Military Acquisition: ‘Double Whammy’

September 16, 2015

by Gautam Navlakha

National Security Advisor was recently quoted as saying that India should neither punch above nor punch below our weight. “India has a mentality to punch below its weight. We should not punch below our weight or above our weight, but improve our weight and punch proportionately,” Mr Doval said in his address entitled ‘State Security, Statecraft, and Conflict of values’ at the 21st Lalit Doshi Memorial Lecture in Mumbai. (1) The argument was that India was “underperforming” as it did not leverage its growing economy, being the most populous democracy and its ‘soft power’. Each of the three areas demarcated by the NSA, are all subject matter of debate. For instance “growing economy” is based on a very narrow understanding of the significance of big ticket foreign investments which has nothing to do with lifting more than 80% of Indians out of insecurity of life or provide decent employment. Democracy and its institutions are under siege by the RSS driven agenda and degeneration of each institution of the State is evident to any discerning observer. Indeed India can also boast of having a ‘two glass system’ of Rule of Law, one for Government functionaries and soldiers as well as Hindu fanatics and fascists, and another for Muslims, Dalits, Adivasis, lower caste Hindus or anyone who challenges majoritarianism or the present social order. And as for ‘soft power’ the restrictions and regimentation being introduced in education, arts, media, social media and the extent of indulgence shown towards bigotry of self appointed champions of “Hindus”, which has come to define decision-making in virtually every institution of the State, make such a claim of ‘soft power’ an oxymoron. A ‘soft power’ is by its very nature based on progressive values. Whereas the govt NSA speaks for, is one of the most regressive regimes in 69 years since the ‘Transfer of Power’. And the latest cancellation of meeting between National Security Advisors of Pakistan and India only establishes how the govt he works for failed miserably in bringing about the ‘favourable transformation in the behavior of its adversary” . That by the way is the true measure of a country’s capability, the weight NSA was referring to. (2) What has become the hallmark of this govt and its minions is carrying out criminal acts, such as blowing up a smugglers boat and passing it off as a “terrorist boat”. If anything it was a kind of ‘capacity demonstration’ which sleuths world over are expected to carry out to show their skills. Caught by intrepid journalists Modi Sarkar hurled charges thick and fast of ‘traitor’, ‘anti-national’ and much worse at critics. Another distinctive feature is claiming a success to whip up jingoism at home. No sooner than Ufa agreement was signed the NSA made beeline for Indian media to boast that India won a “huge victory” because Kashmir was omitted! This was obviously meant to provoke Pakistan to put Nawaz Sharief govt in a fix, and done knowing fully well that this may kill the meeting. (3)

We ought also to forget that, it was the NSA led team from PMO which turned a minor foray into Myanmar as a break from the past and as India‘s coming of age as a military force which can strike “at place of its choosing”. The military strike inside Myanmar based rebel camps was not something that needed exaggeration and chest beating. (4) And having done all that and announcing signing of a “historic” agreement, the interlocutor has in no uncertain terms declared that the government is desirous of reaching out to NSCN-Khaplang, because without that there can be no “sustainable and endurable” peace. Good. But why did they then force the very same NSCN-Khaplang through provocative acts to resile from ceasefire? If Ministry of Home Affairs officials were responsible for this, was this not a treacherous act by Governments own officials? In other words, every argument of the officialdom must be, to use a much abused word, weighed carefully and examined critically because obfuscation is the order of the day where ‘national security’ issues are concerned.

In order to arrive at a realistic assessment of India’s “military strength” and preparedness, the main question is what is meant by it and how is this to be brought about. Can any country be secured if its citizens remain insecure? When the threat facing Indian people is low wages, 12-16 hours of work, privatization of health and education, leaving the exploited working people little to fund their children’s healthy growth. And if this insecurity of life, actually survival, has not been removed in 69 years then what course does Modi Sarkar propose to take? But as they say this is all wasted on a ‘Pracharak’ led govt. It’s ‘water off duck’s back’, in a manner of speaking.

Without going into the most basic of question whether our military assessment itself is realistic or based on inflated fear and guided by interests of a corporate class and its foreign backers, let us confine ourselves within official logic in order to expose the absurdity of Modi Sarkar’s approach. So, for the sake of argument let’s assume that it is necessary for India to prepare for fighting a two front war, then should we rush to acquire the latest military hardware in order to quickly plug loopholes in India’s military preparedness to build a capability of fighting a two front war? Or we should expand indigenous capabilities, even if that means, a slow process, along with conducting diplomacy which allows India flexibility and reduces tension by seeking a democratic resolutions for disputes such as over Kashmir? Or is it necessary to use India’s muscle power, suppress freedom movement, and impose Hindu hegemony over Kashmir, which RSS has long sought?

