Friday, 29 February 2008

Defence budget: Rs 4200 crores lapse unspent

The allocation for India’s defence budget has been raised by exactly 10% this year, from Rs 96,000 crores to Rs 1,05,600 crores. This is a landmark, with the defence budget crossing the one lakh crore rupee mark. In dollar terms, the budget is a healthy US $26.7 billion dollars.

But there’s a dark side. The Demands for Grants in the Annual Budget for 2008-09, presented today in parliament, reveal that the Ministry of Defence (MoD) has once again failed to spend a large part of the Capital Budget, the allocation for purchase of new equipment for the military.

Against last year’s capital outlay of Rs 41,922 crores, the revised estimates presented today are just Rs 37,705. That means that the government has left Rs 4217 crores unspent in 2007-08.

That means that a cumulative amount of Rs 22,517 crores have been left unspent since 2002. The amounts that have lapsed unspent in the five years preceding 2007-08 are:

2002-03 : Rs 9000 crores
2003-04 : Rs 5000 crores
2004-05 : Nil
2005-06 : Rs 1300 crores
2006-07 : Rs 3000 crores

The revenue expenditure, itemised service-wise, for last year and this is:

1. Army:

(a) Allotted in 2007-08 : Rs 35,194.26 crores
(b) Spent in 2007-08     : Rs 35,426.48 crores
(c) Allotted in 2008-09 : Rs 37,678.25 crores

2. Navy:

(a) Allotted in 2007-08 : Rs 7050.11 crores
(b) Spent in 2007-08      : Rs 7174.05 crores
(c) Allotted in 2008-09 : Rs 7503.05 crores

3. Air Force:

(a) Allotted in 2007-08 : Rs 10,430.36 crores
(b) Spent in 2007-08     : Rs 10,728.97 crores
(c) Allotted in 2008-09 : Rs 11,288.86 crores


(a) Allotted in 2007-08 : Rs 3202.47 crores
(b) Spent in 2007-08      : Rs 3226.06 crores
(c) Allotted in 2008-09 : Rs 3413.59 crores

And finally, as an aside, the allocation for pensions this year (which is not a part of the defence budget, i.e. it is over and above the Rs 1,05,600 crores) is marginally up from 15,244 crores in 2007-08 to Rs 15,564 crores in 2008-09.

Thursday, 28 February 2008

HAL looks beyond offsets to grow

(Photos by Ajai Shukla: The Hawk production line; the first three Hawks being assembled in HAL, Bangalore)

by Ajai Shukla
Business Standard: 28th February 08
HAL, Bangalore

On 23rd February 08, the Indian Air Force (IAF) formally inducted into service its new Hawk 132 Advanced Jet Trainer (AJT) at Bidar, near Hyderabad. And Hindustan Aeronautics Limited (HAL) will soon follow up with another Hawk landmark. In early March 2008 it will deliver to the IAF the first Hawk trainer built in India. Two more will follow at one-month intervals

The Hawk production line in HAL Bangalore is a hive of activity with engineers from BaE Systems, the maker of the Hawk, overseeing construction of the first three Hawks being built in India. This involves assembling 11,000 components , which have come here in numbered plastic packets from the BaE Systems plant in Brough, Yorkshire, UK.

An ingenious double-level platform allows engineers to work simultaneously on the cockpit and controls at the upper level, and on the engine and undercarriage at the lower level. Despite that, each Hawk jigsaw puzzle takes six months to put together. Future AJTs will progressively be manufactured here; once manufacture begins, it will take ten months to build a Hawk.

The Hawk contract stipulated the supply by BaE Systems of 24 fully built AJTs; another 42 were to be built in India. Now, the IAF is about to order another 40 Hawks from HAL Bangalore; the Indian Navy will buy 17 more. HAL will be responsible for the maintenance and overhaul of these 123 Hawks and possibly of Hawks in service with the air forces of Malaysia, Indonesia, South Korea and the gulf countries.

The Hawk is only one of the production lines churning out aircraft from HAL Bangalore. Also working full steam is the Dhruv Advanced Light Helicopter (ALH) unit, which has already delivered 74 ALHs; the Jaguar unit is coming to the end of a production run of 67 fighters; a production run of 20 Light Combat Aircraft (LCA) has begun. In addition, a production line in HAL’s Koraput facility is producing the Su-30MKI aircraft.

This bank of facilities and experience has brought several global aircraft majors into talks with HAL for offsets partnerships. Successful bidders for Indian defence contracts must implement offset requirements worth 30% or more of the value of every contract they win. While HAL would benefit from partnering these foreign companies, new offsets orders are not an immediate priority. Besides the ongoing production, HAL will have its hands full in developing and producing the experimental Light Combat Helicopter (LCH), the Intermediate Jet Trainer (IJT) and the Indo-Russian Medium Transport Aircraft and Fifth Generation Fighter Aircraft.

Chairman, Mr Ashok Baweja, explains, “My focus is to do these jobs correctly on time… We have Rs 50,000 crores worth of orders over the next few years. How to produce them in large numbers, continue to make improvements, upgrade the existing (IAF fighter) fleets… all this is really very difficult.”

With HAL’s long-delayed Light Combat Aircraft (LCA) project overcoming hurdles with the help of consultancies with international companies, HAL’s next flagship project will be the development of the Fifth Generation Fighter Aircraft (FGFA) in a joint venture with Sukhoi of Russia.

Ashok Baweja pours cold water on widespread expectations that the FGFA could be flying in the IAF by 2014. He explains, “We have only signed an Inter-governmental Agreement which agrees to cooperate in developing the FGFA. Now from that will flow the Project Report, General Contract, the structure of the company that will be set up, and where the funding will come from. An aircraft design, development, certification, the complete entity with its power plant, systems, weapons, trials, is a process which takes 15 years to be completed.”

Wednesday, 27 February 2008

Tejas LCA to get high-tech AESA radar

Dateline: HAL, Bangalore
Business Standard
27th Feb 2008

(Photo: Ajai Shukla: The first Tejas painted in IAF grey)

The Bangalore sunlight streams into the hangar at Hindustan Aeronautics Limited (HAL), lighting up the first Tejas fighter aircraft to be painted in air force grey. But even more striking than the new look of India’s experimental Light Combat Aircraft (LCA) is the upbeat mood amongst the LCA’s designers who spoke to Business Standard during two days of unfettered access to HAL’s flagship project.

