Sunday, 25 August 2019

Ordnance Factory workers end strike, MoD to review “corporatisation”

OFB officers wonder how "corporatisation" will more than double the turnover of ordnance factories

By Ajai Shukla
Business Standard, 25th Aug 19

Ordnance Factory Board (OFB) workers’ unions have called off a strike, launched on August 20, to protest against the Ministry of Defence’s (MoD’s) decision to “corporatize” the 41 ordnance factories. The unions have asked OFB employees to re-join work on Monday.

“Corporatising” the OFB involves converting what is currently a department of the MoD that produces tanks, guns and ammunition, into a defence public sector undertaking (DPSU). That would require the OFB to maintain a balance sheet and a profit and loss account, with transparency about inputs, production costs and salaries.

The MoD believes that corporatizing the OFB will increase annual turnover from the current Rs 14,000-16,000 crore to above Rs 30,000 crore by 2025. The unions counter that turnover is not in their hands, since it depends wholly upon the orders placed by the army.

Consequently, some 60,000 of the OFB’s 76,000 workers struck work since August 20, in accordance with a strike notice issued on August 1. The OFB’s 1,500 Class “A” officers continued attending office, while about 6,000 “junior works managers” were not a part of the strike, but did not come to work.

The decision to call off the strike follows several rounds of meetings between the unions and the government, represented by the Secretary of Defence Production (Secretary DP) Ajay Kumar. A breakthrough was achieved on Friday, when the government agreed to review the question of corporatization.

On Saturday, a circular issued by the employees’ unions stated: “After considering the statement/assurance of the Secretary DP that no final decision has been taken yet about converting the OFB into a corporation and that a high level official committee will be constituted by the government… employees will resume work from 6 a.m. of 26/08/2019.”

Business Standard has reviewed the minutes of the MoD’s Friday meeting with the unions, in which the government assured the unions that “the matter regarding corporatization of OFB is under examination… [and] that no final decision has been taken by the government in this regard. It was therefore agreed to recommend setting up of a High Level Official Committee (sic) to interact with the Federations and make suitable recommendations to the government.”

OFB employees worry that corporatisation could trigger mass layoffs or salary cuts. There are also concerns about what pensions they would be paid, with all post-2004 employees covered under the New Pension Scheme.

Addressing the OFB employees’ key concerns, the MoD minutes stated: “The meeting recognized some of the concerned raised by employees federations regarding how the benefits/interests of employees in terms of wages, health facilities and other service matters etc. may be affected by converting OFB into a public sector entity.

OFB union sources point out that they conducted themselves responsibly. To prevent damage to tooling and inventories during the planned month-long strike, workers grease-packed equipment and machinery. Several thousand employees involved in essential services like electricity and water supply and fire fighting, were allowed by the unions to come to work.

While the OFB’s Class “A” officers were not part of the strike, they wrote a memorandum to the prime minister through their union, the Indian Ordnance Factories Service Officers’ Association (IOFSOA) on August 3. This pointed out that the OFB constituted a “war reserve” that could leverage surplus production capacities to quickly ramp up production in the event of war. Before the Kargil war began, OFs were producing ammunition worth Rs 700-800 crore annually. Faced with crisis, the OFB ramped up production to Rs 2,200 crore.

The PM was also told that ramping up production from the current Rs 14,000-15,000 crore to Rs 30,000-35,000 crore by 2024-25 would require large annual increases in the army’s budget, failing which it would be unable to absorb this enhanced production.

The IOFSOA letter to the PM also rebutted the notion that OFB products are overpriced. “OFB is highly competitive when compared with international prices. To quote a few: T-90 tank, AK-630M naval gun… OFB prices are less by 25-100% as compared to international prices. This is substantiated by international bidding in which OFB has participated,” it stated.

Multiple unions, including the Bharatiya Janata Party-affiliated Bharatiya Pratiraksha Mazdoor Sangh, represented the OFB employees. The others were the Left Front-affiliated All India Defence Employees’ Federation, and the Congress-affiliated Indian National Defence Workers’ Federation. They came together under the umbrella of the Confederation of Defence Registered Associations.

Friday, 23 August 2019

Editorial comment: Old can be gold

Combat aircraft with upgrades remain in service for many decades

By Ajai Shukla
Editorial in Business Standard
23rd Aug 19

The government must take seriously Indian Air Force (IAF) chief, Air Chief Marshal BS Dhanoa’s recent lament that the IAF was still flying 44-year old MiG-21 fighter jets, a vintage far older than the cars that people currently drive. With Defence Minister Rajnath Singh listening on, this was an unmistakeable indictment of the defence ministry’s tardy procurement system, which compels the IAF to make do with just 29 squadrons of fighter aircraft, against the 42 that defence planners say the country needs. The IAF will have to manage with even fewer squadrons, because the MiG-21 fleet will retire soon, and only a handful of Rafale, Sukhoi-30MKI and Tejas Mark 1 fighters would be inducted in their place. Further, as this newspaper has reported, the IAF has decided against extending the service life of four Jaguar squadrons, which means even more fighters will become due for retirement. The defence ministry has commenced the purchase of six more fighter squadrons but, going by past experience, they could take a decade-and-a-half to come. All of this was foreseeable, but has still come to pass.

