Tuesday, 31 July 2018

Defence ministry clears decks for buying 111 choppers for the navy at Rs 217 billion

Also Rs 8 billion project cleared for eight fast patrol vessels for Coast Guard

By Ajai Shukla
Business Standard, 31st July 18

On Monday, the defence ministry announced it has approved “implementation guidelines for the strategic partnership model.”

The “strategic partner” (SP) model of defence procurement, which was promulgated in outline in May 2017, provides a policy framework for Indian firms to manufacture specified defence platforms in India based on technology transferred by a selected foreign vendor.

The SP Policy initially aims at building four categories of weaponry – fighters, helicopters, submarines and armoured vehicles. 

But while the policy framework had been drawn up, and retrospectively included as a chapter in the Defence Procurement Procedure of 2016 (DPP-2016), there was a need for separate selection criteria for each of the four equipment categories. 

“In an endeavour to convert policy into implementable directions and to kick start the process, the DAC (Defence Acquisition Council) also approved platform specific guidelines for procurement of Naval Utility Helicopters,” said a defence ministry release on Monday.

That clears the decks for initiating the Rs 217.38 billion (Rs 21,738 crore) procurement of 111 utility helicopters for the navy.

“The amplifying guidelines lay emphasis on incentivisation of transfer of niche technology and higher indigenous content. Global majors, who in collaboration with Indian Partners are ready to make India a regional/global manufacturing hub for the platform will also be incentivized”, said the defence ministry release.

“All procurements under the SP Model would be executed by specially constituted Empowered Project Committees (EPC) to provide focused attention and ensure timely execution,” stated the ministry.

In the SP pipeline are 110 medium fighters for the air force, 123 naval multi-role helicopters, 111 naval utility helicopters and six conventional submarines under Project 75-I.

The DAC also accorded approval on Monday for buying eight Fast Patrol Vessels for the Coast Guard under the “Buy lndian – lndian Designed Developed and Manufactured” category for approximately Rs 800 crore. 

“These vessels will be indigenously designed and manufactured and would strengthen maritime security by undertaking day/night patrolling and policing of [India’s maritime zones]”, said the defence ministry.

Why defence indigenisation fails

'Make' procedure, which involves real indigenisation and capability creation, must be promoted. Instead, it has been killed

By Ajai Shukla
Business Standard, 31st July 18

Defence industry experts wonder about India: Why has a country with a thriving space programme, a world-class information technology industry and a leading automotive components industry failed so conspicuously to build an indigenous defence industry? An examination of the “Make” initiative brings out some lessons.

In 2004, the newly elected United Progressive Alliance (UPA) government appointed Vijay Kelkar to plan a strategy for indigenisation. Nine months later, the Kelkar Committee submitted a report titled “Towards strengthening self-reliance in defence preparedness”, which laid out an excellent roadmap for building genuinely Indian weaponry, while nurturing a national military-industrial complex. Over the years, successive defence ministries hollowed out the “Make” procedure that lies at the heart of Kelkar’s recommendations. Last month, it was formally pronounced dead.

The “Make” procedure was introduced in the Defence Procurement Procedure of 2006 (DPP-2006). It involves conceiving, designing, developing and manufacturing complex weapons platforms in the country, such as aircraft, tanks or communications grids. This involves selecting an Indian company or consortium as a “development agency” (DA), and the government reimburses 80 per cent of the development cost incurred. Foreign firms can be co-opted as technology partners, but the DA remains the prime integrator, responsible for systems development. Make projects aimed far beyond license-producing foreign weaponry that, by virtue of being in service, incorporates technology 10-15 years old. Instead, Make projects involve developing cutting edge platforms and creating systems integrators in India. 