After more than two decades of technology denial regimes that slowed the LCA project, HAL has now tapped international assistance. Key technological hurdles --- including the fighter’s engine, flying performance and radar --- will now be overcome by design consultancies with global aerospace majors. Top HAL executives list these out: French engine-maker Snecma, and Russian major NPO Saturn will assist with the LCA’s troubled Kaveri engine; BaE Systems and Eurofighter GmbH have been approached for the LCA’s flight systems. And on Monday, European Aeronautic Defence and Space Company (EADS) announced in Delhi that it has submitted a proposal to HAL to cooperate in equipping the LCA with a state-of-the-art AESA radar. 

An LCA equipped with the AESA (Active Electronically Scanned Array) radar will have a greatly enhanced ability to detect and engage enemy targets. The AESA radar is simpler, more rugged, more versatile, and has a longer range than conventional aircraft radars.

Olivier Travert, Vice President, EADS Defence and Security says, “EADS has checked and confirmed that the AESA radar can be fitted on India’s LCA. It will be a customised version of the AESA radar that is fitted on the Eurofighter. We will submit our bids to HAL soon.”

HAL’s decision to go in for international design consultancies stems from two major changes. Firstly, technology sanctions on Indian defence manufacturers are now restricted to a handful of crucial technologies; the cutthroat competition for the Indian market means that even those sanctions are difficult to sustain. The second major shift is in HAL’s earlier go-it-alone outlook, to a more confident participation in a globally interconnected aerospace industry. 

HAL Chairman, Ashok Baweja told Business Standard, “There are aspects of the LCA in which there are certain knowledge gaps. We are developing an aircraft of this type and profile and complexity for the first time. Earlier we only built (less sophisticated) aircraft like Kirans and HF-24. So if there is a gap in knowledge, we can take a consultancy, what is wrong with that?”

To allow itself more development time, HAL has revised its target date for getting “Initial Operational Clearance” for the LCA from 2008 to December 2010. Mr Baweja is confident the LCA can make 25-30 flights each month, which is needed to successfully meet this deadline.

Back near the runway, Vishwanath Rao, Assistant General Manager, Flight Hangar explains this painstaking process. Over 3200 individual parameters must be checked, while flying the LCA. Each test flight specifically checks one or more of these parameters. For example, while checking the instruments of an LCA, it flies alongside another calibrated aircraft and matches its instrument readings with that aircraft. When each of the 3200 parameters has been checked, one by one, over thousands of flights, Initial Operational Clearance is accorded.

Mr Rao says, “to cover so many points, we need more aircraft; HAL is producing eight more LCAs, which will be called the Limited Series Production (LSP) aircraft. And the Indian Air Force has also ordered 20 “series production” aircraft, which will actually be introduced into service. Metal cutting has already begun on those.”

The Tejas LCA has a tough schedule in 2008. Last year’s sea level trials, at Arakonam in Kerala, will be followed by cold weather trials at Leh and hot weather trials at Jaisalmer in summer. The LCA’s bombing capability will also be checked out this year. 

Tuesday, 26 February 2008

Selling BMWs to farmers

Published in Business Standard
26th February 2008

By the 6th of March, six global aircraft majors --- Boeing, Lockheed Martin, Dassault, Eurofighter GmbH, Gripen International and RAC-MiG --- must submit offers for selling India 126 Medium Multi-Role Combat Aircraft (MMRCA). Worth an estimated $11 billion, this could be one of the biggest arms sales ever. For Indian defence planning, it would be the most expensive folly ever.

In acquiring yet another type of fighter aircraft, the Indian Air Force (IAF) will compound an existing problem of interoperability. There are major differences between Russian block equipment (the MiG series, and the Sukhoi-30MKI) and Western bloc equipment (the Mirage-2000 and the Jaguar). As a result, each IAF airbase is geared to support a certain type of aircraft; other types cannot just fly in and operate from there without major logistic preparations.

Consider an imaginary war with Pakistan. If India were launching a ground offensive, say around Lahore, the IAF would support that thrust with as many combat aircraft as possible. It would need to bomb Pakistani airbases to prevent the Pakistan Air Force from taking off; it would strike Pakistani ground forces and the infrastructure that supports them; it would also perform other missions like photoreconnaissance. Since the airbases around Lahore have just a small number of aircraft, fighters based in Rajasthan, Maharashtra, Madhya Pradesh and the eastern sector will need to be re-located to Punjab, just before the battle begins.

That is where the problem begins. A Mirage 2000 cannot easily relocate from its permanent base in Gwalior to an airbase in, say, Pathankote. The Pathankote airbase supports Mig-series aircraft; its maintenance personnel, spare parts inventory, stocks of bombs and rockets and operational practices are geared towards MiGs. Today, if a Mirage 2000 were to land in Pathankote, it would require an entire support team from Gwalior to make it take off again. In wartime, relocating a squadron of Mirage-2000s would be a major logistical exercise and a clear signal to Pakistan of an impending attack.

This problem is already set to worsen when India’s Light Combat Aircraft (LCA), called the Tejas, enters service with the IAF. Purchasing a new MMRCA will invite a full-blown logistic nightmare. 

Besides the need for inter-base operability, there is another good reason to abandon the MMRCA purchase: today’s IAF simply cannot exploit the capabilities of the aircraft it is setting out to buy. The technological excellence of a modern MMRCA, like the Eurofighter or the Rafale, does not lie in its airframe, engines, or its flying performance. Instead, its advantages lie in avionics, and in its net-centric capability, which means that the aircraft and its pilot are seamlessly integrated into an electronic battlefield management system. This system receives inputs --- in real time --- from a comprehensive network of radars, airborne warning systems and satellites; and it displays these inputs in the form of a battlefield picture. The controllers then allocate targets to Indian fire units, which could be fighter aircraft, cruise missiles, ballistic missiles or even army rocket batteries. Air forces like the American, British and French can electronically assign a target to an airborne fighter and automatically upload a digital map of the target area.

India is far from such a network. Our radars operate in small clumps, our data links are not in place, and our airspace management network is inferior even to Pakistan’s. Many of our key systems work on incompatible protocols. An economically resurgent India can afford to buy the MMRCA. But doing so would be like a farmer with a bumper crop busting his money on a BMW with a city navigation system and great FM stereo. He wouldn’t use most of the high-tech systems. 