Notwithstanding the real crisis in fighter numbers, the IAF chief’s complaint does not reveal the full picture, which is that combat aircraft routinely remain in service for many decades. The US Air Force, unarguably the world’s most cutting edge, continues to fly several aircraft that are over half a century old. The B-52 bomber has been in service more than 60 years, and the KC-135 Stratotanker has been refuelling American fighters for over half a century. The T-38 Talon supersonic trainer has trained close to 60,000 US pilots over the last fifty years.

The IAF should know this, since it is procuring American combat aircraft that have crossed the half-century landmark. The CH-47 Chinook, which began entering IAF service earlier this year, has already flown in combat for 57 years. The US Air Force plans for the Chinook to remain till 2050, by when it will be 90 years old. The C-130 Hercules, which the IAF happily bought, has completed 50 years of service and will continue for another 30 years. The AH-64 Apache which will enter IAF service next month is not far from its golden jubilee.

There is a lesson for the IAF in how these “vintage” American aircraft remain at the cutting edge even today, even as Indian MiGs become flying jalopies much earlier. The US military works with the American defence industry in developing its own aircraft, and then in incrementally upgrading them, progressively introducing new technologies that improve combat capability, without obsessing about flying performance. The F-16, which is also close to its half-century age landmark, flies today much like it did in the early 1970s. 

However, its current airborne radar, data links, communications and weaponry make it far superior to its initial variant. The IAF too has upgraded its MiG-21s, MiG-27s and MiG-29s, largely with Israeli avionics. However, there are limits to the extent to which one can upgrade a foreign aircraft, whose design parameters and software source codes are not known. The answer is to introduce indigenous aircraft into service early, and continually upgrade them, keeping them combat-worthy for decades. This is the most economical way of structuring an arsenal. The Tejas light combat aircraft would be a good place for the IAF to start.

Thursday, 22 August 2019

IAF ends plan to upgrade Jaguar fighters, squadron numbers crunch worsens

Honeywell’s “exorbitant” quote raised upgrade cost to Rs 210 crore

By Ajai Shukla
Business Standard, 20th Aug 19

The Indian Air Force (IAF), already short of 12 squadrons from its authorized fleet of 42 fighter squadrons, is now facing an even bigger aircraft shortfall. 

With US engine maker, Honeywell, demanding what IAF sources term an “exorbitant” price for its F-125IN engines, the IAF has told Hindustan Aeronautics Ltd (HAL) that it has abandoned its plan to upgrade 80 Jaguar fighters with new Honeywell engines.

The IAF operates a fleet of 120 Jaguar fighters, comprising six squadrons. It had planned to retire the oldest 40 (two squadrons) in the early 2020s and “re-engine” the remaining 80 (four squadrons), which would then continue flying into the mid-2030s.

This plan has been abandoned after Honeywell quoted $2.4 billion for 180 engines – which include 160 engines for 80 twin-engine Jaguars, and 20 spare engines. That amounts to $13.3 million (Rs 95 crore) per engine.

With HAL charging Rs 20 crore for integrating the engines into the Jaguar fleet, the cost of “re-engining” each Jaguar has risen to a prohibitive Rs 210 crore.

The IAF is particularly incensed at Honeywell’s doubling the cost of the F-125IN engine from a quote it had submitted in 2013. In that quote, Honeywell had asked for $1.634 billion for 275 engines, or just under $6 million per engine. At that stage, the IAF was planning to upgrade all 120 Jaguars.

The IAF considers it essential to put new engines on the Jaguar, since its current Rolls-Royce Adour 804/811 engines, which deliver a maximum thrust of 32.5 KiloNewtons do not allow the fighter to climb or accelerate effectively. Honeywell’s F-125IN engines, each of which generates a maximum thrust of 40.4 KiloNewtons, are considered essential for fielding it in combat.

Honeywell planned to build the F-125IN engines in Taiwan, where the International Turbine Engine Company already builds Honeywell’s F-124 engine for Taiwan’sF-CK-1 Ching-kuo fighter. The F-125IN is the same engine, with an afterburner to increase thrust. 

Honeywell sources say the IAF’s years of delay has convinced the company that this project is unlikely to come to fruition and that no more resources should be expended on this.

The sources point out Honeywell has spent at least $100 million on this project, including on buying two old Jaguar fighters to match the engine with the airframe. 

Honeywell’s pessimism was evident in the company’s decision not to participate in the Aero India 2019 show in Bengaluru last February.

The cancellation of this project is especially disappointing for HAL, which undertook to lead the integration of the F-125IN engine into the Jaguar, including carrying out airframe modifications, flight-testing and certification. While Honeywell quoted $1.6 billion for this work in its 2013 tender, HAL quoted under $300 million.

What role for a tri-service chief?

