Monday, 28 December 2009

Coming up: WHAT'S HAPPENING TO THE INDO-RUSSIAN FIFTH GENERATION FIGHTER PROGRAMME? The comprehensive inside story, on Broadsword

Speculative drawings of the PAK FA, the 5th generation fighter that India and Russia could soon co-develop. No authentic drawings or pictures of the PAK FA have been released so far.

Saturday, 19 December 2009

Scorpene project snagged in government web, because contract with Armaris was manipulated to convey impression of greater indigenisation

The first Scorpene hull being fabricated in 2007. Today, that hull is complete but the MoD is still negotiating with DCNS to bring down the prices of critical systems for the submarine.

Minister of State for Defence, Pallam Raju: “French government is shirking their responsibility”

by Ajai Shukla
Business Standard, 19th Dec 09

An air of resignation hangs over the East Yard, a giant workshop shed in Mumbai’s Mazagon Dock Limited (MDL), where six Scorpene submarines are to be fabricated for the Indian Navy. Two years ago, when Business Standard visited this facility, it hummed with activity as welders assembled the hull of the first Scorpene, which was to join the Indian Navy in 2012.

Since then rumours of delay, of as much as two years, have swirled around Project 75, under which the Scorpenes have been acquired. Now, Business Standard has learned that work on the first Scorpene submarine has ground to a halt, and it is unlikely to be ready before 2015. And, most disquietingly, that delay is due to a contracting blunder, stemming from the MoD’s propagation of a myth that significant parts of the submarine were being built from Indian components.

This led the MoD to create a special category called Mazagon Procured Materials, or MPM. Of the total project cost of Rs 18,798 crores, some Rs 2700 crores (Euro 400 million) were set aside for MDL to contract directly for submarine materials. But the impression created --- by giving MDL a budget for locally procuring materials and systems from multiple vendors --- was false. The bulk of the MPM budget, as the MoD knew, would go straight to a single vendor: French company, Armaris, with whom India signed the Scorpene contract. This would pay for critical submarine systems, including the engine, the generators and special submarine steels.

There was no question of competitive bidding for these items. Since they affected crucial aspects of the Scorpene’s performance, such as noise levels, they had to be bought from the original vendor, Armaris, for performance guarantees to be valid.

It is not clear why the MoD left these crucial Scorpene systems unpriced. What is clear is that French company DCNS, which took over Armaris in 2007, is now demanding close to Rs 4700 crores (Euro 700 million) for these items, almost twice what was budgeted.

Minister of State for Defence, Pallam Raju, has told Business Standard that DCNS is basing its higher demand on cost inflation since the contract was signed in October 2005. The MoD is asking the French government to intercede with DCNS, but Paris is unwilling to help.

Mr Raju says, “We expect the French government to play a role in ensuring that it (the MPM items) is not priced abnormally high. We understand their need to make a profit, but the price should not be abnormally high. But we feel that the French government is shirking their responsibility.”

The MoD has pleaded its case with a range of French officials, but in vain. Says Pallam Raju, “I visited Paris (in June 09) and I had a meeting with DCNS. They assured us that they will hold our hand, but we are not getting that comfort level. I projected [the case] to the French defence minister as well. [In November] we had a senior French MoD bureaucrat… come [to Delhi] and I reflected it to him as well.

The MoD blames DCNS’ takeover of Armaris for further complicating negotiations. But that does not answer why a contract that took nine years to finalise failed to fix prices for materials worth Rs 2700 crores.

Senior naval officers who are familiar with the negotiations point out, “The inclusion of so many crucial systems in the MPM package --- systems that everyone knew had to be bought from Armaris/DCNS --- was a grave contracting mistake. This was done to give the impression of greater indigenisation… since these would apparently be items that MDL was procuring. But this scheme has backfired badly.”

Naval planners are struggling to deal with a situation where the induction of Scorpene submarines remains far away. Only after the MoD and DCNS agree on a price will production begin in France of the engines, generators and other systems that are included in the MPM category. Technicians working on Project 75 estimate that, once a price is fixed and a contract signed, it will be 33-36 months before the items are delivered to MDL and fitted on the first Scorpene. Then will start the painstaking process of outfitting the rest of the vessel, fitting weapons and sensors and carrying out lengthy trials before handing over the submarine to the navy.

But work in the East Yard has not entirely stopped. Having completed the first hull, MDL is going ahead with fabricating the second and the third. Officials involved in Project 75 say this will allow submarines to be delivered at 9-month intervals, rather than the planned 12 months.

But until the MPM contract is signed, and the systems delivered, MDL’s East Yard will not be producing submarines, but 200-foot-long metal tubes for a project that began two decades ago, and has gradually become a symbol of ineffective defence planning.

Thursday, 17 December 2009

Project 28 corvettes: India to tender for composite technology for superstructure

The Swedish Navy Visby-class corvette, Helsingborg. Its builder, Kockums, will bid to supply composite technology for India's Project 28 corvette programme.

by Ajai Shukla
Business Standard, 17th Dec 09

The Indian Navy’s prestigious Project 28, the programme to build four of the world’s stealthiest anti-submarine corvettes, is on track to become even more cutting edge. By the end of this month, three international shipbuilders will be bidding to provide Kolkata-based Garden Reach Shipbuilders and Engineers (GRSE) with the technology to build a major part of the corvettes --- the entire superstructure --- with lightweight composites.

By making the superstructure, which is the upper part of the ship that rests on the hull, of lighter composite material, the 2500-tonne warships will become lighter, stealthier and far more stable in the water. Already acclaimed as world-class warships, composite superstructures will make them, considering their low weight, highly effective submarine hunters.

Business Standard has learned that the Ministry of Defence (MoD) will shortly issue tenders to three shipbuilders with extensive experience in fabricating composites. Kockums of Sweden, a subsidiary of ThyssenKrupp Marine Systems (TKMS), which builds the world’s stealthiest warships, the 650-tonne Visby class corvettes, is a leading contender; also in the fray are Italian shipbuilder, Intermarine; and Korea’s Kangnam Corporation.

With composite materials increasingly crucial to warships, this lucrative tender could open the door for broader partnership with Indian defence shipyards. The three companies are maintaining a discrete silence for now, but an aide to the spokesperson of TKMS admitted, “India is an interesting market for TKMS at the moment because of the serious attention that the Government of India is giving to the technical future of the Indian Navy.”

The first two corvettes of Project 28, which are nearing completion, have already been built with conventional steel superstructures. Subsequent corvettes, i.e. the third ship onwards, can have composite superstructures. The Chairman and Managing Director of GRSE, Rear Admiral KC Sekhar told Business Standard during a visit to GRSE in August that, “Composite materials technology can only be incorporated for the third and fourth ships of Project 28. The first corvette is already 90% completed. 80% of the superstructure is ready for the second corvette.”

All the high technology going into Project 28 is boosting costs; GRSE and the MoD are locked in negotiations to finalise a price for the corvettes. Since 2003, when the order was placed, GRSE has worked on Project 28 based on nothing more than a Letter of Intent from the MoD. The cost mentioned in that LoI was derived from the cost of the earlier Project 25A, for previous generation Kora class corvettes.