Central to the Make idea was the selection of Raksha Udyog Ratnas (RuRs, or “Champions of Defence Industry”). These were to be technologically capable and financially robust private firms that would be eligible to bid for “Make” projects. In developing a product, the RuR would co-opt other firms, creating a defence manufacturing eco-system. Where technology gaps forced the DA to import sub-systems, concurrent development of indigenous versions was to be promoted, preferably through micro, small and medium enterprises (MSMEs). This would indigenise subsequent versions (Mark 2, Mark 3…) of the platform. To fund small product development, a Technology Development Fund was established and allocated Rs 100 crore in 2007-08. This allowed for grants-in-aid of up to Rs 5 crore to MSMEs, deepening the supply chain and the national eco-system.

The “Make” procedure emphasised high technology. The key criterion for selecting DAs for a project was not “lowest cost” (L-1), but higher indigenisation and control over important technologies. In another innovative decision “Make” projects were not to be funded from the army, navy or air force budget. Instead, DPP-2011 mandated a separate accounting head, managed by the defence ministry’s Acquisition Wing. This would ensure that “Make” projects, which aimed at national capability creation, would not be scuttled by a military that preferred immediate combat capabilities.

The “Make” procedure encountered difficulties of various kinds. First, pressure from labour unions of defence public sector undertakings blocked the UPA government from nominating RuRs, fearing competition. That made selecting DAs difficult, since RuRs would have provided a convenient shortlist. Then, successive governments allocated only a pittance to the “Make” head. Since 2010-11, three years saw zero allocations, while they exceeded Rs 100 crore only twice. Similarly, the Technology Development Fund lapsed after a couple of years. It was revived in 2015-16, but handed over to the Defence R&D Organisation (DRDO) to administer – an unwise move, given that DRDO has its own Rs 9,734 crore (Rs 97.34 billion) capital budget and interests.

Facing difficulties in implementing “Make”, the government introduced a new category of Buy & Make (Indian) in DPP-2011. This was a throwback to licensed production – with foreign vendors offering in-service platforms for manufacture by Indian partners. Dispensing with indigenous development and systems integration, this put the foreign partner in control. An initial indigenisation level of 30 per cent is mandated (50 per cent over the lifetime of the product) but the foreign vendor can decide which technologies would, and would not, be transferred to India. Clearly, Buy & Make (Indian) will catalyse only limited, and low-level, indigenisation. 

The same is true of the current government’s “strategic partners” (SP) initiative, which involves nominating Indian defence firms to partner foreign vendors, selected by the defence ministry, for manufacturing chosen platforms in India. The notion of SPs was initially similar to that of RuRs but, typically, the government lost the thread. Now SPs will be selected for each contract, on a one-time, one-product basis, throwing out the notion of strategic partnership. The SP model then becomes similar to Buy & Make (Indian), except that the defence ministry must shortlist eligible SPs and also choose the foreign vendor. The ministry can demand the transfer of certain technologies, but little development can be expected in India, with 80 per cent of the selection weightage based on cost and only 20 per cent on factors like technology.

Currently, most major projects in the procurement pipeline are being pursued in the SP category, including Project 75-I for six submarines, the procurement of 110 fighter aircraft and of naval utility and multi-role helicopters. The government is still working on a final version of the policy.

DPP-2016 came up with the new “Make (Indian Designed, Developed and Manufactured)” category, to qualify for which a product had to be designed and developed in India, and at least 40 per cent of it manufactured in India. Unexceptionable in principle, this “top priority” procurement category faces a difficult question: How does one determine where a product was designed?

Meanwhile, the three “Make” projects that were initiated now face uncertain futures. The Tactical Communications System project sputters along, but funding remains an issue. The defence ministry has moved to shut down the Battlefield Management System project, since the army wants to save money for “more urgently needed acquisitions.” And the Future Infantry Combat Vehicle (FICV) is now being pursued under the “Make II” category, in which industry bears the entire funding cost. The defence ministry, taken aback by fierce competition amongst prospective DAs and unable, or unwilling, to choose between them, sidestepped the selection last month, declaring that all “Make” projects would be pursued under the “Make II” category. 

The latter was conceived for small projects with funding requirements that industry could afford. With the FICV development cost likely to be about Rs 800 crore – not excessive for a major platform prototype – no company is likely to bear that cost. It would not be unreasonable to expect that FICV would eventually be pursued as a SP or Buy & Make (Indian) category project, with the benefits flowing to some foreign vendor.

