Saturday, 31 May 2014

Defence industry, MoD hunker down for FDI battle



By Ajai Shukla
Business Standard, 31st May 14

After the UPA tried unsuccessfully since 2010 to raise the 26 per cent cap on foreign direct investment (FDI) in defence production, a move that indigenous defence companies and former Defence Minister AK Antony resisted staunchly, the new government has initiated a fresh attempt along the same lines.

In 2010, the department of industrial policy and promotion (DIPP) --- at the behest of Commerce Minister Anand Sharma --- had pushed to raise the FDI cap to 74 per cent. This time, under Nirmala Sitharaman, the DIPP has mooted three separate options in a cabinet note --- proposing 49%, 74% or 100% FDI.

Commerce ministry sources say that, given the new government’s focus on promoting manufacture to generate employment, and with a new defence minister who is less protective of indigenous defence industry, the international defence industry’s longstanding demand to lower entry barriers into India might well be granted.

Even so, there will be stout resistance from the department of defence production (DDP), and from an indigenous defence industry that worries that the unfettered entry of international vendors would wipe out fledgling Indian defence companies.

“Please name one country that allows foreign defence companies unfettered access to the market. America theoretically allows 100 per cent FDI, but its laws mandate that every single employee must be a US national and the company must operate exclusively on US soil. India hasn’t the means to enforce such rules, and foreign companies will take full advantage,” says the CEO of a major Indian private sector defence company.

So watertight are the US laws that the Tel Aviv based president & CEO of, say Israeli company Elbit is required to take Washington’s permission before he can visit his own company facilities that operate in the US.

Furthermore, say defence industry CEOs, there is no evidence that increasing FDI provides any benefit to an industry. They cite the example of telecom, where permitting 100 per cent FDI has failed to galvanize the emergence of telecom manufacture. To this day, there is no significant Indian manufacturer of telecom equipment.

In 2001, the DIPP permitted private sector participation in the defence industry, vide Press Note No 4 of 2001, which notified several measures for liberalising the FDI regime of that period. Paragraph (iii) of that notification said, “The defence industry sector is opened up to 100% for Indian private sector participation with FDI permissible up to 26%, both subject to licensing.”

A 26 per cent holding allows the foreign partner only a veto over major policy decisions. Were the FDI cap raised to 49 per cent, the foreign company would still not control the company or the board, but would be able to repatriate a higher share of the profit. A significant FDI limit rise would be if foreign companies were permitted 51 per cent or above. And were 100 per cent FDI permitted, foreign entities would be able to buy out Indian companies in full.

Defence ministry officials and major Indian defence industries want to retain the 26 per cent cap, since it allows the Indian partner to demand technology infusion from the foreign original equipment manufacturer (OEM).

Indian industry sources point out that, while India proposes to raise FDI caps, Germany has recently reduced its defence FDI cap from 26 per cent to 25 per cent in order to further curtail the rights and powers of the foreign partner.

Citing an agreement signed this week between Samsung, and Larsen & Toubro (L&T), officials say the Korean defence major would have probably chosen to go it alone, had 100 per cent FDI been allowed.

“Since L&T is the controlling partner, it will ensure that Samsung brings in the technology, which will be translated by low-cost Indian workers into cheaply priced defence equipment. That is the model to follow,” says the official who requested not to be named.

Foreign OEMs deny this, arguing that they would be ready to bring in high-end technology, and to source Indian-built defence equipment for their global supply chains, if only they had more control over the joint venture company.

Indian CEOs counter this with the question: Can you name one foreign OEM that has willingly transferred technology to India? They point out that 72 multinational corporations employ two lakh Indian engineers in research and development (R&D) centres in places like Bangalore, Hyderabad and Pune. Yet none of the technology that they have developed is available to India.

The question at the heart of the FDI dilemma is: Should the government regard the defence industry as just another avenue for creating manufacturing jobs? Or should the government nurture a defence industry as a national strategic objective. A government focused on job creation might not be inclined to treat defence as a special sphere.