By Ajai Shukla
Business Standard, 20th Aug 19

Amidst a worrying economic slowdown, the government has made three major security-related moves over the last 15 days. First, it terminated the special status of Jammu & Kashmir (J&K) and bifurcated the state into two Union Territories. How much political resistance and violence this will unleash will only be known when the security clampdown in Kashmir is loosened. Second, in the realm of nuclear weapons, Defence Minister Rajnath Singh backed away from India’s long-held doctrine of “no-first-use”, declaring that New Delhi might initiate nuclear strikes in certain circumstances, which he did not spell out. Third, in his Independence Day speech, Prime Minister Narendra Modi announced he was appointing a Chief of Defence Staff (CDS) – a tri-service military commander, who would “make the armed forces even more effective.”

So far, nothing has been divulged about the form and functions of the new CDS. It remains unclear whether he will be a five-star rank supremo to whom the three service chiefs will report, as recommended by the Kargil Review Committee (KRC) in 1999 and a Group of Ministers in 2001. Or, will the new CDS be the watered-down compromise the Naresh Chandra Task Force proposed in 2012 – a four-star officer termed the Permanent Chairman of the Chiefs of Staff Committee (PCCSC), who would not be the boss of the three service chiefs, but merely the “first amongst equals” (whatever that means in practice). The creation of a five-star CDS, while only a first step, would signal that political will exists for the root-and-branch reform of higher defence management structures. On the other hand, creating a four-star PCCSC would immediately smack of tokenism. That is because little is to be gained from merely upgrading an already existing, and ineffectual, three-star tri-service chief by pinning another star onto his collar. Ultimately, the value of a CDS will depend upon what powers and responsibilities he is given, and the additional reform this triggers.

What should be the tasks of the new CDS? The first is clearly to adjudicate between the army, navy and air force. That requires a five-star rank officer, since four-star officers currently head these services. Tough love will be needed, since each chief single-mindedly pursues his service’s interests in the competition for turf and pelf, especially in core matters such as budget share. The CDS, therefore, must act as an “honest broker” whose decisions serve the broader national purpose, rather than narrow service interests. Furthermore, a CDS would constitute a single point of advice for the top political leadership. 

Many senior generals, fearing that a CDS perched above them would encroach on their turf and limit their powers, pooh-pooh the notion that inter-service rivalries damage the military’s functional efficiency. Typically, they trot out the example of cooperation in disaster relief operations to present the soothing (but false) argument that the three services join hands in crises, motivated by a common purpose. In fact, such cooperation is sporadic, as militaries worldwide have experienced for a century. When the US was fighting Japan in World War II, officials in Washington remarked drolly that the most ferocious fighting in the Pacific Campaign was actually between the army commander, General Douglas MacArthur, and his naval counterpart, Admiral Ernest King. Further illustrating such fratricidal friction, General Eisenhower, who went on to become US president, wrote in his diary: “One thing that might help win this war is to get someone to shoot King.” Eventually, after continuing inter-service dissonance during the Vietnam War, it took top-down political intervention to radically reform the American military’s command structures and hierarchies, when President Ronald Reagan signed into law the Goldwater-Nichols Act in 1986.

In India multiple examples of dysfunctional inter-service relations call for our own Goldwater-Nichols-type restructuring. For example, in the 1962 war with China, the air force was entirely left out of battle. The Indian Navy remained in harbour during the 1965 Indo-Pakistan war. General VP Malik, the army chief during the 1999 Kargil conflict, has recounted how he had to arm-twist his reluctant air force counterpart, Air Chief Marshal Anil Tipnis, into providing air support to the army during the early stages of fighting. Little of this disharmony would be addressed by merely appointing a CDS to languish in an “upgraded” integrated headquarters, without addressing the yawning gulf between the military and the defence ministry. The new apex body must incorporate all the elements – military, bureaucratic and financial – needed for swift and flexible decision-making.

Some tasks for the new CDS are self-evident. He must oversee long-term planning, especially the three services’ manpower structure, command and communications, the weapons they would field and technologies that must be driven to build an indigenous arsenal. The CDS would need to “future proof” the three services by anticipating new technologies that might render an entire class of weaponry obsolete – as offensive cyber weapons and anti-satellite weapons threaten to do to contemporary command networks. Also, given India’s internal dissonances, the CDS would need to balance between a military structured, trained and equipped for warfighting, and one geared for internal security tasks. Finally, he would save money by pooling facilities and resources all three services wastefully maintain today. 

The most contentious question around the appointment of a CDS is: should he oversee combat operations, heading a tri-service headquarters that synergises all three services’ combat power? Or should combat operations be pursued by “geographical commands”, each with its need-based complement of army, navy and air forces? Between them, the three services currently have 17 single-service commands, and proponents of geographical commands contend these could be effectively combined into just four tri-service geographical commands. 

The concept of tri-service, geographical commands offers distinct organisational advantages for a global military like America’s, whose Central Command might be fighting a campaign in Iraq, even while its Pacific Command is engaged in a war with North Korea. The sheer distance between America’s combat theatres requires each to be self-contained. In the Indian context, where the operational commands are in close proximity, it would be wasteful to emulate the American structure. It would be especially fruitless to pre-commit air force squadrons to fixed commands, since the large combat ranges of modern fighters (further enhanced by mid-air refuelling) make it theoretically possible for a fighter aircraft to take off from an airfield under one command, and strike targets in two other commands in a single sortie. Given this flexibility, it is no accident that the air force is the greatest opponent of fixed affiliations.