So what is India’s smarter alternative? The path is illuminated by an earlier IAF procurement, the carefully structured Sukhoi-30MKI fighter. Instead of accepting a ready-built Russian aircraft for fancy prices, the IAF creatively married Sukhoi’s airframe and engine excellence, with an advanced avionics package made from Israeli and French components. The Sukhoi-30MKI’s avionics were tailor-made for IAF requirements; India did not pay fancy prices for capabilities that would never be used. The Sukhoi experience was further refined when the IAF went about upgrading the MiG series fighters; advanced avionics will extend their service lives at minimal cost.

India must stick with a medium fighter that it already flies. The IAF has long pressed for increasing the size of its Mirage 2000 fleet (currently 52 aircraft), a fighter that its pilots hold in high regard. An advanced variant of the Mirage 2000 was one of the options in the MMRCA purchase until Paris replaced it with the newer, more expensive Rafale fighter, informing New Delhi that the Mirage 2000 production line was being wound up. An opportunity lies here for India; Paris would most likely grab the chance to sell India the Mirage 2000 production line, and benefit from production royalties and the opportunity to involve French avionics companies like Thales and Thomson CSF in developing an aviation package customised for India. France realises that American and Russian marketing clout in New Delhi leaves it with little chance of selling the Rafale.

Today, no official or politician is willing to tell the Indian public the unpalatable truth that the IAF is not technologically geared to operate highly networked fighter aircraft. Instead, it is more convenient to make grandiose declarations about providing the military with the world’s best equipment and then stonewalling the purchase with layers of procedures. Opting for a near-state-of-the-art, made-in-India Mirage 2000 variant requires not just a fine understanding of defence planning but also the courage to make and publicly defend a subjective military decision. Neither quality has been in evidence in the MoD so far.

Saturday, 23 February 2008

Is China nibbling at the border?

This blog has previously discussed China's intentions on the Line of Actual Control (LoAC), which forms the actual boundary between the Indian Army and the People's Liberation Army of China. The LoAC is not to be confused with the International Boundary... it is an unsettled border, like the Line of Control (LoC) between Pakistan and India in J&K.

There's also a Line of Opinion (LoO) in this blog, which separates those who believe that China is taking an increasingly provocative stance over territories that it claims... and on the other side of the LoO are those (like myself) who believe that China is only repeating what it has always claimed: that Arunachal Pradesh and Aksai China are parts of the Tibet Autonomous Region (TAR), which India has admitted since 1953 is a part of China. I have also argued that the so-called "intrusions" by Chinese troops are nothing more than a difference of perception on where the LoAC runs and who controls what. I've argued that Indian troops frequently patrol areas that China claims are on its side of the LoAC.

Now, the Chief of Army Staff, General Deepak Kapoor, seems to have come down on my side of the LoO. I am attaching an account of his interview with Karan Thapar on Devil's Advocate yesterday.

New Delhi, Feb 23 (PTI) Incursions by Chinese troops in Arunachal are a result of difference of "perception" of Line of Actual Control (LOAC), Army Chief Gen Deepak Kapoor has said and that Indian troops also indulge in moves that could be seen as intrusion by the other side.

He, however, said border infrastructure on Chinese side was better than that of India, giving them an "additional capability to bring additional troops", and the government here is "seriously looking into" this aspect.

"I think a degree of misperception has been built on this issue of incursions.. first and foremost, it is a matter of perception. The Chinese have a different perception of the Line of Actual Control (LOAC) as do we. When they come up to their perception, we call it an incursion and likewise they do," Kapoor said in Karan Thapar's 'Devil's Advocate' programme for CNN-IBN.

He said the level of total number of incursions in 2007 is "somewhat similar to what it has been in the past. So, the feeling that too many incursions have taken place into Indian territory is not right."

Asked whether Indian troops also incur into Chinese territory as often because of differences of perception about LOAC, the army chief replied: "that's right.. which they would call an incursion into their side. So, therefore, to that extent, we would be as much blameworthy for that kind of
incursion up to our perceived LOAC."

So what the Chief is saying is "don't be too worried about panicky press reports about China taking over Indian territory." 1962 was a long time ago and the Indian Army is more than capable of beating back any Chinese attack, if one takes place, which does not seem likely at all. The 1993 and 1996 agreements on CBMs and Peace and Tranquillity on the Border are working perfectly and life on the LoAC is a generally peaceful affair.

That having been said, India's foreign ministry has also noted a clear shift in global geo-politics, one that has worked to China's advantage and to India's disadvantage. Until 2005, the future contours of Great Power rivalry seemed to be woven around the rise of China and its seemingly inevitable challenge to the current US dominance. In that scenario, India was poised to be the countervailing power, the swing state which could tip the balance in favour of either China or the US.

All that changed in 2005, with Putin's open challenge to American dominance. Over the last two years, Russia has replaced China as the second pole of future Great Power rivalry. And guess who's replaced India as the countervailing power? That's right... it's 1972 all over again; America has rediscovered China! That's why, over the last year, you have seen an entirely benevolent American view of China's military build up. Robert Gates is singing a very different tune from Donald Rumsfeld, and that's not because of the personalities involved. It's because China could be a future ally.

India hasn't helped its case by rejecting the US-India nuclear deal and by the plethora of anti-US statements that comes out from the Left Front. This is not, by a long margin, to say that US-India relations are no longer important in Washington's perspective. But, for sure, things have changed since Condy Rice wrote her Foreign Affairs article identifying India as the next big thing for America.

So don't be surprised to see China adopt a harder attitude towards India. In 2005, with India-US relations at their peak, Wen Jiabao signed a set of "political principles" that would guide an eventual border settlement. In that, Beijing effectively signed away Tawang, by agreeing that "settled populations" would not be disturbed in a final settlement. Today, China is back-peddling from that. The US-India relationship has changed since 2005; Beijing no longer feels pressured to keep India happy. That's realpolitik.

But folks, please! That doesn't mean that China is about to grab Arunachal. The Army Chief's statement should make that clear.

Tuesday, 19 February 2008

Army LSV trials: Mahindra Axe

And here is the Mahindra Axe in summer trials in Rajasthan. Those of you reaching for your wallets, hold it! The vehicle is non-homologated, which means that it is not licensed to run on roads... and it costs a packet.

The vehicle has a 2700 cc Ssangyong engine, which generates 173 BHP at 4000 rpm and a healthy 340 NM of torque at 1800 rpm.

