Tuesday, 14 April 2015

“Make in India” on the guillotine

By Ajai Shukla
Business Standard, 14th Apr 15

“Make in India” has a nice patriotic air to it, especially when Prime Minister Modi tells an international audience at the Aero India 2015 show in Bengaluru that “India will emerge as a major global centre for defence industry”, with aerospace the sun that lights this new dawn. Successive Congress-led and Bharatiya Janata Party (BJP)-led governments have looked to $10 billion worth of offsets arising from India’s tender for 126 Rafale fighters to galvanise India’s aerospace ecosystem. Indian negotiators had made it clear to Dassault that it must lower prices and increase indigenisation to win that tender. Yet, it is now clear this is not to be. With Dassault reeling on the ropes, Mr Modi last week scuppered the negotiations by presenting France with an order for 36 Rafale fighters. His apparent wish for a successful summit drove three weeks of frenetic New Delhi-Paris talks that handed a delighted Dassault an unexpected knockout victory.

Essentially, Dassault has dragged out negotiations until New Delhi’s need increased, and the wish to seem strong on defence converged with the desire to make a diplomatic splash in Paris. At that point the French were rewarded for their obstinacy with exactly what they wanted --- an order for fully built aircraft without the need to transfer technology. Says a keen observer of Indian defence procurement: “All vendors are now clear that ignoring India’s demands long enough ends in a reward that makes all Christmases come at once. This doesn't bode well for New Delhi in that next negotiation on whatever.”

Effectively, New Delhi, Paris and the IAF agreed that a bird in the hand was worth two in the bush. Inking a government-to-government agreement to bypass the deadlocked negotiations for 126 Rafales, the IAF would get 36 fully-built Rafales and, inevitably, buy 18 more as “options”, settling for three Rafale squadrons instead of the six squadrons of medium multi-role combat aircraft (MMRCA) earlier visualised. Done away with was the tiresome prospect of building 108 of those 126 fighters in Hindustan Aeronautics Ltd (HAL). Instead, New Delhi followed the Mirage 2000 model of the 1980s, when an initial purchase of two squadrons in 1983 was followed up with a few more aircraft to make up a third squadron. The Mirage 2000 was never built in India, just as the Rafale will never be.

After three days of silence, Defence Minister Manohar Parrikar on Monday stated the tender for 126 fighters was dead, and procurement would continue on the government-to-government route alone. His ministry tweeted: “G-2-G route [is] better than the [open tender] path for acquisition of strategic platforms”. It is unclear whether this puzzling statement means that Indian defence procurement would henceforth follow only the G-2-G route; or whether he means that his ministry retains the discretion to arbitrarily scrap a tender at any time and follow a different path. For the spurned aircraft vendors, who had each spent an estimated $50 million on the tender processes and trials, this is an important question.

In any case, the figures had already made clear that further purchases were a pipedream. Each of the 36 Rafales now requested would cost some $150-180 million dollars along with its basic armaments and payload. Even if we accept the bare-bones figure of $125 million that government spin-doctors will put out, 36 Rafales would cost $4.5 billion, and 54 Rafales $6.75 billion. Paid out over seven years, that would add Rs 4,000-6,000 crore annually to the IAF capital budget, which already accounts for a third of all modernisation funds (Rs 31,818 crore out of 94,583 crore in 2015-16). With this already a stretch, where is the scope for another $18-20 billion contract for 126 more Rafales, which would add another Rs 15,000 crore to the IAF’s annual procurement budget.

To divert attention from this the government insinuates Paris was pressured into selling 36 Rafales at a (so far, inexplicably, secret) price that is cheaper than the one being negotiated in Delhi. This is laughable. Even a defence novice knows that buying off-the-shelf is inherently cheaper; since the vendor is no longer required to supply proprietary technology or intellectual property, and is spared the risk, effort and expense of establishing production abroad and standing guarantee for products built there. New Delhi has spared Dassault all this, ensuring in the process that Indian defence industry (especially HAL) derives no technology benefit from buying the Rafale. The IAF will remain dependent on Dassault for maintenance and spares and, two decades hence, when the Rafale needs to be modernised, India will pay more for the upgrades than it paid for the Rafale itself --- just as the IAF is currently doing for upgrading the Mirage 2000.

