacks under the army’s “Cold Start” plan, which involves capturing enemy positions in lightning strikes before they can be reinforced. The volume and precision of firepower that a Pinaka regiment brings down would stun defenders and leave attacking forces with an easy task.


Tomorrow: PART 2: Advanced Towed Artillery Gun System (ATAGS) surpasses global benchmarks


Saturday, 7 November 2020

A pragmatic approach to defence FDI

Direct procurement from abroad should be made conditional on setting up manufacturing facilities in India, fully owned if necessary


By Ajai Shukla

Business Standard, 6th Nov 20


Over the last six months, Defence Minister Rajnath Singh and selected ministry of defence (MoD) officials have been addressing defence industry gatherings -- in virtual conferences, given the Covid-19 pandemic. In their presentations, the MoD officials have talked up the defence policy reforms instituted since 2014, which they argue will boost defence production in accordance with Prime Minister Narendra Modi’s slogan of “Atmanirbhar Bharat” (self-reliant India). The officials cite the promulgation of a “negative import list” of 101 defence items, the new Defence Acquisition Policy for 2020 (DAP-2020) with its emphasis on indigenisation, the new Defence Production and Export Promotion Policy (DPEPP 2020) that will help raise annual defence production to $26 billion and arms exports to $5 billion each year, the establishment of two defence industrial corridors in Tamil Nadu and Uttar Pradesh and, of course, the recent liberalisation of foreign direct investment (FDI) into India’s defence industry. 


On September 17, the Department for Promotion of Industry and Internal Trade (DPIIT) raised the defence FDI cap from the existing 49 per cent to 74 per cent under automatic route, for companies seeking new industrial licenses. This created an optimistic buzz amongst Indian defence firms, as well as global defence giants who saw an exciting opportunity to participate, with a majority stake, in defence contracts reserved for Indian companies in categories such as “Buy (Indian Designed, Developed and Manufactured)”, “Make-1”, “Make-2”, “Strategic Partner” projects and development projects in collaboration with the Defence Research & Development Organisation (DRDO).


This euphoria lasted just 13 days. On September 30, Rajnath Singh released a new Defence Acquisition Policy of 2020 (DAP 2020), which appeared not to have heard of the revised FDI cap. DAP 2020 stated that “a company is considered as ‘owned’ by resident Indian citizens if more than fifty per cent of the capital in it is directly or beneficially owned by resident Indian citizens and/or Indian companies, which are ultimately owned and controlled by resident Indian citizens. This implies that the maximum permitted Foreign Direct Investment (FDI) shall be forty nine per cent. No pyramiding of FDI in Indian holding companies or in Indian entities subscribing to shares or securities of the Applicant Company or the Strategic Partner shall be permitted. Indirect foreign investment shall be accounted for in counting the forty-nine per cent FDI.”


DAP 2020 also cites the measures defined in the Companies Act 2013 to ensure that the control of companies participating in the defence tenders mentioned above remained in the hands of Resident Indian Citizens. It says: “Control shall include the right to appoint majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements.”


Amongst the questions this apparent contradiction raises are: What precisely was intended by raising the defence FDI cap from 49 to 74 per cent? Is there going to be differential treatment of Indian companies with 49 per cent foreign ownership compared with those that have 74 per cent foreign ownership? And, perhaps most importantly, why would international defence vendors make a 74 per cent investment in the Indian defence sector when that entity will not even be considered an Indian vendor; and would, therefore, be ineligible to bid for projects reserved for Indian companies? 


Defence FDI policy has lacked a clear purpose ever since 2001, when the private sector was allowed into defence production. Perhaps for this reason, the total of all FDI inflows into the defence and aerospace sector from 2001 till the present has amounted to a mere Rs 3,454 crore, according to an MoD statement in Parliament on September 14. Of this, Rs 2,133 crore came in from financial year 2014-15 onwards – a princely Rs 350 crore each year on average.


The MoD has never quite understood, or enunciated, what it seeks by liberalising FDI in defence, even though the cap has gradually inched up from 26 per cent in 2001, to 49 per cent in 2016, rising to 74 per cent this year (all through the automatic route). On the one hand, this has been tentatively viewed as a way to bring cutting-edge military technology into India; evident from the MoD’s policy caveat that 100 per cent FDI would be permitted for high-technology projects. On the other hand, FDI liberalisation has been viewed as a means to boost defence and aerospace manufacture, even if only of low-and-medium tech items that global “original equipment manufacturers” (OEMs) would prefer to build in India because labour arbitrage made it cheaper than running factories abroad.