It's got a fully independent suspension on all four wheels and comes in a petrol variant as well.

Winter trials for the army's Light Support Vehicles

Here's a family photograph of the vehicles that are competing for the army's requirement of 228 Light Support Vehicles (LSV). These are for the Reconnaissance Platoons of the mechanised infantry battalions.

The photograph is from the recently held winter trials in Ladakh. Gives one a feel of the conditions in which trials are held.

The vehicles in the line-up are (left to right): The Mahindra Axe, the Vectra LSV, the Flyer being fielded by the Ordnance Factory Board (OFB), and the Tata LSV. From what I hear, the Mahindra Axe is the best-performing vehicle in the trials, but it is unlikely to win because of the L-1 system. 

That basically means that the cheapest vehicle which meets the GSQR will win the contract, even if there are more capable vehicles in the fray. The Axe is far more capable, but that also makes it more expensive. The Tatas, the Vectra and Ashok Leyland have produced low-capability but cheap vehicles that might just pass the trials, but which certainly will cost less than the Axe.

Defexpo 2008: RG 31 Mine Protected Vehicle

Here are some pictures of the best selling RG 31 Mine Protected Vehicle (MPV) from South African company OMC, which is now a part of BAE Systems. Mahindra Defence Systems has signed an MoU with OMC to produce these for the Indian Army.

There is no RFP out for this vehicle. The army makes do with a handful of Casspir MPVs and another handful produced by Ordnance Factory, Medak. A vehicle like the RG 31 would make life considerably easier, and less dangerous, for the hundreds of Road Opening Patrols (ROPs) which fan out across J&K every morning, physically checking for IEDs.

Monday, 18 February 2008

Defexpo hobbled

Editorial: Business Standard
18th Feb 2008

There is nothing pretty in the spectacle of wealthy global defence suppliers urging developing countries to spend on exorbitantly priced weaponry, but that is what India’s premier defence exhibition, Defexpo India 08, is all about. Behind the glitzy displays, the glossy handouts emblazoned with names like Lockheed Martin and Rosoboronexport, and the easy talk about “strategic partnership” and “spreading insecurity”, is India’s failure to identify its defence needs and build up the capability to meet them cheaply and indigenously. Without a carefully debated long-term procurement vision, a process for identifying and developing key technologies, and a plan for marrying the capabilities of India’s defence public sector with the dynamism of private enterprise, the government has created a happy playground for international arms majors. 

Despite that, Defexpo India 08 echoes with complaints from both international and Indian exhibitors. They complain that the government has undermined the very purpose of a defence exhibition --- which is to put buyers in direct touch with sellers --- by failing to announce the new defence procurement and offsets rules that it has promised for over a year now. A clear set of rules are essential for substantive business to be transacted, and for a slew of non-binding MoUs between Indian and global defence companies to be translated into actual contracts. 

Instead of clearing the decks for such business by announcing policy changes at the high profile platform of Defexpo India 08, Mr AK Antony merely repeated his promise to announce the changes in April. Exasperated exhibitors --- both foreign and Indian --- are wondering aloud why Defexpo wasn’t postponed to April then. The government’s delay stems from fundamental flaws in its approach to equipping the military. South Block’s procurement philosophy rests on laying down a set of rules, which bind the military and the bureaucracy in purchasing new equipment. While good rules are useful, especially in guiding civil servants with inadequate background in defence and security, the search for watertight regulations not just delays, but often derails defence planning. Equipment procurement is an inherently subjective process, which cannot be reduced to merely buying the world’s best piece of kit from the vendor who quotes lowest. Procurement is an inherently subjective process; complicated by issues like time sensitivity, threat scenarios, equipment compatibility, and vendor reliability. Identifying the world’s best equipment is seldom important in defence planning; far more important is the subjective judgement of what is sufficient for one’s own needs. 

But that seems far beyond India’s Ministry of Defence (MoD). At an opening-day seminar at the Defexpo, the MoD had no answers to exhibitors’ requests for clarifications on taxation and policy issues. Instead a series of senior MoD officials lingered over the 2001 opening of defence production to the private sector and the Defence Procurement Policy of 2006, which is about to be superseded. 

But despite frustration over the MoD’s lack of clarity, the global defence industry has arrived in record numbers. A seminar speaker from the British MoD summed up the Defexpo: India needs global technology; and the global defence majors need India’s market.

Sunday, 17 February 2008

Photos from Defexpo India 08 : Akash Missile

Akash missile on display at the Defexpo 2008 with one of its prime architects, Dr Prahlada

Saturday, 16 February 2008

Pictures from Defexpo 08: Nag Missile

This was my first view of the Nag missile... other than the test firing videos that I ran on my story on NDTV in January.

Note the BMP-2 based Nag Missile Carrier... the NAMICA.


PREVIEW DEFEXPO 2008: Offsets provide a new momentum

Business Standard,
16th February 08

The sheer spending power of India’s Ministry of Defence (MoD) --- Rs 300,000 crores or US $75 billion over the next five years --- would be enough to attract global arms corporations to any defence exhibition held in this country. But this week, an additional factor will be packing in the international majors at Defexpo India 2008: the need to quickly conform to the MoD’s offsets policy, which was announced in September 2006. 

The offsets policy, spelt out in the Defence Procurement Policy of 2006 (DPP-2006) stipulates that any defence contract worth more than Rs 300 crores (US $73 million) will trigger a “direct offset liability” of 30%, making the vendor responsible for sourcing from India, defence equipment or services worth at least 30% of the contract value. Any vendor bidding Rs 300 crores or more for a defence contract must also submit an “offsets proposal”, elaborating how the vendor proposes to meet his 30% offsets liability. This offsets obligation has set off, amongst foreign arms vendors, an almost frenetic search for Indian companies they can partner; this search will enliven the coming exhibition.

The sums involved are astronomical, which means that each foreign vendor will need multiple Indian partners to meet offsets obligations. The MoD estimates that offsets will generate approximately Rs 40,000 crores (US $10 billion) worth of business for India’s defence industry over the next five years. Just one forthcoming purchase, the acquisition of 126 Multi-Role Combat Aircraft (MRCA) for about Rs 42,000 crores, will generate offsets worth Rs 12,600 crores. Other purchases in the pipeline include artillery guns for over Rs 10,000 crores, 317 light utility helicopters for Rs 4000 crores, 12 VIP transportation helicopters for Rs 1000 crores, mid-life upgrades for 52 Mirage-2000 fighters for Rs 8000 crores, and 12 heavy lift helicopters for Rs 2500 crores. The Indian Navy is shopping for up to 30 Long Range Maritime Patrol (LRMP) aircraft, and 16 Anti-Submarine Warfare (ASW) helicopters to replace its antiquated Sea King fleet. 