To justify handing out billions to a French company that is struggling to survive, rather than directing the money towards India’s fledgling aerospace industry, the government has deployed the tired bogey of national security, citing “the critical operational necessity of fighter jets in India”. Defence Minister Manohar Parrikar had declared that these 36 Rafales would enter IAF service within two years. Apparently the government has a two-year threat assessment that requires two squadrons of Rafales so urgently that we must abandon a decade-long (and widely-praised) selection process right at the point of culmination.

What remains unclear is how Mr Parrikar imagines these 36 Rafales would be delivered to the IAF within two years. Currently, Dassault is building barely one Rafale every month for its sole customer, the Armee de l’Air, as France calls its air force. Ramping up fighter production requires a lead time of at least 18 months, during which Dassault’s sub-vendors --- Thales, Safran and some 500 sub-contractors --- would ramp up production of engines, avionics, etc to meet India’s demand (and Egypt’s contract for 24 aircraft, when signed). Only after this supply chain cranks into higher gear will the Rafale roll off the lines faster. Given France’s desperation to export the Rafale, it is entirely possible that the Armee de l’Air suspends its own requirements and diverts Dassault’s entire production to India (and Egypt). Even so, it would be a manufacturing miracle if the IAF receives its 36 Rafales in less than four years. On August 8, 2014, then defence minister, Arun Jaitley, told parliament that Dassault would take three to four years to deliver 18 Rafales in flyaway condition. Mr Parrikar inexplicably promises twice that number in half the time.

Another troublesome question hanging over this handsome present to Dassault is: once Mr Modi decided to bypass the deadlocked August 2007 tender, why was Dassault awarded a “single-vendor” contract? The Eurofighter Typhoon had met every IAF requirement in its evaluation trials. At the very least, Eurofighter should have been invited to submit a parallel bid for 36 Typhoons in flyaway condition. Apart from the possibility of getting the Typhoon cheaper and more quickly than the Rafale, introducing competition into the bidding --- as the defence procurement procedure explicitly recognises --- would almost certainly have driven Rafale’s bid lower.

Like in all defence deals, the market place is abuzz with speculation. Anil Ambani, who attended Mr Modi’s meeting with defence CEOs in Paris, reportedly held a long discussion with Dassault chief, Eric Trappier. With the procurement of 36 Rafales not bound to HAL as the tender for 126 fighters was, how are new players positioning themselves to benefit from New Delhi’s turnaround. The coming days will tell. 


Anonymous said...

Every procurement will have its plusses & minusses. The article has been written well but only exhibits one side of coin. The decision makers are certainly not lollypop kids who haven't considered the factors which you have highlighted. I agree that Dassault is winner but then who is responsible for this situation, obviously the previous govt and St Antony. To correct the problem, decision taken by govt needs to be supported by one and all. As far as Foreign OEMs are concerned be rest assured that they will stay in India and still spend money on tender process. I think you should stop worrying about them.

Ashwin Baindur said...

Sickening! THE IAF has succeeded in its short term strategy of FUD. :( Goodbye, indigenisation!

Anonymous said...

Ajai Shukla, the article presents a pretty short sighted vision of things. Yes Make in India should die. The true motto should be Design and make in India. The government has hopefully taken a step in the right direction. This purchase of 36 is probably due to the arm twisting tactics of the IAF. They have successfully threatened the leadership that the dwindling squadron strength is not good for defence preparedness hence the panic off the shelf purchase as always.Therefore this purchase of 36 is to shut the mouth of myopic IAF but this will not go on for ever from now on, What the RM has left unsaid is that he is going to tighten the screws on all concerned to really push true indigenous technology to make the country move on the path of a truly self reliant defence force by the end of the decade. He is keen to see that the AMCA, LCA II really take off by the end of the decade. It is now up to the IAF and DRDO who have to deliver to the nation whose salt they have eaten for decades.

satish pradhan said...