Saturday, 28 July 2018

Imported share of “indigenous” weaponry down from 48% to 40% in last 4 years

50,000 aerospace parts are now being built in India; but 80,000 remain to be indigenised

By Ajai Shukla
Business Standard, 28th July 18

Import dependence remains a major problem even in indigenous weapons systems, with up to 40 per cent of the value of “Made in India” armaments accounted for by components sourced from abroad, said Secretary for Defence Production Ajay Kumar.

On Friday, addressing an Indian Air Force (IAF) – defence industry seminar in New Delhi, Kumar highlighted the scale of the problem. “Last year, the total production by defence PSUs (public sector undertakings) and OFB (Ordnance Factory Board) was about Rs 59,000 crore, of which Rs 138 billion (Rs 13,800 crore) was the value of imported components. That is roughly 24 per cent. But when we look at Hindustan Aeronautics Ltd (HAL), out of Rs 172 billion (Rs 17,200 crore) of production, Rs 70 billion (Rs 7,000 crore) was imported components -- nearly 40 per cent.”

The situation was even bleaker four years ago, said Kumar. “This 40 per cent [import content] today was 48 per cent in 2014-15. So we have been able to progressively reduce it. But significant work still needs to be done,” he said.

Air Marshal RKS Shera, the IAF’s maintenance chief stated that over 50,000 individual components had already been indigenised, or taken up for production by Indian industry. An additional 3,000 items are indigenised every year, but there are still another 80,000 components that can be built in India.

To address this problem, Kumar proposed a national effort to obtain three categories of technology, which would spur growth in aeronautical manufacture. First, India needed to leverage its position as the world’s fastest growing civil aviation market – with a demand of 850-1,000 civil airliners – to extract key technologies from vendors seeking to supply to India.

“Looking at our combined market size [of civil and defence aircraft] – and these engines will require maintenance, replacements etc. – we should lay down a roadmap for developing an aero engine manufacturing eco-system in the country”, said Kumar. 

Kumar admitted this would not be possible without the government driving it. 

This was precisely the strategy used by China, when it was the fastest growing market for airliners, to promote aerospace manufacture in that country. Beijing managed to arm-twist Airbus into establishing a production line in China, but it is still grappling with aero engine manufacture.

The second technology domain that Kumar wants focus on is materials technology. “This involves various kinds of composite materials, various kinds of super alloys, single crystalline alloys, etc. These technologies again will require significant investments in many cases, and significant scale or operations.”

This again is a path that Beijing traversed while building its high-speed rail network. By making it compulsory for railway carriage manufacturers to set up shop in that country, Beijing obtained advanced materials technologies that it then adapted to aerospace and missile production.

Kumar’s third requirement is computer chip technology. “Whether it is a silicon chip, whether it is a LCD or LED chip, whether it is a gallium nitride chip, this constitutes most of the value that goes into the aircraft, or for that matter any defence platform. This has not just economic considerations, but also security and strategic aspects. As long as we are importing most of these chips, we are exposing ourselves to vulnerabilities that are not visible to the naked eye,” he said.

Setting up production of aero engines, high-tech materials and computer chips in India, however requires manufacture on a global scale, for which, the defence production secretary said he had “streamlined, rationalised and simplified” the export policy. 

“No export request is pending for more than 30 days in the ministry. Repeat orders, do not require even 30 days, they are done literally across the table,” said Kumar.

Noting that start-ups would be central to high-tech defence innovation, Kumar said the IDEX (Innovations for Defence Excellence) scheme that Prime Minister Narendra Modi inaugurated in April would be unveiling its first set of “challenges and problem sets” to start-ups in Bengaluru on August 11. They would be required to present proposed solutions and the ministry would give up to one-and-a-half crore rupees to selected firms to develop prototype solutions.