To meet offsets liabilities that will arise from these purchases, prospective vendors signed a plethora of Memoranda of Understanding (MoUs) with Indian companies during the Aero India 2007 exhibition in Bangalore last February. At Defexpo 2008, there will be negotiations to translate those MoUs into actual production. While DPSUs like Hindustan Aeronautics Limited (HAL), the only integrated aircraft producer in India, will be major beneficiaries of offsets business, foreign producers are keen on partnerships with private sector companies, which they feel would be more flexible and responsive. 

But the process of forming partnerships faces a policy black hole, with the MoD promising, but not yet delivering, on important amendments to the offsets policy. MoD officials have privately assured vendors that the MoD will permit “offsets banking”. This would allow vendors to go ahead with setting up partnerships with Indian companies, with the assurance that offsets generated would be credited towards future defence contracts. The MoD has also promised that it will allow foreign vendors to credit technology transfers to Indian manufacturers as offsets. But on both these issues, a formal announcement is still awaited.

The delay, say top MoD officials, stems from Defence Minister AK Antony’s reluctance to announce piecemeal changes to the Defence Offsets Policy, which was formalised just a year and a half ago. The MoD has indicated over the last year that the policy changes will be announced before 31st March 2008. Officials within the MoD say that it will not happen before that date; it may take even longer. 

The MoD is still to establish a fully-equipped department which can handle the enormous workload that will arise from offsets. Presently a small cell, called the Defence Offsets Facilitation Agency (DOFA), under a joint secretary, grapples with the formidable task of policymaking, evaluating offsets proposals, and liaison with foreign vendors and Indian defence manufacturers. Once offsets partnerships are up and running, DOFA will also have to keep account of the fulfilment of offsets obligations, function as an “offsets bank” to keep a track of offsets that can be carried forward, and to interpret policy and provide clarifications.

DOFA, in its present form, would be overwhelmed by this workload. The MoD is considering transforming DOFA into an expanded, multiple-agency Defence Offsets Management Agency (DOMA), which will be equipped with the policy managers, legal personnel, accountants, and the technology and production specialists that will be required for handling the entire gamut of offsets. But there is reluctance within the MoD to move quickly towards establishing a large and powerful agency like DOMA, when the offsets policy itself is in a preliminary stage. An influential stream of opinion within the MoD would like to wait and see whether the offsets policy is even viable; they would rather see DOFA continuing in its present form until offsets are successfully implemented. But putting off the expansion of DOFA for a year will only reduce the MoD’s ability to get offsets up and running.

The evolution of offsets policy and the constitution of DOMA are being watched keenly by foreign vendors, as well as by private Indian defence industry. The private sector, in fact, has lobbied actively for a role in DOMA; the MoD has refused that request. But with so much money at stake, global defence industry has its eyes focused on the MoD, waiting for the policy announcements that could open the floodgates for offsets.

PREVIEW DEFEXPO 2008: Private sector eyes the defence pie

Business Standard
16th February 08

Defexpo India 2008 --- the fifth exhibition in a series that began in 1999 --- may be the first one where India’s private sector makes a serious splash with the delegates. For six decades, private companies have played a subordinate role in defence production, functioning mainly as ancillary suppliers to India’s 39 Ordnance Factories (OFs) and eight Defence Public Sector Undertakings (DPSUs). Defence production was opened up to the private sector as far back as 2001, but the enabling regulations and policy changes have evolved slowly, in fits and starts. But a critical mass may have been reached, and private companies now sense the opportunity to seize a larger share of the pie from the slower-moving public sector behemoths. 

This jump-off point has been slow in coming; the watershed notification of 2001, allowing the private sector (subject to a cap of 26% on foreign holding) to apply for licences for defence production, did not exactly set off a riot. While the government has issued 73 Letters of Intent to private players since then, only a handful have actually manufactured anything. Private companies complain that liberalisation has been largely cosmetic; the public sector, with its institutional and financial linkages with the Ministry of Defence (MoD), continues to enjoy significant advantages in defence production. Their manufacturing facilities have been set up at government expense, MoD-controlled pricing assures them profits in a protected market, and they enjoy a 10% advantage when tenders are evaluated. With senior MoD officials sitting on their boards, the playing field is, indeed, tilted in favour of the public sector.

Industry bodies, like the CII, FICCI and Assocham, have lobbied strenuously to remove, or at least reduce, this bias. The stakes are enormous for the private sector, especially in domestic defence procurement: away from the media limelight on “foreign arms deals”, indigenous defence manufacture accounts for 77% of India’s defence procurement (Rs 25,647 crores in 2006-07, out of the total procurement budget of Rs 33,356 crores). The Kelkar Committee, set up in 2004 to recommend ways of strengthening self-reliance in defence preparedness, submitted a path breaking report in 2005, which focused on bringing reliable private sector companies into defence production, and synergising their skills with the existing public sector establishment.

The most important of Kelkar’s reforms were promulgated in September 2006, in the Defence Procurement Procedure of 2006 (DPP-2006), the current bible of defence production. The new manual explicitly answers the key commercial question that holds back the private sector from costly defence R&D and production: “Who will bankroll the development of high-tech products when there is no guarantee that the defence services will even accept them into service?” 

DPP-2006 specifically mandates that the government will share R&D costs; senior MoD officials have clarified to this newspaper that the MoD would pay as much as 80% of R&D costs for projects that it identifies. DPP-2006 also undertakes that the MoD will place a minimum order on private manufacturers to amortise the cost of R&D and production. The Kelkar Committee suggested that a set of technologically and financially excellent private companies be identified (he termed them Raksha Utpadan Ratnas, or RuRs), which would be eligible for R&D partnerships, and for manufacturing the equipment that they develop. DPP-2006 would be an extraordinarily progressive document if the government were to follow it in letter and in spirit.