Wednesday, 28 May 2014

Jaitley hints at raising defence FDI cap


New defence minister endorses UPA appointment of Lt Gen Dalbir Singh Suhag as next army chief

By Ajai Shukla
Business Standard, 28th May 14

On a day when most new ministers reached their respective ministries bright and early, it was past noon when Arun Jaitley arrived at the defence ministry (MoD) in South Block, after spending the morning at the finance ministry across the road.

Mr Jaitley quickly clarified that his custodianship of three crucial ministries --- finance, corporate affairs and defence --- did not mean the MoD would remain neglected for long. Terming this a “transient phase”, he said a full-time defence minister would be appointed in a cabinet expansion within a “couple of weeks”.

Notwithstanding his temporary status, Mr Jaitley hinted that the 26 per cent cap on foreign direct investment (FDI) in the defence sector could be raised, which has been a longstanding demand from international defence companies.

Pointing out that FDI in defence had first been allowed by the Vajpayee government (in 2001), Mr Jaitley said that he would be “personally willing to examine” a review of the cap.

Noting that the finance and corporate affairs ministries would play a role in any decision to raise the FDI limit, he admitted that the question “had already come up in my preliminary discussions today and therefore I do not want to say anything more before I look deeply into the matter.”

The BJP’s election manifesto said that it would “encourage private sector participation and investment, including FDI in selected defence industries.” The manifesto does not commit to increasing the FDI cap across the board.

Mr Jaitley endorsed the UPA government’s decision to name Lt Gen Dalbir Singh Suhag as the next army chief, stating, “I firmly believe that there should be no controversy on appointment of the person concerned. Some comments may have been made regards the procedure of (his) appointment but there should be no reflection on the person concerned.”

Taking a swipe at the AK Antony-led MoD for having “slowed down” equipment modernisation, the stopgap defence minister declared that quick procurement would be “a matter of top priority” for the new government.

However, Mr Jaitley struck a more cautious note whilst addressing senior ministry bureaucrats of the rank of joint secretary and above. He stated that the government would like to accelerate equipment procurement, “but established procedures are there. We would like to ensure that there are no avoidable consequences.”

The three service chiefs also called on Mr Jaitley together in his office.

Also at the MoD today was the new minister of state for defence, Rao Inderjit Singh, who had held the same portfolio in the UPA government from 2004-2009. His disillusionment with the Congress began after he was dropped as a minister in 2009, leading eventually to his joining the BJP.

Tuesday, 27 May 2014

Pressing the reset button in MoD



by Ajai Shukla
Business Standard, 27th May 14

Defence Secretary RK Mathur, like his counterparts in other key ministries, will soon make a presentation on the defence ministry (MoD) to Prime Minister Narendra Modi. In his recommendations to the PM, Mathur --- a farsighted bureaucrat who was badly hamstrung by the former defence minister’s paralysing conservatism --- will choose between incremental and radical change. He could submit to bureaucratic caution and recommend process improvements that are easy and acceptable: streamlining procurement, promoting indigenisation, etc. This safe approach might include a suggestion to raise the defence budget from its current 52-year low of 1.74 per cent of GDP. Yet, timid measures would not yield the transformative change that the new PM seeks.

Instead, Mathur must be visionary. He should take to the PM just five simple measures that would create or catalyse dramatic improvements across the wider defence arena. It would be pointless recommending a larger defence budget; anyone can improve defence by throwing vast sums of money at it. Mathur should focus on getting more bang for the buck. Given the almost criminal inefficiency of our defence processes, this can be achieved without fuss.

India’s fundamental defence problem is the army’s bloated manpower, the cost of which leaves little for modern equipment. The army chief says defending the mountainous border needs large numbers. True but China, with far longer unsettled borders slashed the People’s Liberation Army (PLA) by 10 lakh in 1985; another 5 lakh in 1997, and 2 lakh more in 2003, to a size not much larger than India’s. In contrast, our army is expanding, adding 80,000 soldiers this decade, when half the army’s current budget already goes on salaries. Adding bayonets is useless when that leaves no money for equipment like artillery? The defence secretary must recommend time-bound manpower reduction targets, right-sizing over this decade, from 12 lakhs today to a 9 lakh strong army.