Friday, 16 August 2019

India could use nukes first if circumstances demand: Rajnath Singh

Rajnath Singh, laying a wreathe at Pokhran in memory of Atal Behari Vajpayee, shortly before making his announcement about NFU 

By Ajai Shukla
Business Standard, 17th Aug 19

Defence Minister Rajnath Singh on Friday became the latest and highest level official to place a question mark over India’s “ nuclear no first use” (NNFU) pledge, when he said India may not feel indefinitely or unquestionably bound to NNFU.” 

“Until now, our nuclear policy has been based on ‘no first use’, but what happens in the future will depend on the circumstances,” Singh said while speaking to the media in the symbolic location of Pokhran.

Making it clear that this was not just a casual comment, Singh simultaneously tweeted: “Pokhran is the area which witnessed Atal [Behari Vajpayee] Ji’s firm resolve to make India a nuclear power and yet remain firmly committed to the doctrine of ‘no first use’. India has strictly adhered to this doctrine. What happens in future depends on the circumstances.”

Over the past decade, New Delhi’s stated nuclear doctrine that India would not be the first to use nuclear weapons has been incrementally diluted through ambiguous official statements. These include one in 2010 from a serving national security advisor (NSA), Shivshankar Menon; and another in 2016 from a serving defence minister, Manohar Parrikar, which the defence ministry later qualified as his “personal views”.

In nuclear warfare theory, an NFFU pledge engenders nuclear stability, especially in a crisis, by assuring nuclear powers that they would not be subjected to a pre-emptive nuclear strike and are, therefore, under no pressure to fire their nukes. By this logic, nuclear theorists argue that New Delhi’s dilution of its NFFU pledge creates “use it or lose it” incentives in Pakistan to pre-emptively fire its nukes.

Chris Clary of State University of New York, an expert on South Asia security argues that India’s dilution of NFFU increases the risk of Pakistani nuclear use. 

“Given India's investments in precision-strike conventional and nuclear missiles and ballistic missile defence, along with its impressive advances in surveillance and reconnaissance platforms, India's adversaries have strong reasons to doubt whether in a crisis, India retains any commitment not to use nuclear weapons first. It is hard enough anyway to convince enemies of an NFU doctrine, but routine questioning of that doctrine by senior officials is one recipe for disbelief,” says Clary. 

While Vajpayee firmly stuck by NNFU, the Narendra Modi-led Bharatiya Janata Party (BJP) has been more ambiguous. Leading into the 2014 elections, Modi’s manifesto promised to “revise and update [India’s nuclear doctrine] to make it relevant to the challenges of current times.” Many interpreted this as a pledge to dilute NNFU.

Modi quickly denied such an intention, stating in an interview in April 2014: “NFU was a great initiative of Atal Behari Vajpayee. There is no compromise on that. We are very clear. NFU is a reflection of our cultural inheritance.”

As recently as November 2018, while operationalizing India’s nuclear missile submarine, INS Arihant, Modi again committed to NNFU: “[India] remains committed to the doctrine of Credible Minimum Deterrence and No First Use, as enshrined in the decision taken… on January 4, 2003.”

But ambiguity about India’s commitment to NFFU long pre-dates Modi. In 2010, Shivshankar Menon, addressing the National Defence College as the serving NSA, described India’s nuclear doctrine as emphasizing “minimal deterrence, no first use against non-nuclear weapon states and its direct linkage to nuclear disarmament.”

Since Menon confined the NFFU pledge to “non-nuclear weapon states”, analysts concluded India was retaining a first-use option against nuclear adversaries, especially Pakistan and China.

Intriguingly, this year, the Ministry of External Affairs, changed the text of Menon’s 2010 speech on its website, citing India’s emphasis on “minimal deterrence, no first use and non use against non-nuclear weapon states and its direct linkage to nuclear disarmament.”

Close watchers of India’s nuclear policy, such as Vipin Narang of Massachusetts Institute of Technology, were quick to pick up on this change. Narang tweeted: “Whoa. MEA edited this Shivshankar Menon speech text online! As of January 2019 it read: ‘no first use against non nuclear weapons states’ which was a dilution [of NFFU]. Now it reads: ‘emphasis on minimal deterrence, no first use and non use against non-nuclear weapon states’ which is not [a dilution]!”

Ankit Panda of the Federation of American Scientists says the BJP’s ambiguity on NFFU is consistent with Modi’s strategy. “Given Modi's penchant for surprise in the national security space, as seen with the Balakot strikes, ASAT test, and Article 370 abrogation, a renewed nuclear posture—if not doctrine—designed to suit India's present circumstances is not at all unthinkable,” says Panda

Shashank Joshi, Defence Editor of Economist, says: “The benign interpretation is that New Delhi is signalling to countries like China that if they alter their nuclear doctrines, India may follow suit. The less charitable and more destabilising interpretation is that India is trying to eat its cake and have it too: signalling commitment to NFU, but sowing doubt as to whether India would adhere to it in a crisis.”

Narang takes note of the statement made by the former chief of India’s Strategic Forces Command, Lieutenant General BS Nagal, who publicly declared that, notwithstanding NFFU, India’s leaders could not stand by and wait for an adversary to nuke the country.