Thursday, 26 July 2018

From steel to silicon: the shift in military technology

By Ajai Shukla
Business Standard, 26th July 18

The First Gulf War of 1991 – the official name of the four-day decimation of Saddam Hussein after he invaded Kuwait the previous year – mesmerised television audiences everywhere. It was the world’s first televised war, where CNN showed bridges and tanks exploding in puffs of flame, their fates sealed by the placement of a cross hair from a fighter pilot’s cockpit. Cruise missiles moved almost leisurely through the streets of Baghdad before flying buildings through open doors and windows.

But while the citizen glued to her television screen took merely vicarious pleasure in that sanitised dance of death, the armed forces of other militaries were looking more carefully at the new, high-tech US military whose battlefield networking routed Saddam Hussein's Iraqi Army in less than 96 hours. that was clearly enjoying its catharsis from the humiliation of Vietnam. And none observed more carefully than China’s People’s Liberation Army (PLA).

Here was the ultimate power dream: a military that could see almost everything on the battlefield, at all times, day or night; and strike with unprecedented precision. In World War One, it took an estimated 12,000 bullets to hit a single soldier. But now, even while infantry on the battlefield continued spraying bullets indiscriminately, there was a growing role for “precision guided munitions” (PGMs). These weapons harnessed several new technologies – satellite and airborne surveillance, digital communications, inertial and satellite navigation, and electronic jamming.

But what impressed observers even more than the improved accuracy of individual weapons systems was the unprecedented coordination by the various elements of the military achieved by networking sensors and fusing the data they generated. Powerful computers and software presented commanders with the best options for striking enemy targets. And the accurate strike options themselves were made available faster.

Since then, the PLA has tried to replicate this networked military, pursuing what communist apparatchiks clumsily term “modern warfare under informatized conditions.” As is evident from its most recent White Paper of 2015, the PLA commits to enhancing its combat capability through systematically structured “command, control, communications, computers, intelligence, surveillance and reconnaissance” (C4ISR) systems – now a buzzword in modern militaries.

In simple terms, this amounts to a shift in emphasis from steel to silicon. Instead of focusing on weapons platforms – such a tanks, warships or fighter aircraft – the focus is now the on network linkages between these platforms. Just as the US military first did, the PLA is transforming itself from a platform-centric force into a cyber-centric one.

A networked military enables it to be faster than the adversary on the “OODA loop” – the sequence of Observe, Orient, Decide and Act. In simple terms that boils down to: detecting and identifying targets, deciding which in-range weapons to destroy him with and, finally, executing the strike. 

Indian generals too like to talk about a “networked military”, but the reality is that our armed forces, especially the army, still operate like a mid-20thcentury force – a collective of individually controlled units that exchange limited information. While 21stcentury militaries network their combat, support and logistics units through high-bandwidth, digital data links, India’s army – and large parts of its navy and air force – rely on traditional communications, such as radio networks. 

In fact, here is little conviction in the Indian military’s pursuit of a networked force, based on information technology and digital communications. On Friday, the army shut down one of its most promising network projects:  the excellently conceived Battlefield Management System (BMS).

BMS aimed at networking combat echelons over man-portable digital communication links provided by a high-tech “software defined radio” (SDR) carried by individual combat soldiers. This would transform each soldier – traditionally no more than a “rifleman” – into a potent “digital entity” that receives data from multiple battlefield sensors, such as unmanned aircraft, radars, ground sensors and even lookout posts. In turn, each soldier transmits battlefield information available to him, feeding into a comprehensive “battlefield picture” available to every combatant.

BMS’ efficacy was to be enhanced further by connecting it with a range of other military networks, which are under development.These include an Artillery Command, Control and Communications System that networks fire support from artillery guns within range; an Air Defence Control & Reporting System that monitors airspace; and a Command Information and Decision Support System that generates automated solutions for commanders to choose from. Riding on the back of a Tactical Communications System, all these networks share information and enhance battlefield transparency.

However the disturbing fact is that a large number of technology-challenged senior officers of the army remain more comforable with platforms and weapons than with digital networks. The army’s recently-retired vice chief ordered BMS shut down in order to conserve money for legacy equipment like rifles.