But the government does not. Instead, the process has been stalled by trade union pressure. The Probir Sengupta Committee, set up in May 2006 to evaluate which private companies should be nominated as RuRs, recommended some 15-20 companies in June 2007. But the MoD was blocked from promulgating the RuRs by public sector trade unions, which apprehend that the entry of the private sector would close down public sector plants. The Defence Minister has publicly assuaged trade union fears, pointing out that defence production offers enough space for both the public and private sectors. But trade union pressure continues, reinforced by the Left Front political parties; eight months after receiving the Probir Sengupta report, the MoD remains silent on RuRs.

In this policy paralysis, aspiring RuRs like L&T, Tata Power, and the Mahindra Group remain in limbo, ineligible for R&D funding and customs exemptions, and unable to compete with the public sector units on equal terms. Unwilling to commit major funds into developing major weapon systems, private companies have strengthened their role as ancillary suppliers to the DPSUs and OFs. If there is a trend today in defence production, it is for the government-funded public sector to function as R&D centres and “platform integrators”, which design and assemble the final product from sub-assemblies that are increasingly manufactured by the private sector. DPSUs and OFs located around Bangalore, Hyderabad, Pune and Chennai, have spawned hundreds of small, medium and large private companies, which are manufacturing increasingly complex components and assemblies, and looking for opportunities to expand their roles.

Some 250 such private companies will constitute the bulk of the Indian exhibitors in Defexpo India 2008. They will be looking for additional manufacturing orders from the DPSUs and OFs, as well as for tie-ups with foreign defence majors, some 200 of which will be exploring opportunities for local tie-ups as a foot in the door of the Indian defence market. With some Rs 300,000 crores (US $75 billion) worth of defence purchases likely to be made by India’s MoD over the next five years, Pragati Maidan will witness brisk business between 16th-19th February.

Friday, 15 February 2008

China’s ghost hovers over naval symposium

by Ajai Shukla
An extract from this piece was published in the Business Standard, on 18th Feb 2008

“This is the first new and significant international cooperative construct of the 21st Century”, said India’s naval chief, Admiral Sureesh Mehta, kicking off the three-day Indian Ocean Naval Symposium (IONS) on Thursday in New Delhi. Attended by 26 naval chiefs from countries bordering the Indian Ocean (or the littoral countries, as the technical term goes), China is conspicuous by its absence; the Indian Navy points out that the Indian Ocean does not wash China’s shores.

But Beijing’s presence hangs over this gathering and its feelings are being carefully assuaged. The Prime Minister who inaugurated IONS, and the Defence Minister who spoke after him, carefully pointed out that IONS is not a military pact where a set of nations is joining forces against another; instead, it brought together multiple states to fight against forces like terrorism, piracy and natural disasters.

As the naval chief elaborated, “NATO and the Warsaw Pact were competitive constructs that pitted combinations of nation-states against one another. The changed realities of our present time provides both strategic and intellectual space for other forms of collective groupings of states that are arrayed not against one another, but against security challenges and threats that are common to all.”

Despite the soothing rhetoric, India is pushing to give IONS a more tangible form. Inaugurating the seminar, Prime Minister Manmohan Singh urged the gathering of naval chiefs to “develop a comprehensive cooperative framework of maritime security.” On the 15th and 16th of February, a Naval Chiefs’ Conclave is discussing a “working charter”, which India had earlier sent the participating countries. The draft charter sets out clear procedures for coordinated action against piracy, maritime terrorism, the security of maritime trade routes, and natural disasters. Senior naval officers admit that no substantive “joint statement” is likely anytime soon, but they expect discussions on a draft charter to give India a leadership role.

While India insists this is not a shot across China’s bows, other regional powers like Australia are wary of multilateral groupings like IONS for fear of offending Beijing. Australia’s new Labour government, which won power in November 2007, is committed to stronger strategic ties with India, but on a one-to-one basis rather than as a part of a strategic grouping, which China could see as threatening. On the 5th of February, Australia told China it was withdrawing from the Quadrilateral --- Japan, the US, India and Australia --- which the US and Japan had pushed vigorously as a “Concert of Asian Democracies”. China was not amused when the Quadrilateral held joint exercises in September 2007; Beijing sent a demarche to all four capitals asking them the purpose of the grouping.

Former foreign secretary, Kanwal Sibal, speaking at the seminar on Thursday, pointed out that serious conflicts within the region, and its political and cultural diversity stand in the way of an Indian Ocean grouping. That became quickly evident during the seminar, when a Saudi Arabian delegate challenged an Australian speaker on his characterisation of Hamas and Hezbollah as terrorist groups. Indonesia’s delegates also made clear that country’s long-standing suspicions of India’s naval build up. And Pakistan, despite an invitation to send a delegation to IONS, was represented only by High Commission officials.

Despite the difficulties, the Prime Minister’s Office is strongly backing the IONS initiative. Officials from the PMO point out the need to break away from the traditional “Delhi-centric” view of security, which has traditionally focused on the China and Pakistan land threats. Instead, say these officials, the focus should be on securing India’s maritime interests and on strengthening the country’s warship building programme, which has been neglected for long. 

Amidst India’s carefully calibrated diplomacy at IONS, Defence Minister AK Antony’s speech struck an incongruous note, seemingly dismissive of extra-regional powers, even while India continued with its “quadrilateral” partnership with the US and Japan. Mr Antony declared, “I would like to exhort all present and future members of the 'IONS Initiative' to resist the temptation of trying either to provide a prescriptive set of answers to a prescribed set of problems or challenges. I would caution them against seeking to import extra-regional template. I would, instead, ask them to tap the huge intellectual and innovative resources available within the IOR littoral.” Sources in the Prime Minister’s Office wondered aloud about who wrote Mr Antony’s speech, and what he was driving at.

Over the years, states of the Indian Ocean region have been too weak, divided and insecure to launch any multilateral security initiatives. Instead, smaller multilateral economic initiatives like ASEAN, SAARC and BIMST-EC have proved far less contentious. The only functional security grouping, the ASEAN Regional Forum, has required the presence of major extra-regional powers, like the US, to acquire stability. To that extent, IONS is an ambitious new initiative in the Indian Ocean.

The Indian Ocean extends from the Red Sea and the African Coast in the West, to the Malacca Straits in the East, and from Antarctica in the South, to the Asian underbelly in the North. It extends across 28 million square kilometres, has 65% of the world’s energy resources in the Gulf region, and carries 40% of the world’s oil flows. It has two major choke points --- the Straits of Hormuz in the East, and the Malacca Straits in the West. At its narrowest point, the Malacca Straits are just two miles wide. Some 16,000 major tankers and bulk carriers pass through the Malacca Straits each year.