But the Ryphoons themselves are undergoing a painful development phase. It still does not have a mature AESA radar unlike the RBE2 AESA radar of Rafale and is yet to be fine tuned to the Damocles pod. To add further the Luftwaffe itself has been having problems of serviceability of as low as 39% off late for its Typhoons.

On a head to head match the Typhoon has not succeeded in any of the deals anywhere in the world. The fusion of radar, sensor and armaments of the Rafale is currently better than the F35. So Ajay why have such negative approach to this aircraft. Can you please provide some facts rather than vague vitriolic against it.

Anonymous said...

NSR says ---

It is highly deplorable of unqualified politicians, MoD bureaucrats, HAL, and finally clueless IAF for not taking ownership of any program in India...

Every one screwed India since the days of HF-24 Marut and destroyed the aerospace infrastructure and no wonder it is still showing up in the end results...

So sad is the situation that India can not even build an engine for any of its own aircraft programs even aftrer 68 years of independence...

Kudos to Indian Navy for taking charge of its ship and Naval Tejas building...
Push it hard and build many and arm them with anti-ship and anti-submarine torpedoes and station them in every Naval station and islands to defend the 200 km exclusive economic zones and to keep the predators out...

Some drastic changes are definitely warranted here...

Sudeep said...

UPA govt gayi Shukla jee, ab rona dhona band kariye. Su30 ki tech transfer hui.. kya mila? 50% uptime hai hangar queen ka. This type of technology transfer is a pipe dream, ask those who actually work in technology. LCA Mk1, LCA Mk2, LCA Mk3 are the only 'indigenous' products. Slapping some saffron paint on Rafale in Bangalore is not going to make the plane 'made in India'.

ColdSteel said...

You have raised some very troubling aspects as well as some hard-to-ignore facts. The RM's statement regarding the 126 aircraft tender being dead is quite a surprise. Also, the near impossibility of delivering 36 aircraft in 2 years is worth noting. What is also puzzling is the actual operational requirement of the IAF. If we have been saying 126 MMRCA all along, what happens after this? 36 Rafaels now with an option for 18 more. That is 54. But that is still 72 short of the original 126. Will we see another decade and a half wasted on re-tendering for this 'operational' deficiency? And what about the headache of operating so many different types not to mention their operational integration?
I also find the comparison with the Mirage 2000 deal apposite. And we all know that not a single Mirage 2000 has ever rolled off any Indian assembly line. Thirty one years down the line we remain completely dependent on the French for upgrades and are in no position to bargain.
This deal adds yet another twist to the sorry tale of Indian defence procurement.
Is there then a case for setting up of a permanent standing committee of Parliament which alone would be authorised to okay defence purchases and be able to ensure long term strategic objectives? Because we pay a heavy price withe every ad hoc decision we make in defence matters.
Thank you any way for a thought-provoing article.

Anonymous said...

The Janus faced Modi has done it again. And of course the bumbling Parrikar wags his tail as per the master's orders. What a joke - Make in India!

Anonymous said...

Dear Col Shukla,

1. To debate is everyone's right. Good orators & writers can always throw up good arguments in such debates. Its ok so long as it doesn't serve "only" to muddy waters of a clear path. Isn't the current decision an out of the box one? Isn't it practical? Isn't it simple? Isn't it executable? Isn't it a win win situation? For the last point here, I have penned a few points below....(on who wins?)-

2. The Mirage 2000 we purchased was a great decision.... even without TOT. Remember Kargil?
In fact so good was the plane that the current major upgrade underway will make the same Mirages lethal for the next 30 years. 30 years!! Induction was in early 80s. That means total lifespan will be 15 + 15 + 30 = 60 years!! Whew. What a good deal it was...even without TOT.