To understand the advantages of a networked military, one need look no further than Uber. Until the turn of the century, if one wanted a taxi, one called up the local taxi stand, which would send a cab home. In the 2000s, radio taxis came into being. The customer called a central control room, which broadcast the request over a radio network that was received over a radio fitted in each taxi. A nearby taxi would pick up the customer, while the control room updated its map.

This model, which was slow and had capacity constraints, was overwhelmed by Uber, which connects all its taxis and every customer through a radio, computer and location tracker – which reside on every mobile phone. Uber’s data management and networking saves time and optimises limited resources.

Until the army becomes fully networked like Uber, it is essentially continuing to operate on the radio taxi model. Overworked headquarters and combat units continue functioning over inefficient voice (as opposed to data) channels, directing each unit individually.

This is what BMS seeks to remedy and Google Maps illustrates the model. Theoretically, a passenger could get to her destination sooner by buying a fast, expensive car, but traffic conditions often make a fast car irrelevant. Enter Google Maps, which “crowd sources” traffic conditions from users’ mobiles and feeds back the best route for each, thus allowing for the most efficient use of the road. 

Extrapolating this common sense solution to the battlefield, BMS “crowd-sources” situational inputs from the tactical battle area — including from individual soldiers and weapons systems or surveillance devices. This updates situational awareness in real time, giving combat echelons a head start on the OODA loop. 

The central challenge in developing modern digital networks is to create miniaturised and ruggedised equipment that combat forces can carry and the most important element of this is man-portable radio communications, since a force outpaces its static communication grids while advancing into enemy territory.

“Every field army is structured on the basis of self-sufficiency. It carries its own tentage, transport, cookhouses and road-building equipment, since these cannot be sourced from anywhere on the battlefield. The same is true of communications,” says an officer who works on communication grids.

“Given India’s information technology skills, we should enjoy an advantage in building digital networks. This is a technology domain in which self-sufficiency and indigenisation is critical, since we must guard against an adversary infiltrating or subverting our digital networks. But there is still only limited understanding of these issues and we have far to travel,” says Rahul Chaudhry, who heads the Defence Innovators and Industry Association.

Wednesday, 25 July 2018

US Congress tailors waiver plan to let India purchase weaponry from Russia

By Ajai Shukla
Business Standard, 25th July 18

Both US houses of Congress – the Senate and the House of Representatives – have jointly drafted legislation that will allow President Donald Trump to exempt close partners such as India from sanctions for buying weaponry from Russia.

The National Defense Authorization Act, 2019 (NDAA 2019) – the agreed version of which was finalized on Monday – imposes conditions for the grant of a sanctions waiver by the US president. 

Section 1294 of NDAA 2019 mandates that the waiver must promote “the national security interests of the United States”. Second, it should not involve a “significant transaction” with specified Russian security and intelligence agencies. Third, it should not endanger American alliances or coalitions or compromise US defence systems and operational capabilities.

The sanctions were imposed in mid-2017 when the US Congress, furious at what it regarded as Russian meddling in America’s 2016 presidential election, and at Trump’s apparent reluctance to retaliate against Moscow, passed a law entitled “Countering America’s Adversaries Through Sanctions Act” (CAATSA). Seeking to isolate Russia primarily, but also Iran and North Korea, it mandates sanctions against countries that engage in “significant transactions” with these countries’ defence and intelligence agencies.

However, Congress has been persuaded by the US administration, especially through hectic lobbying by Secretary for Defense Jim Mattis, that CAATSA would seriously compromise Washington’s relations with countries like India, Indonesia and Vietnam, which have a predominantly Russian arsenal and are, therefore, left with no choice but to deal with Russia to keep their weaponry serviceable.

NDAA 2019 is likely to enjoy smooth passage through Congress, since committees from both houses have agreed on the text of the bill.

Officials in the United States India Business Council (USIBC), which played a lead role in pushing the legislation through the joint Senate-House conference, point out that the language is aimed squarely at providing India an exemption from sanctions, with Indonesia and Vietnam being incidental beneficiaries.