Says Narang: “There has long been [Indian] discomfort with an absolute NFU policy. If evidence of imminent Pakistani nuclear use were clear, what Indian PM could sit back and allow Indian forces or citizens to be hit and not try to pre-empt? Singh is just saying what many, especially China and Pakistan, already believe.”

Thursday, 15 August 2019

Modi announces post of tri-service military chief, but questions remain

By Ajai Shukla
Business Standard, 15th Aug 19

In 1999, the Kargil Review Committee (KRC) recommended creating a Chief of Defence (CDS) – a supreme military commander of the army, navy and air force; who would also serve as the government’s single point of military advice. For the two decades since, successive governments shrank from appointing a CDS, citing the need for a political consensus. 

In 2001, a Group of Ministers (GoM) endorsed the KRC recommendations, but the only joint command structure that emerged was a relatively toothless Integrated Defence Staff (IDS), headed by a three-star rank officer, junior to the three service chiefs. Consequently, the army, navy and air force continue to function without essential coordination.

On Thursday, in his Independence Day address, Prime Minister Narendra Modi apparently abandoned the need for political consensus and announced the government was going ahead with appointing a CDS.

“To further sharpen coordination between the services, I want to announce a major decision from the Red Fort. India will have a Chief of Defence Staff – a CDS. This is going to make the forces even more effective,” said Modi.

However, it remains unclear what kind of CDS the PM will implement. One possibility is what the GoM recommended: a five-star general who would be boss of the four-star chiefs of the army, navy and air force and would direct all their functions including operations, training and long-range planning. 

The other kind of CDS is what the Naresh Chandra Task Force recommended in 2012 – a less powerful, four-star officer termed the Permanent Chairman of the Chiefs of Staff Committee (PCCSC), who would not directly command the three services, but would be the “first amongst equals”. The PCCSC would coordinate between the three services, enabling efficiency through sharing resources such as training facilities and obtaining economy of scale by carrying out joint procurement of weapons and equipment.

Given Modi’s emphasis on “sharpen[ing] coordination” rather than “joint command”, analysts are guessing that a four-star PCCSC is likely, with the title of CDS, if not the functions and five-star rank.

The appointment of a PCCSC would bring limited benefits, since the army, navy and air force would continue operating individually in key functions such as combat operations and planning. 

Nor would a PCCSC enable the next layer of defence reform, which is the creation of joint theatre commands, in which a theatre chief (who could be from any of the three services) would have under his command all the army, navy and air force troops necessary for carrying out his operational tasks. 

Currently, only one such tri-service command exists – the Andaman & Nicobar Command (ANC), which functions under the IDS. Meanwhile, each of the three services has three-to-seven single service commands with overlapping jurisdictions.

Resistance to creating a five-star CDS post has stemmed from three directions. Politicians have had an unstated aversion to the concentration of all military power in a single person’s hands. Bureaucrats have opposed a CDS since the four-star service chiefs already have the same status as the cabinet secretary and a five-star CDS would presumably outrank the senior-most bureaucrat. Finally, there has been apprehension amongst smaller services, notably the air force, that an army CDS might undermine their positions.

The senior defence community, whose views are conveyed by veterans, approves of the CDS announcement. Lieutenant General Satish Dua (Retired), a former IDS chief, says “The appointment of CDS will be a game-changer, a force multiplier, who will bring synergy and coordination to the three services.”

“A good decision, but making it work is obviously a greater challenge,” says Lieutenant General Ata Hasnain, former corps commander in Srinagar. 

It is unclear who will be the first CDS, or when the appointment will be formally notified and implemented. If the CDS is selected from the serving chiefs, Air Chief Marshal BS Dhanoa, the air force chief, is currently the senior-most. Dhanoa retires on September 30 and, from October 1, army chief General Bipin Rawat will be senior-most.

However, the CDS could well be a more junior officer, deep-selected from the pool of serving generals. The Modi government has twice overturned the existing command hierarchy in choosing its service chiefs. In appointing Rawat as army chief in 2017, the government superseded two generals senior to him. The current navy chief, Admiral Karambir Singh, too was chosen in preference to another, more senior, admiral.

Anit Mukherjee of the Rajaratnam School of International Studies, an authority on higher defence management in India, sees little benefit in appointing a CDS if he is to be merely an upgraded IDS chief, without the army, navy and air force handing over responsibility for substantive functions.

“What are the precise departments, if any, which are to hived off from the three services? Who will control combat operations, and perspective planning? Lack of clarity on this would create tensions between the CDS and the three service chiefs down the line,” says Mukherjee.

Saturday, 10 August 2019

Part 1: Public defence shipyards bag 85-95% of warship orders without tendering

Ficci asks Rajnath Singh for level playing field for private shipyards (Photo: Mazagon Docks' modular infrastructure, built at public expense)

By Ajai Shukla
Business Standard, 5th Aug 19

The Federation of Indian Chambers of Commerce and Industry (Ficci) has written a strongly-worded note to Defence Minister Rajnath Singh, asking the ministry of defence (MoD) to end the practice of “nominating” defence public sector undertaking (DPSU) shipyards to build warships for the navy and coast guard.