Thursday, 14 February 2008

Indian Ocean Naval Symposium (IONS)

I attended the Indian Ocean Naval Symposium today at New Delhi. It was enormously interesting and geo-politically significant. Do log in for a full report on IONS, and its strategic implications tomorrow.

Bye for now!

Tuesday, 12 February 2008

Defexpo 2008: no announcements on offsets

Business Standard
12th February 08

Foreign arms majors who will be coming to Delhi for India’s major biennial defence exhibition --- Defexpo India 2008 --- are in for a disappointment. Business Standard has learned that Defence Minister AK Antony will not be availing of this international platform to announce widely expected changes to the defence offsets policy.

The changes to the current policy, spelt out in the Defence Procurement Policy of 2006 (DPP-2006), are instead likely to be spelt out on or after 1st April 2008, say senior MoD sources. Over the last six months, the MoD has verbally indicated, on several occasions, that it will include “offsets banking” and “technology transfer” in a new policy, which would be announced by the end of the financial year. With several major arms contracts in the pipeline, international vendors have been requesting for an official announcement of the new policy at the earliest.

Offsets banking will allow foreign vendors to finalise partnerships with Indian companies, and to start production, with the assurance that the business generated would be credited as offsets against future defence contracts. Allowing technology transfers would allow foreign vendors to fulfil a part of their offsets obligations by providing intellectual property to the Indian defence industry.

International arms companies say they are disappointed at the delay. Six global aerospace majors must submit, by 9th June 2008, Rs 21,000 crores worth of offsets proposals in the contract for supplying 126 Medium Multi-role Combat Aircraft (MMRCA). Lockheed Martin must also tie up offsets arrangements worth Rs 1,300 crores for the sale of six C-130J Super Hercules aircraft to India. These companies were hoping that the new policy framework would be available during Defexpo 2008, so that tie-ups could be finalised with their Indian offsets partner companies.

The MoD has also encountered a speed-bump in setting up its internal structures for handling offsets. Currently a small, inadequately manned section, the Defence Offsets Facilitation Agency (DOFA), handles issues relating to offsets. The previous Secretary of Defence Production, KP Singh, had indicated (Business Standard, 28th Dec 2007) that a new, expanded offsets agency would be set up by the end of Jan 2008. This would include departments equipped to evaluate vendors’ offsets proposals, keep a running account of banked offsets, and interpret and clarify offsets policy.

But now, senior MoD sources indicate, there is a lack of conviction in the ministry that offsets are here to stay. A number of senior officers believe that offsets will result in vendors jacking up their prices, and that the MoD may eventually backtrack on the offsets policy. These officers are arguing against setting up an expanded, high-power DOFA, with a large, multi-agency staff.

The alternatives now being considered by the MoD include placing DOFA, in a slightly augmented form, under the Director General (Acquisitions), a senior MoD officer who oversees defence procurement. Another alternative being considered is for DOFA to continue in its present form; when its workload becomes unmanageable, the structure could be reconsidered.

The MoD’s official position remains that changes in the offsets policy will be announced, in a consolidated form, as soon as decisions are finalised.

Will India again leave Afghanistan?

Business Standard
12th February 2008

Being forced out of a country by the enemy, like India was from Afghanistan in 1996, when Taliban fighters encircled Kabul, is always a foreign policy nightmare. Just twelve years on, another evacuation from Afghanistan no longer seems impossible.

On Saturday, Washington sent out a warning that reeked of mission failure. After six years of counter-terrorism operations, a senior Bush official categorically stated that the top leaders of the Taliban’s shura (council), including Mullah Omar, were living in Quetta in Pakistan; the Al Qaeda leadership, including Osama bin Laden and Ayman al-Zawahiri, said the official, are living in the North West Frontier Province (NWFP).

Washington’s frankness was not directed at Pakistan alone; it was timed with the annual Munich Conference of the 26-country North Atlantic Treaty Organisation (NATO), where the US unsuccessfully prodded reluctant NATO countries to send troops into combat in southern Afghanistan. The combined armies of NATO number more than two million men in arms, but the alliance can barely muster up 26,000 soldiers in southern Afghanistan. Other than four countries --- the US, UK, Canada and Holland --- the other NATO members are willing to send troops only to the relatively peaceful north of the country. The rift is growing bitter; on Sunday, US Defence Secretary Robert Gates called NATO’s very future into question, saying it could not continue as a two-tiered alliance of countries that fought and others that did not.

But Europe is unmoved, and the reason is two-fold. Firstly, there is the mistaken belief that global policeman, America, will continue to fight the difficult battles. And secondly, there is an understandable reluctance to get embroiled in Afghanistan, where the seemingly simple issues of relief and stabilisation have been complicated by local and regional power dynamics that outsiders simply cannot influence.

Take for example the difficult debate amongst Pakistan’s policymakers between those who see no option but to fight the Taliban in the areas bordering Afghanistan, and those who advocate making peace with them. Islamabad is caught in the cleft stick between getting into a bloody counter-insurgency war on the side of the unpopular Americans, on the one hand, or surrendering the tribal areas to self-avowed fundamentalists on the other.

Until last week, Islamabad was fighting the good fight. But on Thursday, the Pakistani Army signed a cease-fire with Taliban commander Beitullah Mehsud, the man who proudly claims to control an army of suicide bombers and who Islamabad itself blames for the murder of Benazir Bhutto.

The ceasefire has immediately de-escalated the fighting in Pakistan’s NWFP. That is good news for the Pakistan Army, but even better news for Afghan Taliban commanders who rely on safe havens on the Pakistani side of the border for manpower and provisions. The Afghan Taliban will gain strength and sustenance from this cease-fire; the cease-fire in North Waziristan in 2006 allowed them to launch their fiercest ever offensives in Afghanistan that year. These complex regional interlinkages make most European countries reluctant to risk their soldiers’ lives in such a shifting and uncertain battlefield.