3. The Rafale deal holds the same promise as the Mirages.

4. Watch developments. You could well see a follow on decision to ramp up production for additional LCA Mk1 numbers beyond the 40 ordered (to be followed later by Mk2s). Effectively overruling IAF reservations (to only induct the very best / to their min QRs). Effectively providing a fillip to local production / make in India / made in India.

This is actually Modi's style....

A) Witness the decision over-ruling IAF reservations on HAL's BTA.

B) Witness how the Modi govt. turned the tables on those who criticised (and endlessly debated) his Rs.10 lac suit (when Obama visited us). The same suit was auctioned for over Rs1 crore. All proceeds went to charity.

C) So when you (or Surahmanium Swami or Bharat Karnad or Admiral Arun Prakash) criticise the Rafale deal that has been charted......please watch how tables will turn. In some way or the other.

Hope there will be an applaud from all of you, at least then.

5. I am a avid reader of your blog for many years. If you remember that poem by Rudyard Kipling hung in every cadet's room in NDA, it has a line......

If you can trust yourself when all men doubt you,
But make allowance for their doubting too;

6. Please make "allowance" that you could be seriously wrong. I've read your blog for so long that I can make out this as the one flaw in your otherwise excellent journalism.

One will be proud of you, if you adopt the following theme in your writings-
A) decision made, now lets move on,
B) let's not delve only on how the French are laughing to the bank. They are Sellers. They need to make a profit.
C) Let's delve on how India will and can benefit more. In 10 years we should target bagging export orders.... for LCA Mk2s. In 20 users.... for AMCAs.

Wish you the best,


Rutvij Shah said...

It is a no brainier that contracts with technology transfers costs more and we are talking about billions of dollars. We have been paying heavily for technology transfers. It will be very important to study how we have used technology transferred to us on various contracts. If we do not have systems in places with checks and balances to use technology transferred to us then there is no point in paying for it.

Instead we should try to reverse engineer the things and learn about it and use that experience in our indigenous projects.

Anonymous said...

Genius are the ways of Lt Col Shukla..

The Rafale is meant specifically for the eastern theatre against a layered and robust PLA ADGES.

The Flanker just cannot perform the roles that the Rafale can as a DPSA ie OCA with autonomous terrain following capability @400nm radius.

HAL never had the resources or the tech base to even license build the aircraft and rightly should be built by the private sector incase the decision is made as was pointed by the minister.

Anonymous said...

The presence of Anil Ambani in 36 Rafale Jets purchase talks smells foul. India's money is using for bankrupt Anil and Dassault's survival and there must be a commission, as Anil's presence was found. Like Anil's companies turned people away from Congress (2G, BSES, Sasan coal block etc), he will take away people from BJP thru Dassault deal.

Vijay said...

Rafale is a good plane

LCA MK2 is just on paper

And AMCA is just a DREAM

The QUESTION is how to TAKE ON
J 20 in future

Also the Chinese are buying SU 35

SU 30 MKI ALONE cannot take on
J 20 and SU 35

to take on China

By AGREEING to purchase 36 we have
PREVENTED DAMAGE to India France relations

Now we can say to the French

Look we want more but the price is too high

I think the STORY is not yet over

The MORAL of the story is that DOMESTIC Manufacturing is MORE EXPENSIVE

And the more time you loose
such high tech systems become more expensive

There is ALSO a Russian Angle

Maybe Russians have offered some
more goodies like SU 35
More technology sharing ; AKULA

We dont know yet

And we are DIVERTING funds from
the Rafale purchase for that

Abhiman said...

Col. Shukla, "Make in India" doesn't mean "Copy Paste in India".

The so-called MMRCA deal was exactly that. HAL would've imported the CKDs, and simply put them together.

The supposed "ToT" envisaged in the MMRCA contract was no more than manufacturing lines to assemble / fabricate the plane on Indian soil. This is no different from an Indian carpenter getting a German-made automatic driller, to assemble Hettich kitchen sets in India. This is NOT ToT in any sense of the term.