But now, that cost has ballooned, partly because of repeated changes that the navy has demanded in order to keep Project 28 at the cutting edge of stealth technology. The LoI’s Rs 2800 crore for the four ships of Project 28 (i.e. Rs 700 crores per corvette), has swelled to Rs 7000 crores (Rs 1750 crore per corvette). And, since the cost of the first ship of Project 28 was to determine the real cost of Project 28, the MoD has little option but to pay that amount.

But Business Standard has learned that the MoD-GRSE negotiations could soon have a happy ending. Although the order was placed in 2003, the MoD is likely to agree to a “commencement of production” date of March 2006, to compensate for the delays caused by repeated changes in specifications. Since the first Project 28 corvette is likely to roll out in 2012, that will amount to a notional build period of 6 years, in line with the time that most foreign shipyards take to produce the first ship of a class. Subsequent ships, however, are expected to be churned out much faster.

Wednesday, 16 December 2009

Defence Minister confirms in parliament about government's interest in the Kaveri-Snecma engine




New Delhi: Agrahayana 23, 1931
December 14, 2009

The proposal on the Kaveri-Snecma engine joint venture for the Light Combat Aircraft (LCA) Tejas is under consideration of the Government.

Request for Proposal (RFP) for procuring 99 engines have been sent to two short-listed engine manufacturers, namely GE F414 from General Electric Aviation, USA and EJ200 from Eurojet Germany.

The engine houses have responded to the RFP. Both Commercial and technical responses have been received for procurement of 99 engines along with Transfer of Technology.

This information was given by Defence Minister Shri AK Antony in a written reply to Shri Gajanan D Babar and others in Lok Sabha today.

Tuesday, 15 December 2009

Parliament question on Broadsword article!

Question Raised on 14 Dec 09. Lok Sabha (Oral Answer)

Q No 3847: LCA Tejas

Question by




Will the Minister of DEFENCE be pleased to state:

(a) Whether the Gas Turbine Research Establishment (GTRE) of DRDO has assured to deliver indigenous Kaveri- Snecma engine for Light Combat Aircraft (LCA) Tejas in a time-bound manner;

(b) If so, the details thereof;

(c) Whether the Government has also requested two leading aero engine manufacturers, General Electric (US) and Eurojet (Germany) to submit their bids for supply of 99 engines; and

(d) If so, the response of these companies in this regard?

India: a global hub for warship building

The Project 17 frigate, INS Sahyadri, being fitted out at the Mazagon Dock, Mumbai

by Ajai Shukla
Business Standard, 15th Dec 09

Strategic circles are abuzz with rumours that the United Kingdom will soon offer India one of the new-generation aircraft carriers that it is constructing, since they are turning out too expensive for the Royal Navy to afford. Interestingly, India will almost certainly turn down the offer.

The Royal Navy had planned to build two Carrier Vessels Future (CVFs): the 65,000 tonne HMS Queen Elizabeth and HMS Prince of Wales. With the budgeted price of US $6.4 billion (Rs 30,000 crores) for the pair now apparently the cost of each, building a third and selling it abroad is an option being considered to reduce the unit price. But, in contrast to this exorbitant price, the cost of India’s 44,000 tonne Indigenous Aircraft Carrier (IAC), under construction at Cochin Shipyard Limited (CSL), is barely a third of the Queen Elizabeth. And the Indian Navy’s next IAC, a 60,000 tonne behemoth like the Queen Elizabeth, will cost less than half its British counterpart.

In the gloomy framework of Indian defence production, warship building has emerged as a silver lining. The Kolkata class destroyers, being built at Mazagon Dock Ltd, Mumbai, will cost the navy Rs 3800 crores each, one-third the global price for comparative warships. The INS Shivalik, now completing sea trials, is a world-class frigate built at Indian prices. Earlier this year, addressing an industries body, the Indian Navy’s chief designer, Rear Admiral MK Badhwar, called for making India a global hub for building warships.

While his appeal might have been tinged with strategic motivation --- a larger warship industry would bring down unit prices, providing the navy with even more bang for the buck --- there is little doubt that shipbuilders would profit more from crafting warships than from slapping together merchant vessels. India has developed the capabilities, including, crucially, the design expertise, to produce world-class warships. But the defence shipyards do not have the capacity to meet even the Indian Navy’s needs; playing the international warship market needs clear-sighted government intervention to synergise the working of public and private shipbuilders.

Building a merchant ship is a relatively cheap and simple process, from design to outfitting. Essentially it involves welding together a hull (often from imported steel) and then installing imported systems such as engines, radars, the steering, navigation and communications systems, and some specialist systems, e.g. for cargo handling. Imported components form the bulk of the cost, with little value addition within the shipyard. A commercial shipyard’s business plan revolves around bulk manufacture, compensating for the small profit margins by churning out as many ships as possible.

Creating a warship is infinitely more complex, and expensive. The design process is critical, with complex software shaping the “stealthiest” possible ship, virtually undetectable to an enemy. Next, a host of sensors and weapons must be accommodated to deal with different threats: enemy ships, submarines, aircraft and incoming missiles. Harmonising their different frequencies, and canalising information and weapons control into a single command centre, involves weaving an elaborate electronic tapestry.

Actually building the warship is a labour-intensive task, which involves painstakingly duplicating key systems so that the vessel can sail and fight even with one side blown out by the enemy. More than 400 kilometres of wiring must be laid out inside, all of it marked and accessible to permit repair and maintenance. A modern frigate has 25 kilometres of pipelines, built from 10,000 separate pieces of piping.

All this generates many jobs. An army of skilled craftsmen, many more than in merchant shipbuilding, does most of this work manually, through an elaborate eco-system of 100-200 private firms feeding into each warship. And these numbers are growing as defence shipyards increasingly outsource, using their own employees only for core activities like hull fabrication; fitting propulsion equipment; and installing weapons systems and sensors.

In this manpower-intensive field, India enjoys obvious advantages over the European warship builders that rule the market. These advantages are far less pronounced in merchant shipbuilding, where Korean and Chinese shipyards are turbocharged by a combination of inexpensive labour, indirect subsidies, and unflinching government support.

What makes India a potential powerhouse in warship building is not so much its labour-cost advantage as a strong design capability that the navy has carefully nurtured since 1954, when the Directorate General of Naval Design first took shape. The importance of design capability has been amply illustrated in the bloated CVF programme. The UK, having wound up its naval design bureau, has already paid over a billion dollars to private companies to design the aircraft carrier. And with every minor redesign, not unusual while building a new warship, the design bill and the programme cost goes higher.

India has everything it takes to be a warship building superpower: the springboard of design expertise; cheap and skilled labour; and mounting experience in building successful warships. What it lacks is capacity, which the government can augment with the help of private shipyards. This will significantly augment private shipyard revenue, boost defence exports, and provide the government with another strategic tool for furthering its interests in the Indian Ocean region.

