September 18, 2020
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Defence Industry Special: Why India is the biggest importer of arms?

India’s defence modernization program is attractive and can salvage present global arms market down turn in an unprecedented manner. While there is a huge budget cuts in US and Europe due to economic turmoil, India will have to spend a huge chunk of budget for its military capacity building.    

Next decade is supposed to offer an opportunity of US$ 100 billion in the Indian defence market but only a small percentage of this would go to the Indian defence industry.

The major defence systems that India intends to acquire during the next decade would be in the area of fighter aircrafts, helicopters, battle tanks, submarines, warships, small weapons for the infantry soldiers, anti aircraft and anti-missile missiles etc.

Indian defence industry is still not ready to grab a slice of this defence market. Lack of ministerial foresight, policy paralysis, bureaucratic incompetence, indifference and interference, has pushed India decades behind the other leading arms producers.

The deteriorating security situation within the country and around the region has ensured a continued modernization of the Indian armed forces.

India’s ties with the neighboring countries like China and Pakistan have remained as troublesome as it was five decades ago.

Hence, there is competitive deployment of the forces all along the Sino-Indian and India Pakistan border.

Besides, new security challenges have emerged in the maritime domain from the Gulf of Aden to South China Sea. With India’s burgeoning international trade India needs to secure the maritime trade routs in these areas.

All these have necessitated strong armed forces, for which the country’s leadership has not adequately geared up.

India cannot be overly dependent on imports, as it has a direct bearing on the country’s independent foreign policy and economy.

The huge amount, billions of dollars, could have been easily absorbed by the Indian defence industry if Indian planners had not inhibited the growth of Indian defence industry both in the private and public sectors.  

Lacking technology

Though over the years the Indian PSUs have acquired huge infrastructure and developed good manpower base, they are still not independently producing the required front line weapon systems for the armed forces.

The Hindustan Aeronautics is producing the Advanced Light Helicopter on an imported engine but India is still contracting for imports of Attack Helicopters, Heavy Lift Helicopters and Ultra Light Helicopters.

Sadly, India still has to import the basic trainer for its rookie pilots though India aspires to produce the advanced fighter. India would be heavily dependent on imports till the next decade to keep its forces well oiled.

The future policy directions also seem to be rudderless as the government is not able to frame an attractive FDI policy. The insistence on continuing 26 percent FDI limit in defence sector will ensure that the MNCs will continue to shun Indian defence market.

Even the offset policy under the DPP has not guaranteed the outsourcing of half of the total deal from Indian defence industry. They not only lack adequate technology and infrastructure base to produce the high technology items to be outsourced under the offset regulation, they are also not being encouraged with proper policy framework.

It was the grand vision of Jawahar Lal Nehru who paved the way for setting up more than 40 defence research laboratories in the country, for which the umbrella organization Defence Research and Development Organisation was set up in 1958.

Nehru wanted Indian armed forces to depend on the Indian developed weapon systems as during the Cold War days the arms producing nations were not willing to share technology.

At the best they were willing to sell the weapon systems only to their partner or allied countries. But India was not allied to any country in the hey days of the Cold War and had to think of an Indian developed and designed weapon systems which will not have any strings attached.

Hence, in the early eighties the government gave the sanctions for the indigenous Main Battle Tank project and the Light Combat Aircraft.

After three decades the Army has accepted the MBT Arjun with great hesitation whereas the LCA is still not an operational fighter.

No doubt the Indian ballistic missile program has achieved a great amount of success in which the assistance and contribution of the Indian Space Program should not be overlooked besides very high level government commitment was evident with full unquestioned financial support for the program of national importance.

In the aftermath of 1962, the Nehru government further set up the Department of Defence Production to give a fillip and overall policy guidance to the arms production within the country.

The DRDO laboratories and the Defecne Public Sector Undertakings under the MoD were mandated to make India self dependent on arms production.

As a follow up to this in 1965 the Department of Defence supplies was created to forge linkages between the civil industries and defence production units.