Similarly, the MMRCA deal's "ToT" simply meant India getting hold of some advanced manufacturing processes to assemble or fabricate the Rafale's components. It does NOT constitute transfer of technological secrets in any way.

Consider these:

Would India get Rafale's aerodynamic blue-prints that show its air-flow equations ? No.

Would India get source-codes of its AESA radar ? No.

Would India get the alloy formulations that go into making its stealth body parts ? No.

Would India get the chip-designs of its multi-sensor suite to use in Tejas or AMCA ? No, no and No.

So, in other words the MMRCA -- even if license produced by HAL -- would've been an expensive import only. It DOES NOT serve the 'Make in India' initiative.

I actually side with Dassault to not stand guarantees for a third-party manufacturer. No aerospace company in its right mind would.

This deal to procure 36 Rafales in a fly-away condition is pragmatic. Its cheap. It arrests IAF's fast depleting fleet, and saves India from diplomatic embarrassment.

If you want to 'Make in India', then make the Tejas. And the AMCA.


Let's abandon the PAK-FA. Let's build the AMCA.

Anonymous said...

You make essentially valid points. I think the political leadership was never comfortable with the price tag for 126 jets. The 36 jets is probably a stop gap, which will likely followed by more LCA MK1(as you had suggested in one of your posts). Modi I don't believe can be held responsible for the DRDO and the IAF not being on the same page as far as the LCA is concerned(does it meet the IAF's needs or not?). He can't be held responsible for the lumping of single engined fighters with twin engine fighters in the MMCRA tender process. I think he has accepted the premise that the Rafale is the best he can get for his money(right or wrong). The future of the LCA and AMCA, will largely determine how this deal is viewed in posterity.

Anonymous said...

for the first time, an article by ajay feels one sided....

Anonymous said...

I think Mr. Shukla completely missed the point here. Someone finally made a decision and brought that tender to a close. This decision, while not conforming to "make in India" was necessary to close a chapter written by the previous government that had been dragging on for years.

It was necessary to close that chapter to move forward with the new vision.


Anonymous said...

Ajay "Ji" as always paints a one-sided picture, where his bias shines through brightly. Congratulations to our PM and his office for probably finding the most honourable exit out of this mess. I have two points to make:
1) Yes, we have taken a hit and there is yet another aircraft type to service and maintain, but you cannot keep floating global tenders, make vendors waste money, time and effort and drop the deal.
2) The incompetence of our public sector entities such as HAL, DRDO and the lot is well known. The French, after assessing HAL's production techniques and processes, rightly refused to take responsibility. People like Ashwin, who repeatedly find blame with the IAF, should ask themselves this: "How many foreign buyers have bought equipment designed/produced by HAL/DRDO"? The world is voting with it's money. You'll be a fool to ignore that verdict.

Matthieu said...

French business newspaper "Les Echos" (article:
Delhi renonce à construire les Rafale en Inde !) states that if both the French and Indian parties wanted to soften the transfert and production rules writen in the competition they were forbidden by the British governement which threatened of legal action if the requirement wasn't exactly respected: "the British put a huge amount of pressure to force the rules to be respected, the threat of legal actions lingering". As it stood, the contract was impossible to conclude. India wasn't in position to produce the planes in the excepted cost (that wouldn't have changed much if it were the Typhoon obviously) and Dassault couldn't sell more French made ones without violating the terms of the competition. As such the MRCA tender is simply killed and the purchase of the 36 planes is a distinct sale from gov to gov.

Anonymous said...

What happened to your F35 dreams Mr Shukla - you were waxing about 5th generation and now you want to cry about "make-in-India" ?? Would the F35 be "made in India" in your universe /

Anonymous said...

Hi Ajai

Very insightful article. Just two quick points on the invite to Eurofighter.