These smaller numbers can successfully defend our far-flung borders provided they can move quickly between sectors. Currently every sector must be heavily manned in case of a full-scale attack. A poor border road network precludes the quick reinforcement of a threatened sector. A time-bound road-building plan would allow many sectors to be lightly held, saving manpower costs that could buy heavier and more accurate firepower. To meet road-building targets, an expanded Border Roads Organisation (BRO) must be placed under the MoD (it is currently under the ministry of road transport and highways). The defence minister must chair the apex Border Roads Management Board, which was once chaired by Jawaharlal Nehru himself. Border states must be incentivised, through border area development funds, to play their role in land acquisition.

The third suggestion, which would be enabled by a better-connected border, is to radically outsource the army’s administrative functions. Today, based on the dated assumption that wars are fought mainly in uninhabited areas, the army’s administrative functions are discharged by expensive combat soldiers. Military salaries and lifetime pensions are paid to legions of “combatant tradesmen” who wash, sweep, cook and cut hair. In an equipment heavy armoured division, every sixth combatant is a mechanic, performing a role that civilians can discharge more cheaply and better. Other soldiers supply rations, clothing, spare parts and fuel, jobs that most armies have privatised almost entirely. Today, even a waiter in an officers’ mess is a full-time soldier, entitled to pay and pension for life.

Privatising these functions would improve the military’s “tooth-to-tail ratio”, cut salary and pension bills, create economic opportunities for local populations in border areas who would be hired by private service contractors. It would also “civilianise” defence, creating a new genre of combat service contractors.

Fourthly, Mr Mathur should place national interest over political and IAS apprehensions and recommend the appointment of a chief of defence staff. The CDS, a five-star rank officer, appointed for a three-year tenure, is badly needed to coordinate and oversee manpower and equipment planning of all three services. Today, with nobody to mandate joint-service aims, priorities or roles, the army, navy and air force jostle for money and turf, wasting scarce funds in duplicating capabilities. Furthermore, without an overall commander to prioritise between competing service demands, the tri-service 15-year equipment plan is a worthless wish list that, in pandering to all three services, goes far beyond the actual availability of funds. Finally, a CDS would provide the military with unified command in war, and the ministry with single-point advice in peace.

Finally, to create a viable defence industry the MoD must consciously assume a “market maker” role. For almost a decade, Mr Antony has shied away from any role in developing indigenous companies into serious defence players. Instead, he reduced defence procurement and production policy to a decision matrix, devoid of judgment and discretion. The MoD must overtly and unabashedly favour indigenous production, while remaining impartial between public and private sector. To maintain even-handedness, the MoD must unburden itself of the nine defence PSUs, transferring them to the Ministry of Heavy Industry. To promote high technology, the MoD should identify innovative Indian companies and focus on their development. Controls must be loosened on defence exports to help these companies become global players, benefiting from economies of scale. At least 100-150 “Make” category projects must be kicked off, providing these companies the framework to grow. Technology entrepreneurs should be additionally seeded through the DARPA model, in which the Pentagon’s Defence Advance Research Projects Agency funds small projects that are directed towards futuristic war. DARPA’s successes include creating the Internet; but Indian technologists have no one to turn to.

None of these proposals are difficult for the new government, given its mandate and vision for change. Yet it is disappointing that a full-time minister has not been announced for the MoD. Arun Jaitley would find it difficult to function effectively as a part-time defence minister, given the many technicalities and challenges involved. It is to be hoped that Mr Modi will appoint a full-time defence minister soon.

Monday, 26 May 2014

After losing bank bond, AgustaWestland pins hope on arbitration



By Ajai Shukla
Business Standard, 26th May 14

The defence minister’s corner office in South Block, New Delhi, which is readying for a new incumbent, has its first piece of work cut out. On Friday, an Italian court permitted the defence ministry (MoD) to encash bank guarantees worth Euro 228 million, after terminating a Euro 556 million deal with AgustaWestland for twelve AW-101 helicopters to fly top Indian leaders in safety and style.

The MoD was seeking to recover Euro 278 million it had paid AgustaWestland, after unilaterally terminating the contract on New Year Day, alleging that the Anglo-Italian helicopter maker had bribed Indian officials to win the contract. An Italian magistrate had stayed that request on March 17, but the Court of Milan has now overturned that stay.