“Nomination” involves placing orders for warships on chosen public sector shipyards, without competitive tendering. Ficci’s note asks for a level playing field for private shipyards by permitting them to participate in all warship tenders. 

Private defence shipyards are in dire straits, with two of them – Bharati and ABG Shipyards – facing foreclosure; and sparse order books for the others, despite L&T’s Rs 3,500 crore construction of a Greenfield shipyard at Katupalli, Tamil Nadu, and Reliance Naval and Engineering’s Rs 2,000 crore purchase of Pipavav Shipyard.

Ficci has presented figures to highlight that, over the last two decades, the four DPSU shipyards – Mazagon Dock Ltd, Mumbai (MDL), Garden Reach Shipbuilders & Engineers (GRSE), Goa Shipyard Ltd (GSL) and Hindustan Shipyard Ltd, Visakhapatnam (HSL) – along with Kerala state’s Cochin Shipyard Ltd (CSL), garnered all the high-value orders through “nomination”.

Between 2000-2010, PSU yards were “nominated” for over 95 per cent by value of all warship orders, amounting to Rs 76,794 crore. Only 4.9 per cent of orders were competitively tendered. Of those, PSU yards won 1.9 per cent (worth Rs 1,500 crore) while private yards won the remaining three per cent, worth Rs 2,446 crore.

The MoD counters that most warship orders are competitively tendered. It says PSU yards were “nominated” to build only 56 ships, while the private sector was allowed to participate in the tendering for 90 ships – 62 per cent of the total numbers.

While that is so, the 38 per cent of orders that were “nominated” to PSU yards included all the high-value warships, adding up to 95 per cent of the monetary value. The 62 per cent where the private sector competed involved small, low-value auxiliary vessels.

Ficci further contends that, with PSU yards having pocketed 95 per cent of orders through “nomination”, they possessed ample resources to cross-subsidise their bids in the remaining orders that were competitively tendered. Consequently, private shipyards had to resort to “gross underbidding just to remain in business,” says Ficci.

In November 2010, then defence minister AK Antony had pledged: “From January 2011onwards, the Defence Acquisition Council (DAC) will not give any nominations to the defence shipyards for naval projects and they will have to compete with the private shipyards for the tenders.”

Yet, little changed in practice. Between 2011-19, PSU shipyards were “nominated” for 85 per cent by value of shipbuilding contracts, constituting Rs 146,261 crore. The private sector participated in just 15 per cent of the tenders, worth Rs 25,758 crore.

With huge contracts already in hand, says Ficci, “The PSUs began resorting to rampant cross subsidization to win 10.4 per cent programmes, leaving a meagre 4.6 per cent for the private sector.”

Once again, absolute figures are misleading. Between 2011-19, contracts to build 73 warships were awarded after competitive bidding, while 69 warships were “nominated” to public sector yards. However, the latter included all the lucrative warship contracts, leaving private shipyards to compete only in orders for low-value, auxiliary vessels.

Ficci has also raised another point with operational implications: The large volume of “nominated” orders placed on PSU shipyards has created such a huge order backlog that the navy and coast guard will have to wait many years for delivery of warships. 

Last week Business Standard reported (July 30, Garden Reach builds 100th warship; order book full for next 20 years) that GRSE would take 20 years to discharge its order book of Rs 27,500 crore, at its current annual turnover of Rs 1,386 crore.

According to MoD figures, the combined value of production in 2017-18 of MDL, GRSE, GSL and HSL added up to just Rs 7,600 crore. Yet they were “nominated” during the last two decades for warship orders worth Rs 223,055 crore.

“With this rate of execution, gross delays are inevitable in liquidation of existing order book thus affecting warship induction plans and force readiness levels of the Indian Navy,” said Ficci.

Citing a report that the Prime Minister’s Office has mandated that all future warship contracts will be competitively bid, Ficci has requested that no new orders should be “nominated” to PSU shipyards. Further, on-going “nominated” procurements in which contracts have not yet been awarded must be re-categorized and re-bid, with private shipyards participating. 

As a key enabler for private shipbuilding, Ficci has requested that the Strategic Partnership (SP) procurement model be fast-tracked for Project 75-I, which involves constructing six conventional submarines for the navy. That would require the MoD to choose an Indian private shipyard to build the six submarines in India in technology partnership with a global “original equipment manufacturer” (OEM). 

Ficci has cautioned against allowing DPSU yards into SP projects, which the MoD is considering. Instead the MoD is urged to stick with the “original intent of SP model being reserved for participation by the private sector only.” 

The original SP concept that the Dhirendra Singh Committee (2015) and VK Aatrey Task Force (2016) envisioned has the primary objective of developing private sector capabilities in defence manufacturing. However, the SP policy that the MoD eventually drew up for the Defence Procurement Procedure of 2016 (DPP-2016), left the door open for DPSUs to compete in SP category procurements.

Ficci argues that private shipbuilders cannot compete on level terms with PSU yards. The latter have benefited from hundreds of crores of government funds spent on their modernisation and on technology transferred over earlier “nominated” contracts.