Saturday, 12 December 2009

Kaveri engine comes alive; will power Indian fighters

The Kaveri on a test bed at GTRE, Bangalore, readying for its despatch to Russia for altitude and flight tests. The testing, near Moscow, is going well, say GTRE officials.

by Ajai Shukla
Business Standard, 12th Dec 09

In what was nominated in 1976 as the Fight of the Year, boxing legend, George Foreman, staggered to his feet after being twice knocked down by Ron Lyle, to flatten Lyle with a stunning knockout punch. If the Ministry of Defence has its way, India’s Kaveri engine, bitterly criticised as underpowered even after two decades of development, could recover to do a Foreman on its two world-class rivals.

Meant to power the indigenous Tejas Light Combat Aircraft (LCA), the Kaveri was heading for a quiet burial after completing flight tests that are underway in Russia. In its place, two alternatives were short-listed: the Eurojet EJ200, and the General Electric F-414 engines. A final choice was expected within weeks.

But, unexpectedly, the Kaveri has gotten off the floor. Business Standard has learned that the MoD --- apprehending that Eurojet and GE would hang back from providing India with critical engine technologies, even if Transfer of Technology (ToT) was mandated in a purchase contract --- now wants to co-develop an engine in India rather than manufacturing one under licence. The DRDO’s Gas Turbine and Research Establishment (GTRE), which has a design partnership with French engine-maker, Snecma, has been asked to design a more powerful Kaveri successor.

A Snecma-GTRE joint venture to develop the upgraded Kaveri is likely to be announced during President Nikolas Sarkozy’s visit to India in early 2010.

Minister of State for Defence, Dr Pallam Raju, has confirmed to Business Standard, “It is important for India to have indigenous capabilities in engine design. And having invested so many man-hours of work into the design of the Kaveri engine, it would be a national waste to fritter away or dilute those capabilities…. (Snecma) is willing to co-develop an engine with us; they are willing to go beyond just transfer of technology. It is a value-added offer that gives us better technology than what we would get from ToT from Eurojet or GE.”

Amongst the key engine technologies that India needs is that for Single Crystal Blades, which significantly enhance turbine performance within the incandescent confines of a jet engine combustion chamber. The MoD suspects that this technology, worth billions of dollars, will not be fully transferred by Eurojet or by GE.

An MoD official, who is closely involved in deciding between the EJ200 and the F-414, explains this apprehension: “The tender stipulates that 50% of the technology must be transferred to India. But the vendor will lump together a bunch of low-end technologies that might add up to 50%. What we want is one or two high-end technologies.”

GTRE designers say that it would take about 4 years to co-develop an engine with Snecma, somewhat longer than the 3-year time frame in which the EJ200 or F-414 would start being delivered. Based upon the performance of the Kaveri flight in the ongoing flight tests in Russia, GTRE sources are confident that, “Snecma-GTRE is fully capable of producing an engine as good as the F-414 and the EJ-200.”

That will involve improving from the current Kaveri’s maximum thrust of 65 Kilo Newtons (KN), to the 95 KN that the EJ200 and F-414 develop.

While Snecma remains tight-lipped, it is aware of the challenges in such a project. Business Standard has learned that Snecma had conducted a Technical Audit of the Kaveri programme in 1998, identifying design challenges that included developing materials that could withstand the combustion chamber temperatures of around 2000 degrees centigrade.

While the MoD is trusting Snecma to help GTRE in overcoming these challenges, it is also aware of the Kaveri’s unenviable record of time and cost overruns. The MoD is still considering whether to put all its eggs in the GTRE-Snecma basket or to go ahead on a parallel track, choosing either the EJ200, or the GE F-414, as insurance against further delays.

Friday, 11 December 2009

US nuclear firms close in on Indian market

by Ajai Shukla
Business Standard, 11th Dec 09

India’s nuclear power generation programme is now amongst the highest stakes markets in the world. With plans to generate 60,000 MWe (megawatt electrical) by 2030, up from just 4120 MWe today, India will need more than 50 nuclear reactors, allowing for a generating capacity of 1000 MWe each.

With each nuclear reactor costing US $4-5 billion to set up, capital costs alone add up to $200-250 billion. Then there are fuel costs, nuclear waste disposal, reprocessing, consultants and advisors and, of course, the financial market aspects of raising all that money.

For the Russian and French state-owned nuclear power industries, the Nuclear Suppliers Group (NSG) waiver that followed the US-India nuclear deal opened the doors to the Indian market. But America’s private corporations --- including GE-Hitachi and Westinghouse, the technology source for two-thirds of the world’s operating nuclear reactors --- are still held back by US laws.

And so, even as Russia and India signed an agreement last week, in Moscow, on Cooperation in Peaceful Uses of Atomic Energy; an American delegation of 50 top executives from that country’s leading nuclear suppliers began a six-day visit to India.

Three steps to business

Just three steps remain to be taken before they can commence business with India: a US-India agreement on reprocessing nuclear fuel; a Part 810 Assurance that India must provide for safeguarding technology; and an Indian liability law to cater for nuclear accidents.

The first of these, the Reprocessing Agreement is not required by US law, but India insisted that both countries sign this agreement so that, even if Washington imposes sanctions, India’s fuel supplies remain assured. Both sides hoped to sign it during Prime Minister Manmohan Singh’s visit to the US last month; the final draft, however, is believed to be ready now. Washington has only signed reprocessing agreements with Japan and Euratom; both took years to negotiate.

The second step remains the Part 810 Assurance, which the US Department of Energy requires from foreign governments that wish to source nuclear materials or technologies through US companies. Licenses are issued to US suppliers only after the recipient government pledges to use the acquired technology exclusively for peaceful purposes and that it will not re-transfer it to another country without the consent of the US government.

The final step remains the enactment of a Nuclear Liabilities Bill, which has been passed by India’s union cabinet and will be introduced in parliament during the winter session. This domestic legislation is essential for India to join the Convention on Supplementary Compensation (CSC), a worldwide liability regime for paying enhanced compensation in the event of a nuclear accident or disaster. The CSC functions like an insurance mechanism, with member countries paying an annual amount based upon their nuclear power generation capacity. In the event of a major accident, the CSC assists in the payment of enhanced compensation from a global pool, which is maintained through annual contributions from member countries.

This legislation specifies that legal jurisdiction in the event of an accident will lie within India. The domestic liability bill forms the first tier of compensation, which is handled in country. Tier-2 compensation, in the event of a major accident, is paid through the CSC. While imposing a limit of approximately US $450 million on the compensation payable in an accident, this framework guarantees speedy disbursement of compensation.

"All three close to settlement"

Each of these three requirements, believes the US delegation, is close to settlement. Ted Jones of the US India Business Council (USIBC), which has brought this delegation to India, points out, “Though Washington and New Delhi signed the 123 Agreement a year ago, the process only began in July 09 because of elections in both countries. But since Hillary Clinton’s visit in July, we are already on the brink of resolving all three implementation issues.”

While Russian and French nuclear suppliers --- Rosatom and Areva respectively --- have begun early, the US delegation in New Delhi does not believe it is missing out in the Indian market. “We spoke yesterday to Mr R Chidambaram, the PM’s Scientific Advisor, and it is clear that there is space for everyone”, said one American executive. “India needs multiple sources, multiple partners and multiple technologies. India needs to do business with everyone to meet those needs.”

