London offers India financing to get past capital budget shortfall in landing 20-aircraft deal for IAF aerobatics team
By Ajai Shukla
Business Standard, 31st Jan 18
With the proposed purchase of 20 Hawk trainer aircraft for the Indian Air Force (IAF) stalled for years, apparently because of a shortfall of money, British vendor BAE Systems and the UK government have offered New Delhi a line of funding to land a contract for the aircraft, worth an estimated Rs 2,000-2,500 crore (Rs 20-25 billion).
Over the preceding decades, New Delhi has shied away from defence aid, choosing to pay itself for weaponry and defence equipment needed for national defence. In parliament, the government has stated it is currently a net donor of foreign aid, and that “aid from the UK has fallen steadily from an inflow of Rs 1,710 crore in 2008-09 to a net outflow of 25 lakhs to the UK in 2016-17.”
But now, with numerous defence purchases held up by capital budget shortfalls, and thousands of crores in unspent money reappropriated each year from the defence ministry, London has proposed to finance a Hawk deal through the UK Export Finance organisation.
UK Export Finance says on its website that its mission is “to ensure no viable UK export fails for lack of finance or insurance, while operating at no net cost to the taxpayer.”
Under its Direct Lending Facility, UK Export Finance provides loans up to 3 billion pounds to overseas buyers, enabling them to purchase capital goods from UK exporters and, thereby, support employment in the UK. Over the last five years, UKEF has provided 14 billion pounds in support for US exporters.
The UK Export Finance rules permit financing up to 85 per cent of the cost of a procurement. However, it is not clear how much finance was offered in the proposal that was made in a bi-annual dialogue between the two defence ministries.
Defence ministry sources say New Delhi has not yet accepted the offer.
India has earlier signed two contracts with BAE Systems for Hawk trainers: Batch 1 was for 66 trainers in 2004; and Batch 2 for 57 trainers was signed in 2008.
Held up for several years now is Batch 3, for 20 aircraft to equip the IAF’s Surya Kiran aerobatics team.
The British High Commission declined to confirm this development. However, David Woolf, who oversees defence exports for the High Commission in New Delhi stated: “If the Indian government was interested in financing the purchase of Hawk trainers, the UK government would be happy to explore the possibility of financing it through the United Kingdom Export Finance organisation.”
Hindustan Aeronautics Ltd (HAL), which would build the 20 Hawks in Bengaluru, BAE Systems, which is the primary vendor, and the defence ministry declined to comment.
India’s defence cooperation with the UK, while not as intense as with the US, has grown steadily. In April, the UK Secretary of State for Defence Sir Michael Fallon visited India for the India-UK Strategic Defence Dialogue, which facilitates cooperation between the two militaries and defence industries.
In November 2015, the two countries agreed on a Defence and International Security Partnership (DISP). New Delhi and London also cooperate in several Defence Consultative Groups (DCGs).
BAE Systems, which features each year amongst the world’s five biggest defence firms, has done good business in India. Besides the sale of 123 Hawks, the US arm of the company, which is called BAE Inc., bagged a $737 million (Rs 4,700 crore) contract in November 2016 for supplying 145 ultralight M-777 howitzers to the army.