Complex structure

The two departments were merged in 1984 and the department of defence production and supplies were created. This was further renamed as Department of Defence Production in 2004.

It is very obvious that the government was only revamping the bureaucratic set up handling the defence production in the MoD and not actually energizing the defence production units to meet the demands of the armed forces.

The bureaucrats were those who were not at all conversant with the intricacies of the weapon systems and the requirements of the Indian armed forces which were very eloquently exposed in early part of last decade when the then defence minister George Fernandes had to order the responsible bureaucrats to be sent to Siachen for a week as a punishment.

The bureaucrats who forestalled the acquisition of the snow mobiles for the Siachen soldiers were told to see for themselves the difficult life of the Indian soldiers and their combat requirements.

Perhaps, the bureaucrats cannot be faulted for their incompetence. They are posted to the MoD and Department of Defence Production on deputation and routine transfer from other ministries.

They are not specialists in defence hardware and are called generalists who are posted to various ministries. Their three or four year tenure in various ministries range from Animal Husbandry Department or Rural Development to finance and then they may be sent to the MoD for a short tenure.

They spend initial first year in understanding the issues and by the time they are well versed with various weapon systems and intricacies of the ministry, they wait for the next assignment in another ministry.

Hence, they also hesitate in taking decisions on purchase of systems worth millions of dollars, as they fear they may be accused of bungling or wrong doing.

A need, therefore, is now felt that the MoD, like Ministry of External Affairs, should have separate dedicated cadre who spend their entire life time in diplomacy.

Similarly, the MoD should also have a defence cadre and its IAS officers must be trained in defence matters from the very beginning of their career and retained in the ministry till they retire, as in Ministry of External Affairs.

But post-independence Indian government continued with the same system of governance.

In the aftermath of Indian independence, the British government not only handed over its  system of military governance but also the left over arms, aircrafts and ships and later India imported the first biggest ship from UK, the second hand aircraft carrier Vikrant.

India also imported Leander class ships from UK and the Kashin class warships from Russia and on the basis of these ships the Indian naval industry developed own shipping industry and designed and produced many warships of most modern class.

But same cannot be said about the Air Force which still continues to rely on imported fighters and SAM and A-to-A missiles.

Undoubtedly, the Indian HAL has also produced the LCA on the design provided by the DRDO, the LCA is still not operational in the IAF after around three decades of its development effort. Similar is the case with the Main Battle Tanks and Infantry Combat Vehicles, air defence missiles etc.

Perhaps, this is the reason that India has emerged as the biggest arms importer of the globe. During the period 2007-2010 India emerged as the biggest arms importer as concluded be SIPRI, the Sweden based institute.

According to SIPRI, as much as 70 percent of the Indian arms requirements are imported by the country which accounts for ten percent of the global arms imports where as South Korea accounted for six percent, Pakistan five percent, China five and Singapore four percent.

Kargil was the stark reminder of India’s weak defence industry, when Indian defence bosses had to run helter and skelter to provide arms and ammunitions to our brave fighters.

Obviously, the domestic industry was not ready to fulfill the demands of even the ammunitions what to speak of advanced fighters.

It is well known that the Israeli companies came to India’s rescue and airlifted many sensitive defence equipments and systems to help Indian armed forces counter the Pakistani army soldiers disguised as Jehadis.

The Bofors Howitzers ammunitions were in short supply and many of the Indian soldiers were not having freezing temperature clothing. All these had to be imported and assembled amidst rising threats from the Pakistani army.

India’s last year’s defence budget of US$ 38.6 billion was not too large considering the defence budgets of other rival and major nations.

But India was the largest importer of arms in the world. Obviously major portion of Indian defence budget goes on importing arms in spite of establishing 8 major Public Sector Undertakings and almost 40 ordnance factories.

The question is who is responsible for the mess? Why are not these defence units producing even half of Indian armed forces requirements?