In case [the Project 75-I procurement on the SP model cannot be restricted to the private sector], the competing DPSU bids must be loaded for the cross-subsidy arbitrage in the form of free access to government funded assets and past repeated ToTs (transfer of technology),” says Ficci.

(Part 2: Private shipyards: L&T shows way to on-time delivery)

Part 2: L&T shows private shipbuilders can deliver on time: an analysis of previous Offshore Patrol Vessel contracts

ICGS Vikram, which L&T delivered on schedule in April 2018

By Ajai Shukla
Business Standard, 7th Aug 19

When L&T delivered Indian Coast Guard Ship (ICGS) Vikram in April 2018, the first of seven offshore patrol vessels (OPVs) ordered by the Coast Guard, the event was remarkable for two reasons: First, the delivery was on schedule, pleasantly surprising the services that have long complained about lengthy time overruns by defence public sector undertaking (DPSU) shipyards.

Second, L&T’s Kattupalli shipyard took just 36 months to build and deliver that OPV, even though this was the first OPV it had ever built. 

In contrast, when Goa Shipyard Ltd (GSL), the public sector’s premier OPV builder, got an order in April 1990 for four OPVs, it took twice as long to deliver the first. The delay in delivering those four OPVs ranged from two years to eight and a half years.

Over the next 25 years, GSL delayed delivery in six consecutive OPV orders. It was only in 2015-17 that GSL managed to deliver six Coast Guard OPVs on schedule.

L&T, however, is on course to deliver all seven Coast Guard OPVs ahead of time. Coast Guard officials, speaking off the record, pronounced the build quality as “excellent”.

Below: (corrected heading): OPVs built by PRIVATE SECTOR

The confidence generated from this demonstrated capability has led the Federation of Indian Chambers of Commerce and Industry (Ficci) to petition Defence Minister Rajnath Singh to allow private sector shipyards, including L&T and Reliance Naval and Engineering (RNaval), to compete on equal terms with defence public sector undertaking (DPSU) shipyards for warship orders.

Ficci’s petition points out that, over the last two decades, the four DPSU shipyards – Mazagon Dock Ltd, Mumbai (MDL), Garden Reach Shipbuilders & Engineers (GRSE), Goa Shipyard Ltd (GSL) and Hindustan Shipyard Ltd, Visakhapatnam (HSL) – along with Kerala state’s Cochin Shipyard Ltd (CSL), were handed 85-95 per cent of warship building orders (by value) through “nomination” – which means without competitive tendering.

During this period, the only orders the defence ministry placed on private sector shipyards were for low-value auxiliary vessels that did not require advanced engineering skills.

This bias continues, despite L&T’s success with the Coast Guard OPV order, and in building sophisticated hulls and systems for India’s nuclear submarine programme. Ignoring the claims of private shipyards, the defence ministry “nominated” GSL to build two Krivak III frigates with technology from Russia. 

Defence ministry officials argue that L&T has never built a frigate earlier. Neither has GSL.

Ficci has pointed out that the defence ministry’s practice of “nominating” PSU yards for warship orders has starved private shipbuilders, leading to the closure of two private shipyards – ABG and Bharati Shipyards. The remaining two – L&T and RNaval’s Pipavav Shipyard – are grappling with mounting losses.

The defence ministry argues that private shipyards too have failed to deliver. They point to on-going difficulties with RNaval, which is over four years late in delivering an order for five OPVs for the navy.

The navy, as well as private industry bodies, feel a line must be drawn under failures of previous years and a healthy competition encouraged between PSU shipyards and those in the private sector.

Ficci has requested a “level playing field” competition in building the next generation of warships over the coming years: the eponymous “next-generation OPVs”, next-generation missile boats”, “next-generation frigates” and “next-generation destroyers”. All these are currently being designed by the navy’s design directorate.

Ficci has further requested that on-going warship procurements in which PSU yards have been “nominated”, but actual contracts not yet been awarded; must be re-categorized and re-bid, with private shipyards participating.

Wednesday, 7 August 2019

India’s dispute with Pakistan over Jammu & Kashmir has a loser – New Delhi’s cherished secularism


By Ajai Shukla
South China Morning Post
5thAug 19

On Monday, the Indian government unilaterally reshaped its special constitutional relationship with its northernmost province of Jammu & Kashmir (J&K), under which that princely state had joined the Indian union. 

In October 1947, with Pakistan-sponsored Pashtun militias closing in on the summer capital of Srinagar, the Hindu king of the Muslim-majority kingdom signed an Instrument of Accession, giving New Delhi full control over J&K’s defence, foreign affairs and communications, while allowing Srinagar control over all other matters, including framing its own constitution. This special relationship with J&K was enshrined in Article 370 of the Indian constitution.

This has long irked Hindu nationalists, who for decades railed against “special privileges” being accorded to India’s only Muslim-majority state and, especially, against Article 370. Prime Minister Narendra Modi, in his Bharatiya Janata Party (BJP) manifesto going into general elections earlier this year, explicitly promised “the abrogation of Article 370”. Last May, with an increasingly right-leaning Indian electorate voting Modi back to power with an increased majority in Parliament, the fate of Article 370 was sealed.