Saturday, 5 December 2009

French Defence Minister in Delhi: political push from Paris for upgrade of Mirage-2000

Broadsword learns that the deal is likely to be closed at about US $1.8 billion. Thales is bringing down the price by involving Indian industry

by Ajai Shukla
Business Standard, 05 Nov 09

French President, Nikolas Sarkozy, has thrown his weight behind the the Rs 10,000 crore bid by French company, Thales, to upgrade the Indian Air Force Mirage-2000 fighter fleet. Sarkozy’s defence minister, HervĂ© Morin, in New Delhi for a day, made his pitch this morning to Defence Minister AK Antony, telling him that President Sarkozy is keen on signing the deal when he visits India early next year.

Addressing a press conference after his meetings in South Block, Mr Morin revealed that he discussed outstanding procurement cases, including the Mirage-2000 upgrade, with his Indian counterpart. Morin said, “We are hoping that some of the procurement cases that are under way between India and France are finalised by the time Sarkozy visits.”

Through two years of negotiations, French aerospace major, Thales, and the IAF have been unable to agree on a price for outfitting India’s 51 Mirage-2000s with new radars, avionics, electronic warfare systems and onboard computers, which will make the aircraft battle worthy for another 15 years. From an initial offer of Rs 13,500 crores (US $2.9 billion), Thales came down to Rs 10,000 crores (US $2.1 billion). But even that is exorbitant; the IAF has let it be known that, instead of spending Rs 196 crores (US $41 million) on each Mirage-2000, it would prefer to buy brand new fighters.

That hard bargaining, it seems, is working. Thales is looking to reduce its price by using Indian suppliers for a significant share of work and components for the upgrade. The IAF now believes that a deal could be close. A top IAF official, who is close to the negotiations, told Business Standard on condition of anonymity, “Thales is climbing down from its high horse and we will meet them halfway. The French president has given his officials a diktat that the Mirage-2000 upgrade deal must be buttoned up this year.”

That urgency is fully endorsed by French officials. One highly placed French industrial source asks rhetorically, “If the upgrade deal is not finalised, what else is there for Sarkozy to sign in Delhi?”

So far, during negotiations, Thales has argued that if India insisted on a cheaper upgrade for the Mirage-2000 fleet, it should be prepared to upgrade fewer systems. If, for example, the IAF was willing to upgrade only the weapons systems, the cost would be considerably cheaper. But the IAF insisted on a full upgrade.

Now, with Thales looking to source from India, there could be rich pickings for Indian avionics manufacturers like Samtel Thales Avionics, the joint venture that NCR-based Samtel Display Systems has set up with Thales. Components developed in France by Thales, will be manufactured cheaply in Samtel Thales Avionics’ high-tech facility near Ghaziabad, allowing Thales to lower its bid significantly.

Puneet Kaura, Executive Director, Samtel Display Systems, confirmed to Business Standard that, “Samtel Thales Avionics is going to be a major partner in the Mirage-2000 upgrade. We have negotiated with Thales for doing a number of work packages in the upgrade. This will also benefit Thales in meeting the offset liabilities that will arise out of this deal.”

For IAF planners the participation of Indian companies, including Samtel Thales Avionics, is a welcome prospect since they would be able to maintain and repair the upgraded avionics in India. The Indian companies would also handle “obsolescence management”, which involves redesigning avionics cards that need upgrading.

Thales was already on track to build avionics systems in Samtel Thales Avionics for a variety of Indian aircraft. These include the technologically advanced TopSight-I, the Helmet Mounted Sight Display (HMD) that Indian Navy MiG-29K pilots will use while operating from aircraft carriers.

Thursday, 3 December 2009

Afghanistan: Obama’s war

by Ajai Shukla
Business Standard, 3rd Dec 09

The United States Military Academy at West Point, where America trains cadets to officer its army, has long provided an emotive rostrum for sounding the trumpet to battle. John F Kennedy, chose West Point to brace America, in 1962, for the looming Vietnam conflict. In 2002, George Bush took the podium at West Point to publicly unveil his doctrine of “pre-emptive action”, which opened the doors to Iraq. Barrak Obama, too, decided to look into the eyes of the cadets he would commit to battle, when announcing today that the US would despatch 30,000 additional troops to defeat the Taliban in Afghanistan.

If George W Bush’s presidency is condemned to be associated with the Iraq War, Obama has ensured that his will be linked with Afghanistan. Since he was sworn in, Obama has tripled America’s military commitment to Afghanistan from 32,000 US soldiers in that country to 98,000 once this latest surge is implemented. This increase disregards growing opposition in America to remaining embroiled in Afghanistan. Afghanistan is now Obama’s war.

Obama’s political isolation is highlighted by his allies’ reluctance to bear a greater share of the military burden. The 19 coalition members who are fighting in Afghanistan have mustered --- after protracted US lobbying --- a mere 7,000 additional soldiers.

Given these risks, Obama spent the greater part of his 30-minute speech laying out a clear and inflexible exit strategy for eventually quitting Afghanistan. He declared that the troop surge would allow America to, “begin the transfer of our forces out of Afghanistan in July of 2011…. After 18 months, our troops will begin to come home. These [30,000 soldiers] are the resources that we need to seize the initiative, while building the Afghan capacity that can allow for a responsible transition of our forces out of Afghanistan.”

Obama’s commander in Afghanistan, General Stanley McChrystal, should be pleased with his commander-in-chief’s support. Exactly two months ago, McChrystal had submitted his plan for Afghanistan, asking for 40,000 troops to execute it. Obama has given him almost as much as he asked, and strongly endorsed General McChrystal’s strategy of training 400,000 Afghan soldiers and policemen, who would handle security after America headed home.

Obama’s plan could provide an equal satisfaction to the Taliban, who now know exactly when their enemy plans to leave. For years now, senior Taliban leaders have predicted that the west does not have the stomach for a long haul in Afghanistan. Their videotaped reactions have not yet reached Al Jazeera Television, but it is safe to predict an element of “I told you so”.

Obama implicitly acknowledged this danger, but emphatically rejected calls for “a nation-building project of up to a decade”. An open-ended commitment, said Obama, would incur heavy costs, while “the absence of a time frame for transition would deny us any sense of urgency in working with the Afghan government. It must be clear that Afghans will have to take responsibility for their security, and that America has no interest in fighting an endless war in Afghanistan.”

But Obama’s readiness to declare victory and leave sits uneasily with his reassurances to Pakistan. Praising Pakistan’s military offensive in Swat and South Waziristan, Obama proffered substantial military and aid flows provided Pakistan finished the job. Addressing Pakistan’s deep-rooted suspicion that --- like at the end of the anti-Soviet campaign in Afghanistan --- Washington would turn its back on Islamabad, Obama declared, “We will strengthen Pakistan’s capacity to target those groups that threaten our countries…. the Pakistan people must know America will remain a strong supporter of Pakistan’s security and prosperity long after the guns have fallen silent, so that the great potential of its people can be unleashed.”