“Without India, this waiver would have been substantially less likely to have been passed. The waiver conditions in the NDAA were tailored precisely to fit India so growth can continue in the India-U.S. defense relationship. The fact that this was done despite so many other political priorities in Washington DC demonstrates the robustness of U.S.-India ties,” says Ben Schwartz, who heads the aerospace and defence vertical of USIBC.

“At a time when India is focusing on growing defense ties with the US, we applaud Congress for also focusing on protecting this strategic partnership,” said Nisha Biswal, President, USIBC.

Schwartz points out that the third enabling clause -- which is that sanctions would “result in a significant negative impact to defense cooperation between the United States and the country” -- was inserted with India in mind.

Another piece of drafting enables India to bypass the clause that restricts waivers to countries that are “taking or will take steps to reduce its inventory of major defense equipment and advanced conventional weapons produced by the defense sector of the Russian Federation as a share of its total inventory… over a specified period.”

Knowing that India would be hard pressed to meet this clause, the NDAA 2019 draft says that, alternatively, the country should be “cooperating with the United States Government on other security matters that are critical to United States strategic interests.” 

The legislation requires the US Secretaries of State and Defense to annually certify to the US Congress that the waiver has “not resulted in the compromise of United States systems and operational capabilities.”

Another part of NDAA 2019, Section 1266, seeks to build on the Major Defence Partnership between Washington and New Delhi by demanding a more detailed annual report to the US Congress on what the administration is doing to take forward the bilateral defence relationship.

It requires the annual report to include “a forward-looking strategy with specific benchmarks for measurable progress towards enhancing India’s status as a major defense partner and defense and security cooperation with India.”

The report must also detail hurdles in the relationship, actions India is taking to advance the relationship and measures that can improve interoperability between the two militaries.

“This institutionalises continuity in the relationship. It is Congress telling the US administration that we are watching, and we will hold you accountable for taking forward the US-India defence relationship,” said Schwartz.

Sunday, 22 July 2018

Rafale deal: secrecy pact renewed in March, but cost details already revealed

Govt renewed secrecy pact with France in March, but governs technical details, not prices

By Ajai Shukla
Business Standard, 22nd July 18

The Bharatiya Janata Party (BJP)-led government, in declining to provide commercial details of its purchase of 36 Rafale fighters for the Indian Air Force (IAF), has sheltered behind a 2008 confidentiality agreement between New Delhi and Paris.

But on Friday, while arguing in parliament that the United Progressive Alliance (UPA) had signed the secrecy pact, the government kept silent on the fact that the agreement had expired this year. Nor did it mention that on March 28, during French President Emmanuel Macron’s visit to India, it renewed the pact for a decade more.

That detail is buried in a parliamentary question that the defence ministry answered in March. Also evident from its answer is the limited scope and nature of the Indo-French agreement.

On March 28, Minister of State for Defence Subhash Bhambre toldparliament: “An Agreement between India and France regarding the Exchange and Reciprocal Protection of Classified or Protected Information was signed on 10th March, 2018 during the State Visit (sic) of President of France to India. This agreement defines the common security regulations applicable to any exchange of classified and protected information between the two countries.”

Business Standard learns that the 2008 Indo-French agreement had covered exactly the same ground.

Experts say the scope of that pact – i.e. the “exchange of classified and protected information between the two countries” – does not include commercial details and costs. Its scope only extends to tactical and technical details relating to the capability of the platform in question, and its performance and tactics in combat.

The French government statement, issued on Friday, also asserts the confidentiality of “security and operational capabilities”, not price details. Paris said the agreement “legally binds the two States to protect the classified information provided by the partner that could impact security and operational capabilities of the defence equipment of India or France.” (emphasis added)

Further, as The Wire reported on Saturday, Macron himself is ambiguous about what France wants to be kept confidential. In an interview to India Today TV on March 9, Macron said: “There are some discussions to be organised by the Indian government, and they will have to consider which details they would want to be revealed to the Opposition and Parliament. I am not one to interfere in such a discussion and you too must realise that we have to consider commercial sensitivities.” (emphasis added)

Given that Paris routinely makes public details about what its military pays for each Rafale buys, Macron would be unlikely to restrain New Delhi from doing so.