In 1995 the then Scientific Advisor to the Defence Minister A P J Kalam had launched a plan to reverse the 70 per cent import driven Indian armed forces to 30 per cent but India still continue to import seventy percent of its defence requirements.

The money being spent on equipping Indian armed forces could clearly have gone to the Indian defence industries if government had allowed and encouraged them to fulfill the demands of the Indian armed forces through a policy regime similar to the auto industry where India has emerged as the major production centres of auto parts and suppliers to the major auto producers of the world.

In the name of secrecy and sensitivity the government has stifled the growth of the private Indian defence industry. Just think of Indian auto industry when in 1983 the then Indira government allowed the first car factory from Japan to set up its unit in the name of Maruti and the aspirations of Indian middle class rose very high.

At that time, only Ambassador and the Fiat Cars were ruling the roost. In the name of self reliance if the government had continued with the same policy to protect Indian domestic auto industry could one have seen the level of Indian auto industry where India is today standing tall among all the auto producers?

Why can not have the Indian defence production units moved with the times? Who is responsible for the policy paralysis impacting the growth of Indian defence industry?

Even a country like China encouraged the foreign defence  companies to set up units in  the country for supply to Chinese armed forces and the Chinese very cleverly copied their designs and are today producing the modern fighters and tanks and their ballistic missile program is considered a huge success.

This has given China a national pride and strength on the basis of which they are able to challenge a super power like USA.  

After the Kargil conflict, when Indian arms production units failed the nation, the government realized the follies of the arms production policy and decided to allow Indian private sector to invest in defence sector and produce weapon systems for the Indian armed forces.

Private sector

Since the Indian private defence sector was lacking in technology and expertise in arms production the government allowed reluctantly 26 per cent FDI in the Indian defence sector.

Yet, after a decade, there seems to be no takers among the defence MNCs who considered this level of FDI too low. This has not encouraged them to set up joint ventures with Indian defence industry which was just beginning to learn the games of this new sector which are always mired in secrecy.

A vibrant defence industry also needs a comprehensive national scientific and technology expertise across the range of disciplines which India has not nurtured.

Though Nehru did visualize the need for such scientific base and he also promoted the setting up of laboratories under Council of Scientific and Industrial Research (CSIR) and Universities were also encouraged to develop expertise in various scientific disciplines, Indian laboratories definitely lagged behind their European and American counterparts.

This is because the innovation was not encouraged and the Research and Development laboratories were burdened with bureaucratic interference and lack of adequate financial support.

Though India does not lack in scientific and technological manpower and they have enough talent to support any technological venture, they only need entrepreneurial support which the MNCs have proved to be capable of providing.

Entrepreneurship is the major shortcoming of the Indian defence PSUs and ordnance factories who have largely thrived on low end technology and status quo.

They still assemble the MiG series and Sukhoi fighter aircrafts, T-72 and T-90 tanks though they have made some advances in naval warships.

These account for major chunk of India’s imports and Indian PSUs have only taken some baby steps in these high end weapons systems.

The PSUs and Ordnance factories do not want to relinquish their monopolies in the name of national security.

However, in view of the changed times they must be put on level playing field with the private sector.

They must compete with the private sector in the supply of armaments. Undoubtedly, the Indian DPSUs have developed capabilities over the years in areas such as electronics, aerospace, communications and ship building.

This needs to be promoted by allowing them to partner with foreign companies and develop their own indigenous strength. The government should also encourage the small and medium enterprises as they can be an important link in the defence supply chain.

The new Defence Production Policy has intended to ensure that 30 to 50 percent of the total deal amount would have to be sourced from Indian defence industries the foreign suppliers have found clever ways of circumventing these offset requirements.

Though sensing huge profit margin in defence deals many of the Indian leading private companies have set up their independent defence arms, they are also planning to set up joint ventures with leading foreign partners.

More than 200 corporate giants including the Tata, Mahindra, L&T etc have set up their defence production companies and some of them have marked their presence in areas like the Multi Barrel Rocket Launcher Pinaka as the private sector in India is yet to become a leading supplier of major weapon systems.