For Afghanistan watchers, Obama’s West Point speech raises many questions. Can 140,000 troops pacify Afghanistan? US Army Chief, General Eric Shinseki, had estimated that half a million US soldiers would be needed to pacify Iraq, a significantly smaller country. Next, how will Afghan President Hamid Karzai, allegedly corrupt and a proven vote rigger, survive after US forces leave? And, finally, is Obama being too optimistic in saying that Pakistani public opinion had turned against extremism and that Islamabad was now genuinely on the side of America.

Tuesday, 1 December 2009

Manmohan's visit to Washington: success or failure?

by Ajai Shukla
Business Standard, 1st Dec 09

Washington gazers have argued about whether the Prime Minister’s visit to the US was a success or a failure. Symbolism more than substance was the eventual consensus, with solace being extracted from President Obama’s reference to India as a nuclear power.

The disappointment that tinged this conclusion stems from a tendency to measure the success of visits in terms of big bang agreements. Phrases like “common ideals”, “shared values”, and “vibrant linkages” that filled the Obama-Manmohan joint declaration are considered useful preambles; but observers want the real stuff as well. However, this time round, with a “Global strategic partnership”; a “New framework for the U.S.- India defence relationship”; and the “US-India civil nuclear agreement”, already delivered, there wasn’t much left to sign.

The improbable speed with which Washington has warmed to New Delhi has created unrealistic expectations. In 1971, President Nixon and Henry Kissinger were describing Indians as “bastards” and “aggressive goddam people”; and referring to Indira Gandhi as an “old witch” and a “bitch” in turn. That said as much about Nixon and Kissinger as about US-India relations but, still, it was only a decade ago that India faced full-frontal sanctions from Washington after the nuclear tests of 1998. In less than a decade that relationship has flowered, yielding a defence framework agreement in 2005 and the civil nuclear agreement last year.

While India has benefited from this new partnership --- in nuclear power generation, for example, or in access to US intelligence a la David Headley --- New Delhi has hardly had to walk the talk. It retains an independent foreign policy, even on US bĂȘte noir, Iran; and despite the allegations of the political left, India concedes little to the US in defence policy and procurements.

Compare this with America’s longstanding relationships with UK and Australia, whom Washington counts amongst its closest allies. When the US goes to war --- as in Iraq and Afghanistan --- London and Canberra go along too. America’s NATO allies face the same pressures. Japan, closely linked since World War II by a mutual security treaty, plays reluctant host to tens of thousands of US soldiers. Israel remains a longstanding partner, even if somewhat diminished under Obama. Over time, all these countries have generated political, bureaucratic and military goodwill in Washington. Even the so-called Major Non-NATO Allies (MNNA), such as Pakistan and South Korea, with institutional linkages built over decades, command greater leverage amongst Washington’s political and bureaucratic class than India does.

Only in romantic relationships is the initial period the steamiest. Relationships between countries warm up more gradually as legislative frameworks are negotiated as the foundations for strategic partnerships. In the US-India relationship only the initial steps have been taken in this process. The defence partnership is no more than a framework, valid for ten years, with a formal agreement still in the future. With New Delhi playing negotiating hardball, it will take years to negotiate the agreements that are needed for real partnership. The End User Monitoring agreement, a political minefield for any Indian government, has been finalised painstakingly. Another political hot potato, a Logistic Support Agreement (LSA) remains to be hammered out; so does a Communication and Information Security Memorandum of Agreement (CISMOA). A formal defence pact can materialise only upon this foundation.

Only after that, for all its political impetus, will the US-India relationship begin to give India what it most urgently needs from the US: high technology. So far, the message has not flowed down from the top floors to the functional levels of the US State Department, the Pentagon and the Department of Commerce, which issue the licences needed for exporting sensitive technologies.

This is especially so with the inwardly focused Obama administration, which does not view India from the balance of power perspective of the Bush-Rice regime. India remains a fellow-democracy, something greatly cherished in the American psyche; and a lucrative market, something that America loves even better. But New Delhi remains marginal to Washington’s immediate foreign policy challenges.

The absence of high profile agreements between Obama and Manmohan could actually benefit India, allowing New Delhi the diplomatic space to reassure longstanding allies like Russia. Mere assurances that “the US-India relationship will not be at the cost of other countries” have cut little ice in Moscow. India can ill afford to jeopardise the strategic technology and assistance flowing in from Russia. But Defence Ministry officials have faced growing annoyance; their interlocutors in Moscow complain pithily, “We give you assistance that America will never consider. But, at the first opportunity, you jump into their laps.”

India remains free to pursue partnerships in its legitimate interest. But those must be harmonised with existing relationships and New Delhi has not yet expended the time and political and diplomatic effort needed for this. Realistically, therefore, the modest outcome of Dr Manmohan Singh’s visit to Washington was not just predictable but has spared New Delhi some embarrassment in its relationship with other allies.

Saturday, 28 November 2009

The LCA's great engine dilemma...!

I've posted an update on the competition for selecting the LCA's new engine. But are there other options... besides the Eurojet EJ200 and General Electric's F-414?

If you have a view, post it. Let your voices carry to those who make the decisions.

Thursday, 26 November 2009

NEWS FLASH... PV-5 Tejas twin-seater makes a successful 30 minute flight!!

Air Marshall Tyagi (centre) with Dr D Banerjee (DRDO, CC Aerospace). Rohit Verma is next to Tyagi, while Gp Capt Tyagi flanks Banerjee.

PV-5 takes off from the HAL airfield in Bangalore. The twin-seater has not yet been painted... the yellow is the colour of the composites from which most of the skin is made

This is the DRDO release, issued at 18:30 hours today:


Two seater (Trainer) version of Tejas (PV-5) made its maiden flight on 26 Nov 09. The flight took off from HAL,Airport at 1300 hrs. The successful maiden flight covered an altitude of 9km and Mach number 0.85. The prototype was flown by Gp Capt Ritu Raj Tyagi of the National Flight Test Centre (NFTC). Air Cmde Rohit Varma, Project Director (Flight Test) flew in the rear cockpit. Wg Cdr (Retd) PK Raveendran, Group Director (Flight Test) was the Test Director. Extensive preparatory work that has gone in resulted in the first flight profile being executed with clock work precision. All the objectives set out for the flight were achieved and all the systems on board the new prototype performed well through out the sortie.

Successful flight of Tejas trainer is a major milestone for Tejas programme and a significant achievement for all the stake holders in the programme, which include ADA, HAL, NAL, ADE, CEMILAC, DGAQA, Indian Air Force and Indian Navy. With the Tejas scheduled to be cleared for Initial Operations with the Indian Air Force by end 2010, successful maiden flight of Tejas trainer has given a fillip to the programme. The trainer when fully developed will have the full operational capability from the rear cockpit as well. As Tejas Trainer has a lot of commonality with Tejas Naval version, even Tejas Navy programme would see accelerated progress as a result of the successful first flight.

As the first flight coincided with the programme review by the Air Force, the historic event was witnessed by Air Mshl NV Tyagi, AVSM, VM, VSM, who was the Chairman of the Review Committee along with Mr Ashok Nayak, Chairman, HAL, Chief Controller, DRDO Dr D Banerjee and Mr PS Subramanyam, Programme Director (Combat Aircraft) & Director, ADA.