In a statement on Sunday, the MoD announced, “The appellate court in Milan, Italy, in its judgement on Friday, 23 May, 2014, has substantially upheld the claims of Government of India against AgustaWestland International Ltd (AWIL), A W Spa and Deutsche Bank, Italy on the encashment of Bank Guarantees and Performance Bond in the VVIP helicopter case. The court also ordered AWIL and A W Spa to reimburse legal costs of Government of India. MoD is studying the order and will take immediate steps to recover the amounts fully.”

Italian defence giant, Finmeccanica, which owns AgustaWestland, admitted on its website that the Italian court had “partially upheld” the MoD’s complaint. It said, “AgustaWestland will assert its rights to recover the aforesaid amounts in the arbitration process already initiated.”

A three-person arbitration board is due to review the matter. AgustaWestland invoked arbitration last November, naming former Supreme Court judge, Justice BN Srikrishna as an arbitrator.

On January 1, the MoD chose Justice BP Jeevan Reddy as a second arbitrator. The Indian Arbitration and Conciliation Act, 1996, which allows each of the disputants to name an arbitrator, mandates that the third must be appointed by mutual agreement.

AgustaWestland sources reveal that the company is corresponding with the MoD to agree on the third arbitrator, after which arbitration will commence.

The scandal broke on February 12, 2013, when Italian prosecutors arrested Giuseppe Orsi, the boss of Italian defence giant, Finmeccanica, on charges of bribing Indian officials to win the deal. In 2010, when the helicopter contract was signed, Orsi had headed AgustaWestland.

Following his arrest, the MoD quickly froze the contract, suspended payment to AgustaWestland, and initiated a Central Bureau of Investigation (CBI) enquiry. The CBI has filed First Information Reports against 15 people, including former IAF boss, Air Chief Marshal S P Tyagi.

While the CBI investigation has not presented clinching evidence, Italian investigators have presented a "budget document", allegedly prepared in 2008 by key middleman, Guido Haschke, and his accomplice, Christian Michel. The “budget document” lists payments to politicians ("POL" in the document) and some euro 15 million to an unnamed family (annotated as "FAM").

The Italian prosecutors allege that AgustaWestland paid some euro 51 million to Haschke, Michel and another accomplice, Carlo Gerosa, to seal the deal. The money was allegedly funnelled through software companies, Mohali-based IDS Infotech and Chandigarh-based Aeromatrix Info Solutions Pvt Ltd.

Three AW-101 helicopters have already been supplied to the Indian Air Force. 

Sunday, 18 May 2014

PLA Navy on maiden goodwill visit to Visakhapatnam



Two PLA Navy (PLAN) ships --- training ship, Zhenghe; and frigate, Weifang --- arrived at Visakhapatnam on 17th May, on a four-day maiden visit to India’s Eastern Naval Command. The senior officers with the  PLAN task force included Rear Admiral Han Xiaohu (Commander PLAN Training Ship Task Group), and Rear Admiral Li Jianjun, Assistant Chief of Staff and Political Commissar of PLA Dalian Naval Academy.



During this three-day visit from 17th to 20th May, sailors from both navies will engage in various professional, cultural, social and sports events. The PLAN personnel will play friendly basketball and football matches with their Indian counterparts from the Eastern Fleet. PLAN sailors will also sightsee around Visakhapatnam.


Commisioned in 1987, training ship Zhenghe has Commander Ye Kaihua at the helm, while the frigate Weifang is commanded by Captain Zhang Zaige. The ships are on a good will visit to four Asian Nations including Myanmar, Indonesia and Vietnam.

Saturday, 17 May 2014

Be ready today!