Since most of the companies want to make a quick buck in defence deals, experts said, that they must have a long term risk prone investment policy to gain a foothold in defence supplies to the Indian armed forces.

The private sector also must show professionalism while dealing with the government in the defence sector and must not try to create short routes to success.

There is no unanimity in the industry chambers over the extent of private sector and FDI share in defence production.

Chambers like FICCI wants the majority share to retain with the Indian joint sector partner whereas ASSOCHAM wants hundred percent FDI in defence projects.

The government is also divided. The Commerce Ministry wants 74 percent FDI limits whereas the MoD headed by A K Antony has misguided faith on the Indian defence PSUs and wants the limits for FDI in defence to be retained at 26 per cent.

Since defence products have very long product development and procurement cycles, the defence industry must be allowed to explore possibilities of exports to achieve viability and competitiveness.

They should be encouraged to open their factories in Special Economic Zones which should be leveraged to make it an important hub in the global supply chain of weapon systems.

This will help develop a domestic industrial base, encourage technology transfers and curb large scale imports. According to ASSOCHAM, “we must be realistic and recognise that defence production is a capital- and technology-intensive sector. To develop a strong industrial base in the country, we need both foreign capital and technology,” Assocham further suggested.

“We need to introduce greater transparency in - as well as simplify - the offset approval process. The offset approval process should be centralised in one permanent committee of the Defence Offset Facilitation Agency.”

The Defence Minister A K Antony had once remarked in response to a media query that the structural anomaly with respect to department of defence production needs to be corrected to make it responsible for India’s defence industry and not defence public sector undertakings alone.

This will help in reversing the trend of 70 percent dependence on imports. India definitely cannot achieve the great power status unless it has a sound defence industry of its own capable of servicing its armed forces to the majority of its needs.

Industry shortcomings

Yet, going by the current state of foreign involvement in the Indian military industrial complex and the insatiable desire for a foreign-stoked ”self-reliance” in the country the best description for the opening up of the defence sector to foreign arms dealers would be “mixed bag”.

There has been one resounding success in the India-Russia joint venture creation of the Brahmos series of missiles and there is one on the horizon in the India-Israel Ballistic Missile Defence that marries an Indian missile to an Israeli long-range radar.

The so-called “strategic alliance” with the US reminds one of the jokes when traveling in a Soviet space station was the ultimate badge of honor.

There was this Chinese astronaut who returned from one such joyride with his hands swollen and red. Asked what happened he replied that every time he touched something in the spacecraft the Russian astronaut would deliver a whack on the hands and tell him gruffly not to touch anything!

That is exactly what the Americans and those with whom they share military technology within the NATO framework are doing to India through such laws as the Logistical Sharing Agreement, the Communications Inter-operability and Security Memorandum of Agreement and Basic Exchange and Cooperation Agreement for Geo-spatial Cooperation.

This can give the Americans intrusive rights to enter and check whether the end user has tried to tamper with the equipment with the intention of reverse-engineering or stealing the technology, or, worse still, be using it against a friendly country.

Now that nobody really knows whether Pakistan is Washington’s “all weather friend” or its worst enemy India is in a dilemma about having to barter away its sovereign right to decide for something as ephemeral as US-Pak relations.

By insisting that India first sign these agreements as prelude to transfer of not technology but finished goods, smacks of a brand of neocolonialism that no self-respecting nation will submit itself to.

In the case of the purchase by India of the top of the line maritime security aircraft the P-8I Poseidon created by Boeing, India managed to circumvent some of these pernicious clauses by not buying the communication downlinks from the Americans but installing its own indigenously-built system on the American platform.

This it was able to do because it is in the process of setting up its own global satellite network and retaining a link with the Russian Glonass network.

By India’s security perception there is a distinct possibility of a joint Pak-China collusion in the creation of a two-front war situation encompassing the whole of the Himalayas as well as its western front.

For defending such a huge perimeter India needs to renew many of its weapons platforms most of which are of the 80-90s vintage.