D-Day for PV-5: Tejas twin-seat trainer to fly today

Photo: courtesy Ajai Shukla

The Tejas twin-seat trainer being assembled at HAL Bangalore some months ago. This same prototype (PV-5) has its first flight test today.

by Ajai Shukla
Business Standard, 26th Nov 09

On Thursday morning the first prototype twin-seater, trainer version of the Tejas Light Combat Aircraft (LCA) will taxi out to the runway in Bangalore. With its design team watching tensely from the sidelines, the two test pilots will rev up the engine, race down the runway and, if all goes according to plan, lift the twin-seat Tejas into the sky for its first ever flight.

In the cockpit will be two of the IAF’s most skilled test pilots, now a part of the National Flight Test Centre (NFTC), which handles all Tejas test flying. Air Commodore Rohit Verma, a MiG-21 ace will be the commander; behind him will be Group Captain RR Tyagi, a veteran Jaguar pilot.

Over the last few days the first twin-seat Tejas, called Prototype Version 5 (PV-5) has been carrying “high-speed taxi trials”. In these, the Tejas PV-5 has been speeding down the runway at speeds of over 200 kilometers/hour, applying the brakes just short of take-off speed. But on Thursday the pilot will not brake; keeping the throttle pressed he will pull back the joystick and make history as the trainer actually takes off.

The first flight of the twin-seat Tejas is a crucial landmark in the LCA programme. With the first squadron of the single-engine, single-seat Tejas already ordered by the IAF, and the order for the second squadron being processed, twin-seat trainers are urgently needed for training the IAF pilots who will man these two squadrons. Every IAF squadron is authorised 18 single-seat fighters and 2 twin-seat trainers.

The twin-seat Tejas is also important for the Indian Navy. The naval version of the Tejas, which will operate off aircraft carriers, will be based on the Tejas trainer; it’s higher cockpit allows the pilot a view of the carrier landing deck while descending steeply to land. In the naval Tejas there is no second cockpit; its place is taken by an extra fuel tank and some avionics.

Single-seat Tejas prototypes have completed about 1200 test flights, but the first flight of the twin-seat trainer is almost like testing a new aircraft. Though the trainer’s engine and fuselage is the same as the single-seater’s, internal systems have been extensively re-engineered to create space for a second cockpit, complete with a second set of controls, for the trainee pilot. Flight-testing will determine whether this new configuration works perfectly.

The twin-seat Tejas’ first flight comes almost 6 months later than originally planned, because the agency developing the Tejas --- the Aeronautical Development Agency --- wants to minimise the chances of a failed test. The ADA chief, PS Subramaniam, told Business Standard in Bangalore in August that caution in flight-testing was one of the drawbacks in the Tejas programme, but was understandable given that India was testing and certifying a modern fighter for the first time.

European aerospace consortium, EADS, which has been appointed consultant for the air force Tejas programme, is expected to advise on how to cut down on flight-testing without compromising safety. Reducing flight-testing by a year, believes Subramaniam, would save Rs 1000 crores in costs and bring the Tejas into operational service early.

In the absence of major hiccups, the twin-seat Tejas trainer is expected to complete testing and certification by 2014 and start being delivered to the IAF by 2015.

Wednesday, 25 November 2009

Offsets gather momentum: time to go from banking to trading

by Ajai Shukla
Business Standard, 25th Nov 09

With India’s defence offset policy finally taking off, Prime Minister Manmohan Singh’s call for increased Indo-US collaboration in defence production portends well for offset-based foreign investment. A foreign boost to India’s moribund defence industry has been a government priority since 2005, when the Defence Offset Policy first mandated a 30% plough back into Indian defence industry of every foreign defence sale worth more than Rs 300 crores.

That the policy is beginning to yield results is evident from figures released last week by the MoD. Since 2007, when offsets took effect, foreign vendors have tied up production agreements worth Rs 8000 crores, almost entirely with domestic aerospace manufacturers. But, given that India’s foreign defence purchases currently generate an offset liability of about Rs 15,000 crores annually, this is only a beginning.

The success of India’s defence offset policy should not be measured in agreements signed, or goods manufactured. An offset policy is successful only in so far as it generates long-term industrial partnerships, which function even after the vendor has discharged his offset liabilities. For this the partnership must benefit both vendor and buyer. The challenge for India is to develop the domestic defence industry, both public and private sector, to create an eco-system of potential partners for foreign vendors. This is not difficult; India’s auto component manufacturers have already demonstrated domestic capabilities in high-tech manufacture and cutting-edge R&D. These are precisely the qualities that global arms corporations seek in offset partners in India.

Where mutual benefits are not available, arms vendors simply treat offsets as an imposition, a cost of doing business. They fulfil their offset obligations superficially and add the costs to their bill. That this is happening in India’s civil aviation sector (where, as in defence, vendors are liable for offsets) was evident from what former Civil Aviation Secretary, Ajay Prasad, told a gathering in Delhi last week. Revealing that Kingfisher Airlines had paid US $50 million less than Indian Airlines for similar Airbus aircraft, Mr Prasad explained that was because offsets were mandatory in the purchases by the government carrier. Evidently, the costs of those offsets were added on to Indian Airlines’ bill.

Such subterfuge can be minimised through responsive policymaking, creating benefits for India’s defence economy without unduly taxing vendors. The MoD’s first offset policy, promulgated in the Defence Procurement Policy of 2005 (DPP-2005), has gradually evolved, mainly at the instance of Indian and foreign defence suppliers. The most far-reaching change is the introduction of “offset banking” last year, allowing vendors to accumulate offset credits towards a future liability. But South Block has been less than responsive in the justifiable demand for “offset trading”, which would allow accumulated credits to be sold by vendors who may not have a use for them at that time.

As foreign vendors struggle to find offset partners for their mounting offset liabilities, there is a rising clamour --- particularly from US companies --- for allowing “indirect offsets”, or the discharge of offset obligations through investment in non-defence fields like infrastructure, health, housing, etc. The MoD, focused on building up domestic defence industry, considers “indirect offsets” a potential turf infringement. But unless a well-conceived policy and regulatory framework is created for handling billions of dollars of offsets liabilities each year, New Delhi may have to allow some of that money to spill over into non-defence fields.

Tuesday, 24 November 2009

Search for Tejas engine nears its end: decision likely before March 2010, price will determine winner

Photo: One of the LCA prototypes at HAL Bangalore, fitted with fuel drop tanks

By Ajai Shukla
Business Standard, 24th Nov 09

For two years, the Aeronautical Development Agency --- the agency developing the Tejas Light Combat Aircraft (LCA) --- has searched for an engine to boost the performance of India’s homegrown fighter. With bids for two engines --- the General Electric F-414, and the Eurojet EJ200 --- submitted on 12th October, Business Standard has learned that ADA will select one before March 2010.