Bonn and Paris have also noted that regional powers like India, with a far more direct stake in Afghanistan, have steadfastly refused to join the fight. India has committed close to three quarters of a billion dollars in the carefully considered reconstruction of that ravaged country. But NATO’s more cautious members would have noticed that India’s National Security Advisor, MK Narayanan, who addressed the Munich Conference on Sunday, spoke about the interconnect between Al Qaeda and terrorist outfits that target India --- the Lashkar-e-Toiba, the Jaish-e-Mohammad, the Harkat-ul-Jehad-e-Islami --- but not about sending troops to Afghanistan.

Today, New Delhi is already facing up to the possibility that Afghanistan could fall to the Taliban and, like in the late 1990s, it may have to close its embassy and pull Indian nationals out of that country. Senior foreign ministry officials have already begun totting up the gains and losses of the last six years in Afghanistan. One of the gains they focus on is the building of strong linkages with the Pashtun community, and even with the more moderate elements within the Taliban. New Delhi’s flow of aid has won many friends within a country that is naturally well disposed to India. But the well understood bottom-line remains: India will evacuate from Afghanistan rather than get embroiled in battle there.

Like most members of NATO, India prefers to fight terrorism at home, rather than the go-out-and-get-‘em approach that America has followed. This despite signals from extremist networks that a jehadi victory in Afghanistan would translate into a stepped up jehad in J&K. Former ISI chief, Lt General Hamid Gul, one of the architects of the Kashmir insurgency has called for a renewed push in Kashmir, which, he says, will be possible after the US leaves Afghanistan.

But for now, the US stands fast and India benefits daily from that presence. History will mock one of George W Bush’s most ill-judged speeches, when he declared victory in Iraq from the flight deck of the aircraft carrier, USS Abraham Lincoln, on 1st May 2003. Later in that speech, in a statement that has already been forgotten, Bush said, “Other nations in history have fought in foreign lands and remained to occupy and exploit. Americans, following a battle, want nothing more than to return home.”

India is not the only country that secretly hopes that America stays on for now in Afghanistan.

Friday, 8 February 2008

Picture from Project Air Defence, Hyderabad

A longer shot of the endo-atmospheric interceptor.

This is attributable please, if reproduced. "Photograph taken by Ajai Shukla in January 2008".


Picture from Project Air Defence, Hyderabad

And here's the endo-atmospheric interceptor. A whole different story there in every respect.

You can't miss the jet vanes... for the point up to which fin-tip control become effective.

Please attribute when used with, "Photograph taken by Ajai Shukla in January 2008".


Picture from Project Air Defence, Hyderabad

A closer view of the Prithvi booster and the lower portion of the interceptor. Note the nozzle outlets for the smaller direction thrusters.

See the number of this one. PAD 02. This is the interceptor that will perform the next test.

You don't need to attribute this one! I did so.

Picture from Project Air Defence, Hyderabad

For all you folks' viewing pleasure. This one is the exo-atmospheric interceptor.

Since the picture has been taken by me, I'd be grateful if anyone posting it could attribute the picture with the caption: "Photograph taken by Ajai Shukla, in Jan 2008".

Thanks and happy viewing.

Sunday, 3 February 2008

Titanium: the new strategic gold

by Ajai Shukla
Business Standard: 01 Feb 2008
Dateline: Hyderabad

The Defence Materials Research Laboratory (DMRL) in Hyderabad heard with some interest the government’s announcement, on Wednesday, that the mining and production of titanium would be thrown open to industries entirely funded by Foreign Direct Investment (FDI). DMRL has developed the technology to extract pure titanium, an expensive metal, which is increasingly used in the manufacture of aerospace components. India has the world’s fifth-largest deposits of titanium ore, mainly ilmenite, which occurs naturally in the beach sands of southern India.

The DMRL (a Defence R&D Organisation, or DRDO, laboratory) develops “strategic” materials, which feed into India’s defence production. The production of titanium, as strong as steel but with just half the weight, is one of DMRL’s most important successes. Having developed the extraction technology, DMRL has transferred it to a state PSU, Kerala Minerals and Metals Limited (KMML). KMML is set to manufacture India’s entire requirement of 200-500 tons a year of titanium.

But India’s demand is miniscule, compared with the global market for titanium. Boeing, America’s largest aircraft manufacturer, constructs 15% by weight of all its aircraft from that metal. It’s newest airliner, the Boeing 787 Dreamliner, with its emphasis on lower weight, uses even more titanium. Boeing has recently signed a $4 billion deal with Russian company, VSMPO-AVISMA, for titanium forgings; the Russian government-controlled company already supplies 40% of Boeing’s titanium needs. It is an uncomfortable dependence for the US defence major; India provides an alternative source of titanium.

But the Indian worm seems likely to go to the Russian early bird, VSMPO-AVISMA. DMRL Director, Dr G Malakondaiah, explains that the titanium extraction technology developed by DMRL works well for small volumes, but the mass production needed to become a global supplier requires a different technology. VSMPO-AVISMA has that expertise; the company announced in Moscow last year that it will be setting up two titanium subsidiaries in India. It has signed a letter of intent with KMML to manufacture 10,000 tons of titanium per year; VSMPO-AVISMA will buy the entire output. The second subsidiary is likely to come up in partnership with another PSU, Mishra Dhatu Nigam (MIDHANI) in Andhra Pradesh, to manufacture 40,000 tons of titanium per year.

Russian defence minister, Sergei Ivanov, confirmed, during his visit to India last year, that the payment for the titanium exported from India is likely to be adjusted against India’s $1 billion debt on the rupee-rouble account. 

Indian metals major, Tata Steel, has also moved into titanium production, though not the manufacture of metal. The Tatas intend to produce 60,000 tons per year of titanium dioxide, used in manufacturing paints. Despite having over 20% of the world’s known reserves of ilmenite, India imports 70,000 tons per year of titanium dioxide. But after signing an MoU with the Tamil Nadu government, for prospecting over 80 square kilometres in the state, the Tata project has run into trouble over land acquisition for the plant. 16,000 acres are needed in Tirunelveli and Tuticorin districts, but the project has been halted by litigation over its environmental impact. 

Titanium is currently selling for about Rs 500 per kilogram, and global demand is rising. Besides the spate of orders placed on commercial aircraft manufacturers, the US defence industry is also facing a growing need for titanium. With the highest strength to density ratio of all metals, titanium is being used for armouring light vehicles like Humvees, to provide protection to troops from roadside bombs. The new government policy of allowing 100% FDI in the manufacturing of titanium will evoke an enthusiastic response.