India needs its navy operational now, not just in some distant future

by Ajai Shukla
Business Standard, 16 May 14

The Indian Navy is dangerously unfit for combat, despite having been allocated more than 15 per cent of the defence budget for years. As this newspaper has reported, six new Scorpene submarines being built at Mazagon Dock Ltd, Mumbai, will start entering the fleet in 2016 without the torpedoes that form their essential armament. None of the navy’s 25 capital warships built in the last 17 years has towed array sonar, without which they are dangerously vulnerable to enemy submarines.  Three new Kolkata class destroyers, the first of which will soon be commissioned, have no protection against anti-ship missiles that can be fired against them from air, surface warships or submarines. That is because the eponymous long range surface-to-air missile, or LR-SAM, that was to safeguard them has not yet been completed by an Israeli-Indian consortium that has been developing the anti-missile system for a decade. Likewise, the flagship aircraft carrier, INS Vikramaditya, has been commissioned without the LR-SAM. Several other warships that are defended by the Israeli Barak anti-missile system are at risk because the defence ministry has delayed the procurement of replacement missiles for years. It can be expected that these vessels will be fitted with these systems some day. Yet, until that day, gaping holes in the defences of practically every vessel in the navy make them sitting ducks in the event of war.

As worrying is the failure to conclude a contract for mine counter-measure vessels (MCMVs). Without adequate numbers of these, enemy mines will be released by fishing vessels and dhows to blockade India’s military and commercial ports at the start of a war. The navy requires at least 24 MCMVs to protect Indian naval bases, ports and offshore oil and gas installations; there are just seven minesweepers today. Delay in buying could result in sunken vessels, lives lost and insurance rates going sky-high.

Much of the blame for this situation goes to the defence ministry, which blocks the procurement of even desperately needed equipment as soon as anyone complains --- even if the complaint is anonymous, or from a company that is losing the contract and clearly wishes to derail the process. In some cases such complaints have been rejected by the Central Vigilance Commission and by the ministry’s own independent monitors committee. Yet, infected by Defence Minister AK Antony’s conviction that no contract with even the whiff of controversy should go through, these procurements continue to languish.

Capability gaps also stem from the navy’s hankering for cutting edge equipment that must be developed even as the warship it is meant for is being built. Sensible navies shy away from “concurrent engineering” as this risky process is called, because any delay in developing the equipment --- as in the case of the LR-SAM --- means that the warship is ready, but the equipment is not. It is too late then to retrofit other equipment and that warship remains operationally vulnerable until development is completed.

Over the preceding decade, the ministry’s belief that anything goes, even grave operational shortfalls, has poisoned military culture as well. It must be ensured that the lakhs of crores being spent on national defence result in an operational and ready military, not one that will be ready in some distant future. 

Friday, 16 May 2014

Warships in peril as MoD blocks sonar purchase


25 capital warships commissioned since 1997, such as INS Shivalik, lack towed array sonars essential in the shallow Arabian Sea waters


By Ajai Shukla
Business Standard, 16th May 14

At the start of this year, INS Vikramaditya, the navy’s brand new aircraft carrier, sailed into the Arabian Sea near the end of a non-stop, 15,000-kilometre voyage from Russia. Accompanied till the Mediterranean by a single Talwar-class frigate, the Vikramaditya was joined by an armada of Indian warships for the last leg of its journey. This was not celebration, but operational safety. With the navy’s best warships worryingly incapable of detecting modern submarines, such as Pakistan’s Agosta 90B, the flotilla was tasked to bring Vikramaditya safely home.

The reason for this blindness to submarines: the ministry of defence (MoD) has steadfastly blocked the import of an Advanced Towed Array Sonar (ATAS), a sensor crucial for detecting submarines in warm, shallow waters like those of the Arabian Sea. Without ATAS, India’s most advanced warships --- including 25 destroyers, frigates and corvettes built and bought since 1997 --- would be sitting ducks in any future war. Enemy submarines, lurking undetected, can pick off Indian warships with heavy torpedoes from 50-80 kilometres away.

The import of ATAS was blocked since the mid-1990s because the Defence R&D Organisation (DRDO) was developing an indigenous ATAS called Nagan. In 2012, the Nagan project was officially shut down and the DRDO began work on another system called ALTAS. This has not been operationalized either.

Meanwhile, two generations of otherwise capable warships sail with an empty space where ATAS will be fitted some day. Until then, these vessels have only limited sonar capability, provided by a relatively ineffective Passive Towed Array Sonar (PTAS), and a hull-mounted sonar called HUMSA.