The GE F-404, one of fighter history’s iconic engines, currently powers the Tejas. But its 82-85 kilonewtons (KN) of thrust does not provide the acceleration or the sustained turning ability needed by the Tejas in air-to-air combat. ADA wants the Tejas to have 90-95 KN of thrust, which both the EJ200 and the GE F-414 provide. And so the F-404 will power only the first two Tejas squadrons; all subsequent LCAs, including the naval version, will fly with either the F-414 or the EJ200.

Dr Dipankar Banerjee, the DRDO’s Chief Controller of Aeronautics, says two crucial factors will determine the winner: which engine fits into the Tejas with minimal re-engineering; and which one works out cheaper (acquisition cost + operating cost).

The DRDO officer, who guides the Tejas programme, debunked the long-held belief that the Tejas would require major re-engineering for fitting the new engine. “We have evaluated both engines and we believe only minor changes will be needed in the fuselage of the Tejas”, said Dr Banerjee. “Which engine is selected will be largely determined by its cost.”

Both engines, however, need minor design modifications by their vendors to meet the specific requirements of the Tejas. According to Dr Banerjee, “The Eurofighter Typhoon is powered by two EJ200 engines, but the LCA has just a single engine. For safety reasons, it must have a re-ignition system to restart the engine automatically if it goes off in mid-flight.”

And since the selected engine will also power the naval Tejas, the EJ200 needs to be protected against the corrosive salt-water naval environment.

The EJ200’s rival, the GE F-414, has neither of these concerns; it already powers the single-engine Gripen fighter, as well as the F/A-18 Super Hornet, which the US Navy operates off aircraft carriers. But there are two other concerns over the F-414. Firstly, it needs to be tweaked to provide greater thrust during some periods of a flight, when it appears to deliver less power. And, since it is an American engine, export controls are potentially troublesome.

Eurojet, however, insists that re-ignite software is an integral part of the EJ200. Hartmut Tenter, Managing Director of Eurojet, explained to Business Standard, “If the EJ200 goes off in mid-flight, the aircraft decelerates sharply. The engine software recognizes that and automatically initiates the re-ignite procedure. It’s automatic; the pilot has to do nothing.”

Both Eurojet and General Electric consider this engine contract as vital. The order for 99 engines (plus options for another 49) is worth an estimated US $750 million. But, far more importantly, both see this contract as a way of getting a foot in the door for the US $11 billion Medium Fighter contract. Eurojet EJ200 engines power the Eurofighter Typhoon, while GE F-414s power both the F/A-18 and the Gripen NG. Getting a contract for the engine is seen as a giant first step towards getting a contract for the aircraft as well.

Fighter pilots say that a world-class engine makes a world-class fighter. Whenever two fighters face off in a dogfight, as pilots term an aerial duel, the one with the better engines almost always wins. In the old days, better engine power allowed a pilot to twist and turn sharply, to get behind the enemy, and then shoot him down with a burst of cannon fire.

Now, with missiles the primary air-to-air weapon, engine power is more important than ever. The enemy usually appears as a blip on the radar, which the pilot usually detects while “loitering” at low speeds to conserve fuel. He immediately guns his engine, accelerating hard towards the enemy, and launches his missile at nearly twice the speed of sound (Mach 2). As the missile screams towards the enemy fighter at around Mach 4, the pilot throws his fighter into a high-gravity U-turn to dodge the missile that his opponent would have launched by now. The pilot who can accelerate faster, launch first, and then turn away harder --- in other words, the pilot with the more powerful engine --- is usually the one who comes home alive.

Monday, 23 November 2009

IAF placing order for 2nd Tejas squadron: Dwindling MiG-21 numbers, growing China threat, speeds up Tejas induction

Photo: A Tejas LCA performing at the Aero India 09 at Bangalore in Feb 09

by Ajai Shukla
Business Standard, 23rd Nov 09

The Indian Air Force is taking a crucial step towards accepting the indigenous Tejas Light Combat Aircraft (LCA) as a replacement for its ageing MiG-21 fighters. Senior air force officers have told Business Standard that the IAF is ordering a second Tejas squadron (20 aircraft), in addition to the 20 fighters that are already on order.

Mr Ashok Nayak, the Chairman of Hindustan Aeronautics Limited, which will manufacture the Tejas, has confirmed this development. “The MoD tender for 20 additional Tejas fighters is on track”, he told Business Standard. “After it is issued, we will sit down with the MoD, and negotiate a price.”

The order for a second squadron is a vital expression of IAF confidence in the future of the long-running Tejas programme. So far, the IAF had insisted on evaluating the performance of the first squadron before ordering a second, by around 2015-2016. That would also allow the Tejas to be upgraded to the Tejas Mark II, which would have a new, more powerful, engine. But now, with its fighter fleet dwindling as the old MiG-21s are retired, the IAF is taking the Tejas as it is.

“The Tejas, even with its current GE-404 engine, is a better fighter than the MiG-21”, explains a senior IAF officer who is familiar with equipment policy; “by 2015, the first Tejas squadron will be ready for the IAF. HAL’s assembly line will be free; while the Tejas Mark II finishes testing, HAL can build a second squadron with the GE-404 engine.”

So far, the plan was to produce 12 twin-seater Tejas trainers after the first squadron was built. The new order will be for 18 single-seater and 2 twin-seater Tejas: exactly what equips a fighter squadron.

Here’s why the IAF urgently needs that second squadron: Against a sanctioned requirement of 39.5 squadrons (each squadron has 21 fighters), the IAF is now down to just 32 squadrons. By 2015, another six squadrons of MiG-21s and two squadrons of MiG-27s would have finished their service lives. Meanwhile, HAL is manufacturing Sukhoi-30MKIs, but the current production is just 14 per year. The mathematics is clear: by 2015, the IAF will have just 29 squadrons of fighters.

Making this shortfall even more worrisome, is the new requirement of five IAF squadrons for north-east India, as a result of an increased threat assessment from China. Senior IAF officers have recently declared that India actually needs 45 squadrons.

In this context that the IAF cannot wait to induct the Tejas as the next light fighter, a role that the MiG-21 has long performed. Medium fighters are as urgently needed, and the IAF is currently evaluating six aircraft for this role. But the new Medium Multi-Role Combat Aircraft (MMRCA), even if the contract is placed expeditiously, is unlikely to enter service before 2015-16. Only in the heavy fighter segment is the IAF well placed, with the superlative Sukhoi-30MKI steadily joining the fleet.

The Tejas is currently undergoing weapons trials to obtain its Initial Operational Clearance, most likely by early 2011. Then starts the two-year process for obtaining Final Operational Clearance, after which it can enter service in early 2013. Then, if HAL can deliver 10 Tejas fighters per year, the first squadron will be ready by end 2014. And, if all of that goes smoothly, the second Tejas squadron will join the IAF by end-2016.

The IAF has decided that No 45 Squadron, which operated MiG-21M fighters until they were recently retired, will be the first Tejas squadron. It will be based in Sulur, near Coimbatore. It is still unclear where the second Tejas squadron will be based.

Tomorrow:  Choosing the Tejas' next engine: how's the contest going?

Saturday, 21 November 2009

Defence offsets cross Rs 8000 crores

by Ajai Shukla
Business Standard, 21st Nov 09

Since 2005, when the Ministry of Defence mandated that every foreign defence purchase above Rs 300 crores would impose on the vendor an offset liability of 30% of the contract value, global arms majors have scurried to tie up partnerships with Indian defence manufacturers.