The argument that raising the defence FDI cap, even to 100 per cent, would lead to the development of defence manufacture in India is based on the flawed premise that the defence industry is market driven. In fact, governments tightly control the manufacture of cutting edge military equipment. Even when a defence OEM sees a terrific business case in transferring manufacture to India, it is not the firm’s board but its home government that will have to give it the nod. In countries with advanced defence capabilities, legislative frameworks, such as the US International Traffic in Arms Regulations, govern the release of proprietary defence technology. In most cases, strategic concerns govern their decisions, not economic logic. 


There is greater logic in raising the defence FDI cap, even to 100 per cent, in order to increase manufacture, create employment and develop the production skills that come from building even medium-tech products, such as electronic circuitry, fuse boxes or airliner landing gear. Given that we import about 55-60 per cent of our defence needs, much of it bought in single-vendor contracts from Russia, US, France and Israel in fly-away, sail-away, drive-away or carry-away condition, nothing is lost by allowing those vendors to set up fully-owned production units in India to manufacture significant parts of their large purchase orders. This would create an eco-system of high-quality manufacturing units located in India, even if owned by foreigners. 


While this has been tentatively explored through the offset route, there is a case for making all current and future direct procurements from abroad conditional on setting up manufacturing facilities in India that would be fully owned by the vendor. Access to India’s defence market must be made conditional – available only to those who are ready to make a long-term commitment in India. 


Finally, persuading global OEMs to establish fully-owned, or 74 per cent owned, manufacturing units in India will go some way towards creating an environment of heightened competition, spurring own Indian private and public sector companies to compete in building international-quality products that have been proven and stabilised. Perhaps this might spur Indian industry and the defence industrial estate to aim for state-of-the-art products, rather than those already available in the global arms bazaar.

Friday, 6 November 2020

Eyeing submarine contract, Russian firm looks to buy Reliance Naval

USC is believed to be interested in debt-laden firm to position itself for Indian Navy's submarine contract


By Ajai Shukla 

Business Standard, 6th Nov 20


Most shipbuilding firms are backing away from purchasing Anil Ambani’s Reliance Naval and Engineering Ltd (RNaval), which is being sold to pay its debts. However, Russia’s state-owned United Shipbuilding Corporation (USC) remains interested.


Responding to a media report last month that said USC had opted out of the bidding process, the Russian Embassy in India clarified on Thursday: “USC have never officially indicated its refusal to participate in the tender.”


RNaval is under the hammer under the Insolvency and Bankruptcy Code (IBC) to recover debts that have mounted to almost ₹10,000 crore. Besides USC, two large Indian companies – Chowgule and APM Terminals Management BV – were in the fray, along with a number of asset reconstruction companies. RNaval’s primary asset is the Pipavav Shipyard in Gujarat.


Stating that USC had passed the accreditation procedure to obtain access to RNaval’s electronic account, the Embassy stated: “[USC] is currently conducting the due diligence of RNaval’s condition and assessing parameters of the possible investments.”


The Russian Embassy states that, owing to the Covid-19 pandemic, USC has faced difficulties in evaluating Pipavav Shipyard, since that involves direct interaction between experts from both sides. “The USC is expected to finalize its stance on further participation in the bidding procedure after completing the remote study of the documents provided by the debtor's trustee and the field review of RNaval’s assets by the USC’s specialists,” the embassy stated today.


The state-owned USC is believed to be interested in buying out RNaval in order to position itself to compete for Project 75I – the Indian Navy’s project to build six submarines in India, which will be driven by air-independent propulsion (AIP). The ownership of Pipavav Shipyard would allow USC to build the six submarines itself, while claiming it had met the “Make in India” norms. 


USC is also building four Krivak-class frigates, of which two are required to be built in India. Currently they are to be built in Goa Shipyard but that could change if USC buys RNaval and opts to build two warships in Pipavav Shipyard.


Mumbai-based Mazagon Dock Ltd (MDL) is also keen to gain access to Pipavav Shipyard, though it is not participating in the IBC process. The shipyard has a defence shipbuilding licence and world-class infrastructure, including a dry dock that can accommodate an aircraft carrier.


In September, the Ministry of Defence (MoD) scrapped RNaval’s contract to build five naval offshore patrol vessels (NOPVs), which were supposed to be delivered between November 2014 and November 2016. In 2018, after RNaval failed to deliver even the first NOPV, the navy encashed the firm’s bank guarantees. 


RNaval was formerly known as Pipavav Defence and Offshore Engineering Company Limited (PDOECL). After Anil Ambani acquired a majority stake from its earlier promoter, Nikhil Gandhi, the company’s name was changed to Reliance Defence and Engineering, and then to RNaval.