Even so, there is surprise in many quarters at how emphatically the government has acted. Last year, the BJP pulled out of the coalition government in Kashmir. That left its partner, Mehbooba Mufti’s People’s Democratic Party (PDP), in a minority – paving the way for her dismissal and the imposition of central rule. 

With New Delhi ruling the state through a governor in Srinagar, tens of thousands of central police forces were pumped into Kashmir over the last fortnight, beefing up the estimated 400,000 or so troops already based there. Last week, the Amarnath Yatra – a hallowed annual pilgrimage by Hindu devotees from all over India to a Himalayan shrine in Kashmir – was abruptly called off and tens of thousands of pilgrims and tourists were bundled out of Kashmir. 

On Sunday, curfew was imposed all across the Kashmir Valley, and the internet was cut off. Kashmiri politicians, including “pro-India” politicians like Mufti, were put under arrest, lumping all Kashmiris – loyalists, nationalists and secessionists – together, damaging invaluable relationships beyond repair. Amid wild rumourmongering all through that day, panicked Kashmiris stocked up for a lengthy siege.

On Monday morning, their worst fears unfolded. Home affairs minister Amit Shah announced in Parliament that the BJP-supported President of India, Ram Nath Kovind, had signed an order making J&K subject to the Constitution of India, effectively quashing Article 370. 

Such an abrogation, according to the article’s own provisions, demands consultation with the state assembly. But with that assembly suspended and J&K under central rule, the presidential order stated that consultation with the New Delhi-appointed state governor would suffice. Ironically, the governor had publicly promised just days ago that no constitutional changes were on the cards.

In an even more radical move, Shah dealt with the J&K problem by terminating the existence of the entity, bifurcating the state into two territories that are part of the Indian union. 

The vast Ladakh region, sparsely inhabited by Buddhists and Shia Muslims, which had remained largely peaceful through three decades of insurgency in Kashmir, would henceforth be centrally administered from New Delhi. The second union territory would comprise of the Jammu region and of Kashmir, and would have an elected assembly. There is no telling, though, when that assembly would be constituted; J&K state elections have been pending since the Mufti government fell in June 2018, but have been postponed for “security reasons”. 

It is likely that New Delhi will continue to put off elections for the foreseeable future, choosing instead to deal with the restive Kashmir region indefinitely without the moderating influence (read, nuisance) of an elected state assembly. That could change once the BJP orchestrates the delimitation of electoral constituencies to allocate a larger number of seats to Hindu-majority areas.

Kashmiri outrage at these unilateral changes is inevitable. Former J&K chief minister Omar Abdullah termed the scrapping of Article 370 a “total betrayal of trust” that amounted to “aggression”. Mufti denounced this as “the darkest day in Indian democracy”. However, the fulminations of mainstream politicians are now far less important than the reaction of the Kashmiri street. 

Over the preceding decade, the secessionist leadership has passed from Pakistan-controlled individuals like the octogenarian Syed Yusuf Shah Geelani into the hands of disparate, hot-blooded young chiefs, including some with ties to al-Qaeda and Islamic State. If street protests erupt and gain traction, Kashmir could be in for another bloody summer. For that reason, security forces have been ordered to make sure the streets remain empty.

India’s security managers are comfortable with battling armed Kashmiri militants and have, over the decades, fine-tuned an operational and intelligence grid that takes out militants as fast as Kashmiri youths can be persuaded to pick up the gun, or Pakistan can send them across the Line of Control. 

However, tackling stone-pelting mobs of unarmed youngsters is less to the liking of troops and policemen in Kashmir. In an international community where there is little tolerance for Islamist jihadis, gunning down armed fighters carries little opprobrium. However, the image-conscious Indian military realises the potential for criticism in dealing with a Kashmiri intifada.

New Delhi’s move will inevitably face legal, constitutional and political challenges; not just from Kashmiri groups but also from civil society groups in India. Much will depend upon whether the courts determine that changing the constitutional nature of New Delhi’s relationship with Kashmir changes the basic structure of the Indian constitution. An opposition in disarray is unlikely to mount a serious political challenge, especially with several parties flirting with Hindu politics themselves.

So far, no country except Pakistan has criticised India. Islamabad has threatened it “will exercise all possible options to counter [India’s] illegal steps”. However, Islamabad long ago took its own illegal steps in the part of Kashmir that it controls, designating Gilgit-Baltistan (which it called the Northern Areas) a federally administered area. 

Pakistan has long sought to internationalise the Kashmir issue, but there will be introspection in Islamabad about whether its latest ploy – in which Prime Minister Imran Khan got President Donald Trump to offer to mediate the dispute – caused New Delhi to move quicker on eliminating Kashmir’s special status.

Indians have always held up Kashmir’s accession as a repudiation of the two-nation theory, based on which Pakistan was carved out of India’s Muslim-majority areas. The two-nation theory viewed Hindus and Muslims as two distinct nations, holding that a Muslim minority could never be safe in a Hindu-majority India. 

India, however, holds that religion cannot be an organising principle, and the secure existence of Muslim-majority J&K in India validates the country’s cherished secularism. After bulldozing down the special protections guaranteed to J&K, New Delhi will find that argument a little harder to make.