1. Remember Kargil 1999? We did tweaks to the Mirage 2000 which no nation would allow. France did not blink an eye. I can guarantee Eurofighter Consortium countries will never allow this

2. Eurofighter Consortium is partly controlled by the Brits. US has huge influence over the Brits - Where there's America, there's trouble for India. Remember 1971? These American SOBs cant ever be trusted especially when we have strategic requirements. For all we know - one fine day they'll put pressure on Eurofighter to stop supply of spares to India

In light of the two points above, I think its the right decision to not invite Eurofighter.


straight_curve said...

• No doubt from a purely defence perspective, the addition of 36 Rafales will add a decent punch to IAF’s capabilities though the numbers are still insufficient. France must be pressed for the fastest delivery of these 36 units.
• I am quite sure this would have helped India get some respect from France for taking this decision after a long long wait.. in terms of trust, I guess France is more reliable than US or UK/Germany (Eurofighter) excluding Russia out of equation and this should not be ignored.
• The possibility of additional numbers of Rafale must be leveraged by India for better terms & conditions including domestic manufacturing or key technology transfer etc. if Dassault Aviation is still hungry for more
• Agreed that “Make in India” value is lost even accepting the fact it was mostly production and not designed in India or jointly with India but still it would have helped Indian Aerospace industry develop more in its experience of program management, components manufacturing, assembly, etc. etc.
• But “Make in India” should not rest upon the ToT/Offset of a foreign aircraft purchase only. Rather the full might of expectations of “Make In India” should bear on Indian programs and programs jointly funded by India for “Make In India” initiative. LCA, AMCA, PAK-FA, MTA, UAVs must be pursued with unwavering support and whatever is needed must be done to streamline/improve the present state of affairs at DRDO, HAL, ADA etc. A lot needs tightening in these organizations so they have no options but deliver – on time, quality and cost. India is definitely well past the initial learning curve of developing complex engineering systems including combat aircraft. Now it is pure dedication, hardwork, persistence (and some more things) to deliver what are operationally acceptable performance out of the systems getting developed. Accountability, Ownership, Responsibility, Agility terms should be crystal clear with to those running the programs from the MD/Director to all the way down to engineers and also the cost of failure/not matching expectations.

Anonymous said...

In 2020,it will emerge how much money flowed beneath the table to get the deal inked!!!

Anonymous said...

After the 1971 war when PAF said that IAF achieved air superiority because India had 44 squadrons. But IAF said that India had only 34 effective squadrons, each of which consisted of 12 planes . IAF had 16 air craft per combat squadron but the effective availability during the 1971 war was 12 per squadron. So in 1971 IAF had 408 effective planes. Now we have 582 effective fighter planes.In 1971 war IAF used two planes to conduct one sortie. Front plane is called front gunner and other plane is called rear gunner. Those days front gunners had to do so many operations at a time particularly at the time of dog fight. He had to chase the enemy plane and reach very close to the enemy plane to enable the correct hit. The range of fighter planes in those days were very limited particularly Gnat. So the front gunner had to keep a watch on fuel gauge even while chasing . The illumination of the dash board was so poor in Gnat that the pilots had to use torch. The main job of rear gunner is to warn the front gunner whenever he noticed another enemy plane attacking the front gunner. In one case the rear gunner could not give warning to front gunner due to communication failure . In another case a Gnat pilot had gone and landed in a Pakistan air field as the fuel was so low that the plane was likely to crash any moment. All these bottle necks have been taken care of in SU30 MKI and Tejas. Since SU30 MKI is being operated by two pilots there is no need for an extra plane to work as gunner during sortie. So SU30 MKI is equivalent for two planes . Tejas can conduct sortie without gunner because it has been provided with AESA avionic of Israeli design . If we use AWACs, all our fighter planes can conduct sorties without escort plane. AWACSs will give warning . Now we have double the fire power over a period of time. More over if we consider 12 fighter planes in a squadron, it is stated that we have 48 .5 squadrons. If we consider 16 fighter planes in a squadron, we have now 36 squadrons. The important thing to consider is the number of planes, not the squadrons. This is the kind of tricks they play against the civilian Govt. with the help of foreign agents.