Furthermore, the government is submitting the Rafale contract to a Comptroller and Auditor General audit. There is little reason to withhold cost details from a privileged parliamentary panel, such as the Standing Committee on Defence. 

On Wednesday, Bhambre had told Parliament: “The Comptroller and Auditor General (C&AG) is conducting the audit of the Capital Acquisition System of Indian Air Force including the Rafale aircraft.”

Air Vice Marshal Nirdosh Tyagi (Retired), who handled IAF procurements in 2008-2011, including the aborted tender for 126 medium multi-role combat aircraft (MMRCA), says the government should not shy away from revealing cost details of the 36-Rafale contract. “The is little reason to apprehend that other potential Rafale customers might benefit from knowing details of the Indian contract. Each contract has different components and comparing two contracts like comparing apples to oranges,” says Tyagi.

Further, the defence ministry has already revealed full details of the Rafale purchase. On September 23, 2016 – after then defence minister Manohar Parrikar inked an Inter-Governmental Agreement with his French counterpart, Jean-Yves Le Drian, while officials signed commercial components of the Rafale contract – a top defence ministry official conducted an off-the-record media briefing, giving out minute details of the Rafale contract.

Based on that briefing, the media reported widely the details that the government now calls confidential.

In Business Standard (September 24, 2016 “India signs euro 7.8-billion deal for 36 Rafale fighters”) it was reported that the average cost of each Rafale was fixed at Euro 91.7 million (today Rs 740 crore). At that price, 36 bare-bones aircraft cost Euro 3.3 billion (today Rs 26,610 crore).

With Euro 1.7 billion more (today Rs 13,710 crore) for India-specific enhancements to the fighter, the cost of 36 Rafales added up to Euro 5 billion (today Rs 40,318 crore). That means each Rafale fighter cost Euro 138.8 million (today Rs 1,120 crore).

Cost breakdown of 36-Rafale contract

Expenditure item
Details of expenditure

Cost of aircraft

Single-seat Rafale fighters
28 @ Euro 91.07 million each
Euro 2.55 billion
Twin-seat Rafale fighters
8 @ Euro 94 million each
Euro 0.75 billion
India-specific enhancements
Helmet sights, radar receiver, radio altimeters, Doppler radar, cold start 
Euro 1.7 billion

Total cost of 36 fighters

Euro 5.0 billion

Cost per fighter
Averaging for single/twin seaters
Euro 138.9 million

Cost of weaponry

Including Meteor, SCALP missiles
Total cost of weapons, mainly from French firm, MBDA
Euro 700 million

Maintenance expenses

Spare parts and items
Needed to keep aircraft flying
Euro 1.8 billion
Performance based logistics
Guarantee of 75% availability
Euro 350 million

Aircraft cost plus add-ons
Euro 7.85 bn

The ministry provided extensive details of the India-specific enhancements, which included “helmet mounted display sights” that allow pilots to aim their weapons merely by looking at a target; a “radar warning receiver” to detect enemy radar and “low band jammers” to foil it; a radio altimeter, Doppler radar and extreme cold weather starting-up devices for airfields like Leh.

The ministry official said another Euro 2.8 billion were paid for spares worth Euro 1.8 billion (today Rs 14,500 crore), weaponry worth Euro 700 million (today Rs 5,645 crore), and a logistics package of Euro 350 million (today Rs 2,822 crore) that requires the French to ensure that at least 75 per cent of the Rafale fleet is available at all times for the next five years. 

Further details were provided. The defence ministry said the weapons package includes Meteor “air-to-air missiles” that can shoot down aircraft 120-140 kilometres away. Also being provided was the Storm Shadow cruise missile for striking airfields, military headquarters and strategic infrastructure 500 kilometres away.

It was also revealed that the first Rafale must be delivered within 36 months, i.e. in September 2019. Dassault is to execute the entire order within 67 months, which means the last Rafale must join the IAF by April 2022.