The warships without ATAS include three Delhi-class destroyers (INS Delhi, Mumbai and Mysore); three Brahmaputra class frigates (INS Brahmaputra, Betwa and Beas); six Talwar class frigates; and three Shivalik class frigates (INS Shivalik, Satpura and Sahyadri). Ten more warships are currently being built without ATAS --- four Kamorta class corvettes (INS Kamorta, Kadmatt, Kiltan and Kavaratti); and three Kolkata class destroyers (INS Kolkata, Kochi and Chennai).

In 2009, responding to a furious navy, the MoD consented to import six ATAS for some Rs 300 crore. A German company, Atlas Elektronik GmbH, won the tender but the contract was stalled by predictable complaints of wrongdoing. After the MoD found four successive complaints baseless, the ministry’s independent monitors committee examined the allegations in March. No wrongdoing was found and the committee suggested the purchase be expedited. Yet, Defence Minister AK Antony continues to stonewall.

A serving admiral told Business Standard tersely: “The MoD is endangering warships worth several thousand crore each, and the lives of several hundred crewmen, by blocking the import of ATAS that costs just Rs 50 crore each.”

ATAS is especially vital for our neighbourhood. Warships detect underwater objects (like submarines) with sonar --- a “ping” of sound emitted into the water that reflects back from submarines, just as radar bounces back from aircraft. In our waters, however, that signal often gets lost. Our warm climes cause a sharp “temperature gradient”, with warm water on the surface that cools rapidly as one goes deeper. These water layers at different temperatures refract (bend) sonar waves, often deflecting them altogether from the warship’s sensors. With the returning sound signal lost, the warship cannot detect the submarine.

To overcome this, an ATAS is towed by the warship with a cable, extending deep below the surface, into the cooler layers where submarines lurk. With the ATAS positioned in the colder water layers, there is no “temperature differential”. Even the faintest return signal from a submarine is detected.

PTAS, unlike ATAS, does not actively “ping”. It can only detect a submarine that is emitting sound. Since submarines on patrol are deliberately silent, they emit no sound for a PTAS to detect.

While the Arabian Sea offers tricky, shallow-water operating conditions, the Bay of Bengal is much deeper. Thirty kilometres off Karachi, the ocean floor is just 40 metres deep; while 5 kilometres off Visakhapatnam, the depth is 3,000 metres. The Arabian Sea, therefore, is the playground of small conventional submarines.

Simultaneously, the Bay of Bengal offers the deep diving conditions that favour nuclear submarines, which are too large for shallow waters. That is why experts predict India will operate both conventional and nuclear submarines --- conventional in shallow water, and nuclear in deep water. Major navies tend to choose one or the other; e.g. the US Navy operates only nuclear submarines.

In servicing India’s need for high-end sonars, the winner of the ATAS tender would grab in pole position. Already, Bharat Electronics Ltd (BEL) is building 10 ATAS in partnership with a foreign vendor, probably the winner of the ATAS contract. Eighty advanced sonars could be tendered over the next three years.

Besides submarines, sonars would be required for anti-submarine surface vessels. Last month, the MoD tendered for 16 Anti Submarine Warfare Shallow Water Craft (ASWC). Their critical sensor will be sophisticated sonar with an electronically controlled beam that can flash in any direction.

Notwithstanding the delay in ATAS, Atlas Elektronik is expected to perform strongly, given its expertise in shallow water sonar. Through two world wars, German submarines (called Unterseeboots, or U-boats) were feared for their sonars. During the Cold War, German submarines operated from a short coastline along the Baltic Sea, which was relatively shallow, like the Arabian Sea.

Neither the MoD nor Atlas Electronik responded to an emailed request for comments for this article.










Thursday, 15 May 2014

Scorpene submarines to join fleet without torpedoes


Old subs needs upgrade, new subs unarmed, navy regrets MoD delays. (Photo: the third of Pakistan's Khalid-class Agosta-90B submarines)

By Ajai Shukla
Business Standard, 15th May 14

Alongside a three-year delay in adding six new Scorpene submarines to its depleting ranks, the Indian Navy faces an even more disquieting prospect --- the Scorpenes will start joining the fleet in 2016 without their main weapon, the heavyweight torpedo.