In the process what one is witnessing is the wholesale discarding of whatever little indigenously developed products that the Defence Research and Development Organisation has managed to create after so much delay and time over-runs like the family of small arms known as the Indian Small Arms System which include a light machinegun, an assault rifle and a carbine of 5.56 calibre.

An attempt to scuttle the Arjun tank has been temporarily stymied and the induction of the prestigious Tejas light combat aircraft appears set to be delayed in induction into the Indian Air Force thereby giving the foreign acquired Medium Multi-Role Combat Aircraft free reign over Indian skies.

There is clearly an attempt by vested interests within the Ministry of Defence as well as the Indian armed forces not to mention the plethora of agents that have sprung up after the announcement of the new Defence Procurement Policy to throw out the indigenous Indian baby product along with the bathwater in this current splurge of massive induction of foreign weaponry that the nation is witnessing.

While the main body of indigenously-developed missiles like the Prithvi and Agni so far remain sacrosanct there is no compunction in discarding the Nag anti-tank missile for a foreign product and, in the name of renewing the obsolescent air defence system consisting of an undoubtedly ancient Pechora ex-Soviet system and the Kwadrat short-range anti-aircraft missile, creating doubts about the longevity of the indigenously developed Akash medium-range air defence missile.

Self reliance

Hopefully, the Prithvi advanced air defence (PAAD) missile (conversion of the surface-to-surface missile to surface-to-air configuration) will put an end to that.

The PAAD system will be the backbone of the Ballistic Missile Defence system that by current deployment doctrine will be installed around the national capital Delhi and the economic hub of the nation, Mumbai.

Somewhere early in this new journey towards “self-reliance” we appear to have lost our bearing in the desert landscape where banning of foreign arms producers for indulging in illegal trade practices is depriving the nation from acquiring off the shelf weapons systems for the Indian armed forces.

It has become standard practice for an arms dealer whose product is not selected to level charges of malfeasance and the Defence Ministry, in an attempt to appear pristine, bans the alleged culprit company and thus deprives itself of what the country needs for its defence.

This is the trend that has been in evidence since the Bofors scandal erupted in the 1980s. Even though we had paid for and obtained the blueprints of the Bofors 155 howitzer successive governments could not screw up the courage and take a decision that could perceptibly have improved the nation’s ability to defend itself by productioning the Bofors gun in Indian Ordnance Factories.

One could have had a whole family of 155 mm caliber weapons if we had exercised that option. Instead we went abroad to upgrade the 130 mm Russian field gun to 155 mm caliber with not very satisfactory results according to sources within the army.

One could have had indigenously-made towed and self-propelled versions. Finally wisdom has dawned and the blueprints have been dusted out and the Ordnance Factories Board has been asked to produce indigenous prototypes within a year.

The result of all this is that India has moved full circle from going to the US to buy the technology for the 155 mm howitzer, being refused, and returning after three decades to buy the ultra-light howitzer without any hope of being able to produce the weapon within India-hence total dependence on the US for spare-parts and replenishments.

The Government of India is still groping around for a foolproof policy to bring the private sector into the defence arena.

It has revised the Defence Procurement Policy and introduced the Defence Production Policy with an addition of the “Make” (in India) category but things are getting bogged down on issues of the percentage of foreign direct investment that should be allowed.

The attempt to burnish the egos of the private sector giants by introducing the Raksha Udyog Ratna (RUR) category floundered on objections from both the small and middle class private companies as well as Defence Public Sector Undertaking trade unions.

The induction of foreign trade union policies would have serious consequences (especially the contract labour policy) and has shown itself to be a sensible caution given what has just happened at the Maruti-Suzuki factory in Manesar outside Delhi.

It needs also to be carefully examined how far the policy of Offsets is contributing to influx of high-end technology for which it was created. Constructing cabins for foreign airlines could quite easily be identified as an offshore contract by an American government that see such a practice to be contrary to US national interest as President Obama seems to be hinting.