The defence ministry also gave out details of the payment schedule. The IAF was required to pay a 15 per cent “signing advance” of about Rs 8,700 crore today. Another 25 per cent was to be paid in 2017. The balance amount would be paid over the coming years at stipulated delivery milestones.

Saturday, 21 July 2018

Rs 21,738 crore (Rs 217 billion) naval chopper to be first “strategic partner” procurement

Delay stems from need to draft separate selection criteria for each category -- fighters, choppers, submarines and tanks

By Ajai Shukla
Business Standard, 21st July 18

In a statement that will be welcomed by private Indian defence firms and global “original equipment manufacturers” (OEMs), Defence Production Secretary Ajay Kumar indicated on Wednesday that the defence ministry was giving full importance to the “strategic partner” policy.

After a meeting of the US-India Defence Technology and Trade Initiative (DTTI) in New Delhi, Kumar made it clear that India’s defence industry would need to partner foreign OEMs for manufacturing defence equipment in India.

He said Indian firms’ contribution towards equipping the military would have to be “in partnership with foreign OEMs to begin with.”

To provide the policy framework for such cooperation, the defence ministry had promulgated the SP Policy in May 2017. This envisaged Indian firms tying up with selected foreign OEMs to manufacture arms in India using transferred technology.

The SP Policy initially aimed at four categories of defence platforms – fighters, helicopters, submarines and armoured vehicles. 

Since then, however, the defence industry has waited in vain for lucrative SP projects to be tendered. In the SP pipeline are 110 medium fighters for the air force, 123 naval multi-role helicopters (NMRH), 111 naval utility helicopters (NUH) and six conventional submarines under Project 75-I.

Defence ministry sources say the delay stems from the need to draft separate selection criteria for each equipment category. “The factors governing a submarine project are different from those in, say, a fighter or tank project. So we are drafting separate rules for each equipment category. These will be category-specific appendices to the main SP Policy,” explains a senior official.

Business Standardlearns that the first appendix, which the ministry hopes to make public by September, will deal with helicopter manufacture. That would allow the navy to start the process of building the NMRH and the NUH, for which the ministry has green-lighted an expenditure of Rs 21,738 crore (Rs 217.38 billion).

The policy framework is nearly ready for the Project 75-I submarine programme too, says a senior defence ministry official. About speculation that the contract will simply be handed to the defence public sector undertaking (DPSU) Mazagon Dock Ltd (MDL), the official clarified: “MDL can certainly compete for the tender, since the SP Policy does not rule out DPSU participation. But we are committed to building the submarines under the SP route, so the private sector can compete too.”

On media reports that Moscow has approached New Delhi with a proposal for building the submarines under a government-to-government arrangement, the official said that that would not be possible, since this is an SP project.

Officials say it will take longer to finalise the SP model for fighter aircraft. However, there is time in hand since the air force would take four-six months to examine vendor responses to the “request for information” (RFI), which were submitted on July 6. 

“We will have the entire policy in place soon. However, if we can finalise even one category in a month or two, it will add to our credibility and that of the SP model.

The National Democratic Alliance government is eager for some success on Make in India in defence production, which has not yet delivered results that could be held up as a success in next year’s general election campaign.

Answering a question in Parliament on Wednesday, the defence ministry stated: “During the last three years and current year (upto June, 2018) out of total 168 contracts, 106 contracts have been signed with Indian vendors.” The equipment included helicopters, radar, ballistic helmets, bulletproof jackets, artillery guns, simulators, missiles, ammunition and fuzes.

However, a significant share of the contracts signed with Indian vendors finds its way to foreign suppliers, since even ostensibly “Indian” equipment contains a large percentage of foreign components, assemblies, sub-systems and systems.

Even so, Indian private firms are keenly anticipating SP route procurements. In Parliament today, the defence ministry stated that, till June, the government had issued 379 licenses to 230 Indian private firms for defence manufacture. “Till June 2018, 70 licensed companies, covering 114 licenses, have reported commencement of production,” said the ministry.