Today, for the first time, the MoD revealed exactly how much business the defence offsets policy has generated. Satyajeet Rajan, the chief of the Defence Offsets Facilitation Agency (DOFA) revealed that, since 2007, foreign vendors have signed up for offsets worth about Rs 8000 crores.

In 2007, a mere Rs 243 crores worth of offsets were firmed up. The figure rose tenfold to Rs 2598 crores in 2008. And in 2009, DOFA has already okayed Rs 4870 crores worth of offsets and counting.

These values are of planned production; actual production has still to begin in all but a handful of offset partnerships that were tied up over the last three years.

Interestingly, 94% of all planned offsets are in the aerospace sector; the remaining 6% covers the manufacture of naval systems. Apparently the MoD’s Rs 42,000 crore tender for the purchase of 126 medium fighters has been a major driver in encouraging offsets partnerships. Most of the six vendors competing in that contract have been identifying potential partners within India’s private sector, as well as with public sector aerospace giant, HAL.

Foreign vendors are currently permitted to discharge their offset obligations in three possible ways. Defence products, purchased from India’s defence manufacturers for export are eligible for offsets credits. So too are investments in India’s defence industry. Finally, investments made in Indian R&D facilities will be counted as offsets.

So far, the investment into Indian R&D has been negligible. And in choosing Indian partners, foreign arms vendors have preferred private companies to the public sector. So far, 40% of all offsets have gone to MoD-owned entities: factories of the Ordnance Factory Board and the eight defence PSUs. 33% of the offsets have gone to large private companies and a healthy 27% have gone to small and medium sized manufacturers.

The potential value of offsets business is enormous. India currently buys foreign weaponry worth about Rs 50,000 crores annually, a figure that is rising. Taking the minimum offsets liability of 30%, about Rs 15,000 crores worth of offsets must be discharged annually. In fact, the figure is higher; the medium fighter tender specifies an offsets liability of 50%.

The global arms industry complains bitterly about offsets; the United States government officially frowns at offset demands, but allows its companies to meet the conditions of buyers. But India’s MoD insists that global defence contractors actually derive commercial benefits from partnering Indian companies in defence manufacture. The DOFA chief points out, “Offsets requirements force foreign vendors into looking for Indian companies to partner. But this is for the present; 10-15 years down the line, we will not need offsets at all to galvanise Indian defence manufacture.”

Offsets were first demanded by European countries in the late 1950s, when the US was arming NATO against the Soviet Union. But the practice gathered momentum only in the last two decades. In 1990 only 20 countries demanded offsets as a part of arms purchases. Today offsets are demanded by over 130 countries.

In India, defence offsets were first approved by the Defence Minister in 2004 and included in Defence Procurement Policy of 2005 (DPP-2005). This was amended in DPP-2008, which permitted “offset banking” and the waiving of offsets in “fast track” purchase. This year, DPP-2009 permitted a long-standing request by foreign vendors, allowing them to change offset partners.

Today, indicating that more changes could be legislated in DPP-2010, DOFA Chairman Satyajeet Rajan asked the private sector to suggest useful changes to the offsets policy.

Distribution of offsets

40% : Ordnance factories and DPSUs

33% : Large private industry

27% : Other private industry

Offsets business year-wise

2007 : Rs 243 crores

2008 : Rs 2598 crores

2009 : Rs 4870 crores

Friday, 20 November 2009

IAF slams HAL, political interference in procurement, bats for private sector

Photo: IAF Vice Chief, Air Marshall Pranab Kumar Barbora, who is setting the bar for plain-speaking by senior military officers

by Ajai Shukla
Business Standard, 20th Nov 09

Private sector companies engaged in aerospace manufacture and R&D now have an influential new supporter: The Indian Air Force (IAF). In New Delhi today, the IAF’s vice chief, Air Marshall Pranab Kumar Barbora forcefully called for government policy changes to encourage the private sector in aerospace production, to kickstart a sector that has long been dominated by public sector Hindustan Aeronautics Ltd (HAL).

Industry bodies like the Confederation of Indian Industry (CII) have pushed these measures earlier. But the military has so far toed the Ministry of Defence (MoD) line, which automatically grants Defence Public Sector Units (DPSUs) like HAL a predominant position, effectively confining private companies to the ancillary supply of aircraft sub-systems.

But Air Marshall Barbora, a blunt-speaking MiG-21 veteran with a reputation for plain speaking on controversial matters, contrasted the private sector’s success in modernising more than 50 airbases, with HAL’s dismal export performance.

Pointing out that even Pakistan had more defence exports than India, the IAF vice chief said, “I visited HAL a few days back. They are proud that they are making parts for Airbus. But a few days back, China produced the whole Airbus. We are happy producing a door here and something else there.”

Air Marshall Barbora listed out policy changes that the government urgently needed to implement to energise the private sector. These included:

  • Government must fund R&D and manufacture by private companies, like it has done for the DPSUs. “They (private sector) have to be part of the new structure. If you don’t give them finance, they won’t come up.”

  • Assuring firm orders (or Minimum Order Quantity) to private companies, which will allow them to recover the money they spend in developing a product. “If they know they have to produce 1,000 of this, they will be willing to invest.”

  • Removing government curbs on defence exports by the private sector, to allow them to recover investment costs. “Our own [defence] requirements are miniscule. If you don’t allow private companies to export, he will say, ‘you look after yourself, I’ll look after myself.’”

  • Addressing “the CVC syndrome”, in which “anyone can file an FIR and everything comes on hold”. The IAF deputy declared that procurement processes must go on without disruptions by motivated allegations of corruption.

  • Increase the Foreign Direct Investment limit, which is currently 26 per cent. “We have taken steps, but they are not bold enough. We have to be bolder, to invite more investment.”

The IAF deputy also slammed political parties for criticising and scanning defence contracts signed by the previous government, each time power changed hands. Air Marshall Barbora said, “The government becomes the opposition and the opposition becomes the government and blocks everything. That impinges very badly on defence.”

Pointing out that dependence on defence imports remained an Indian vulnerability, the IAF deputy slammed the US for placing sanctions on India after the Pokhran nuclear tests. Holding France up as a model to follow, Air Marshall Barbora said, “France said that, by so and so year, we will go fully indigenous. And they did that. [After that] France blasted all the nuclear devices that they wanted in the Pacific Ocean and nobody could do anything, because they had indigenised [defence production].”

According to a CII-Ernst and Young report, India has over 6,000 SMEs supplying DPSUs, Ordnance Factories, DRDO and the armed forces with 20–25 per cent of their total requirement of components and sub-assemblies. In addition, there are almost a hundred large private companies involved in defence manufacture.

These recommendations were made at a seminar on “Energising Indian Aerospace Industry” in New Delhi.

IAF Recommendations:
  • Fund R&D and manufacture by private sector
  • Assured orders to recover investments
  • Remove curbs on defence exports
  • Minimise disruption of procurement
  • Increase FDI limits from 26%