Submarines carry two major weapons --- missiles against ships and land targets, and torpedoes to sink enemy ships and submarines. Missiles can be intercepted by anti-missile systems; and they inflict less damage. Torpedoes are harder to intercept and they blast holes below the waterline that quickly flood their targets, sinking them.

Inexplicably, the ministry of defence (MoD) has failed to buy torpedoes to arm the Scorpenes it contracted for in 2005. In 2008, after a global tender, Italian company WASS was selected to supply their Black Shark torpedoes that were specifically engineered for the Scorpene. In 2011, a price was finalised: about $300 million for 98 torpedoes. Yet, even today, the contract remains unsigned.

Consequently, when the first Scorpene submarine is commissioned in 2016, it will be armed only with the Exocet anti-ship missile. Were it to be challenged by Pakistan’s silent new Khalid-class submarines --- the French Agosta-90B --- the Scorpene will have empty torpedo tubes. Even if the new government signs the contract quickly, delivery would be unlikely before 2017.

The MoD did not respond to Business Standard’s emailed questions.

A top-level navy planner laments the MOD’s lack of accountability, contrasting it with how former navy chief, Admiral DK Joshi, took responsibility for warship accidents and resigned. Says the naval officer: “If a military person were responsible for commissioning a Rs 4,000 crore submarine without its primary armament, he would be charged with dereliction of duty.”

The delay in signing the torpedo contract followed accusations that WASS had won unfairly, a tactic commonly used by arms vendors who are confident the MoD will suspend the contract and order investigations.

Eventually, Defence Minister AK Antony referred the matter to the Central Vigilance Commission, which found no indication of wrongdoing. Even so, the MoD continues to stonewall.

The prospect of an unarmed Scorpene has sent alarm bells through a navy that is down to just 11 submarines, against a minimum of 18 that naval planners require for safeguarding India’s maritime interests.

Of 14 submarines in the fleet, three Russian Kilo-class vessels are unavailable: INS Sindhurakshak was destroyed in a cataclysmic explosion in Mumbai last August; INS Sindhuratna will take a year to repair after a fire in February. A third, INS Sindhukirti, was scuttled by Hindustan Shipyard Ltd, Visakhapatnam (HSL), which dismantled the submarine for refit in 2006 but cannot put it back together again.

The navy is furious that a Rs 1,500 crore frontline submarine was lost because the MoD insisted on providing work to HSL, a public sector shipyard without expertise in submarine repair.

Disregarding this experience, the MoD now insists that HSL builds one of the six new submarines being procured under the Rs 50,000 crore Project 75I. Cabinet sanction is being obtained for two to be built abroad and four in India --- one in HSL and three in an unspecified shipyard, probably Mazagon Dock Ltd, Mumbai (MDL).

A senior admiral observes wryly, “INS Sindhukirti has already been destroyed by HSL. Now let us see whether it reduces Project 75I from six submarines to five.”

Building Project 75I in two Indian shipyards would also mean paying double for transfer of technology (ToT) --- which includes supervisors, instructors, special tools, jigs, etc. In the Scorpene contract, MDL paid Rs 6000 crore for ToT. This would more than double if Project 75I is shared between two Indian shipyards.

Even so, the die seems cast. Navy sources tell Business Standard that former secretary of defence production, RK Singh, who became home secretary and then joined the BJP, insisted on HSL’s participation as a condition for Project 75I.

The MoD took over HSL from the Ministry of Shipping in Feb 2010, a white elephant that the latter was glad to forego. The Rajya Sabha was informed on August 24, 2011 that HSL had accumulated losses of Rs 930 crore and a negative net worth of Rs 628 crore.


The MoD is stonewalling another measure that the navy believes essential for overcoming the submarine shortage. With the Scorpene and Project 75I delayed, the navy has proposed extending the service life and providing a mid-life upgrade to the existing submarines, which have exceeded the dives and hours of service that manufacturers prescribe. That proposal has lain with the MoD for six months now, while the submarine fleet becoming increasingly more hazardous to operate.