Obviously, it is too much to expect Indian ruling class mesmerized by their own self-image as an emerging global player, and they appear to be in a rush by taking short cuts and being unmindful of enlightened self-interest. For instance, every ruling class fraction swears by “indigenisation”. So it seems to be a primary strategic objective. But, where indigenisation is concerned the Modi Sarkar seems to be moving away from it and nobody from among the other ruling class fraction protests. So is everyone content with to go for foreign imports and foreign military sector investments by forging an alliance with US-EU & NATO?

More specifically, even when policy is shifting, should one cancel an already worked out agreement which involved manufacturing Rafale jets under license here in India by HAL and go instead for outright imports? If Indian military sector has to indigenise, is the best way forward to ensure that the public sector develop this, or should we go into attract foreign manufacturers to come build some production facility in India? These questions haunt us because, the debate is already rigged in the public domain in favour of private sector and that too of the foreign variant. There is, however, no debate over a host of other issues. For instance unlike industrial policy a military industrial policy is different. Government is virtually the monopoly buyer. Public exchequer allocates funds. Buying from a foreign vendor or manufacturing it in India; making it in India for Indian military needs by Indians or getting foreign companies to set up military production facilities; and above all role of public and private sector.

So let us see what has been done so far and what this foretells.

Appeasing the Foreign Manufacturers

A statement released by the Ministry of Industry and Commerce announcing the withdrawal of critical preference given to defense PSUs in form of excise and custom duty, asserts that this was meant to provide “a level playing field….by taking away the strategic advantage with PSUs for quoting lower rates in open bids”. (5) This has been a key demand of foreign manufacturers, the so called ‘Original Equipment Manufacturers’ (OEM) and their Indian partners, according to the Ministry of Industry and Commerce who said that the Government had “fulfilled demand of foreign Original Equipment Manufacturers such as Boeing, Airbus, Lockheed Martin, BAE System….”. (6) Union Minister for Defense, Manohar Parrikar, had further opined that “India’s demand for defense equipment is too large for anyone to ignore. They (multinationals) will come and setup their businesses here in joint venture under the Make in India campaign for defense production…Once they are here Indian companies can get maintenance and spare parts business.” (7)

Significantly, senior officials of Defense Public Sector Units (DPSU) complained that they were not “consulted” and that duty hike will push up domestic cost of defense goods being manufactured in India. One senior officer said that it is actually the “DPSUs that need to be given level playing field…and not the other way round”. (8)

This push for defense manufacturing by encouraging OEMs to set up manufacturing units in India, while throwing away already worked out deal which would have addressed both the need to indigenise as well as reduce the number of different fighter planes, is a step in line which promotes foreign dependence. From the Defense Minister’s own remark it is apparent that India’s private sector is seen as playing second fiddle to OEM. Thus, foreign defense manufacturers will feed India’s military needs. But where military sector and setting up manufacturing base in India is concerned, it will bring with it foreign jurisdiction too, without any guarantee of parting with source codes or critical areas of technology related to war equipment. Recall also that foreign military vendors will not want India to become an export hub for finished military product, but at best source components manufactured at lower cost, as is usually done by multinational corporation, to cut costs.

A common argument of proponents of the private sector is that it is the public sector that has been splurging and shown itself to be incapable of meeting the country’s defense needs. But wrongful use of scarce resources by the public sector should not hide the fact that private sector is wasteful in far more dangerous way where everything is dictated by profit and that there are PSUs that have been doing well (such as in the space and shipbuilding sectors). However, a bloated officer cadre and depleting workforce cannot be a good way to improve defense PSUs. Sweeping generalisations about PSUs hide more than they reveal. Defense is a sector where there is one buyer and several suppliers. While private suppliers will be keen to corner more and more funds, the goals of PSUs are qualitatively different in that it is indigenous development, not profit, that guides them.

There are good reasons for sounding a note of warning on public–private partnership in military matters. Anil Ambani was, in February 2015, quoted as saying that the “long shadow” of the three Cs—Central Bureau of Investigation (CBI), Central Vigilance Commission (CVC), and the Comptroller and Auditor General (CAG)—should be replaced by two new Cs—“courage and conviction” and The Hindu added that he said the “modernisation of armed forces cannot be held hostage to indecision and delay.” What is worth noting is that the private sector is reluctant to be under a regulatory regime.(9) Given the nature of the defense sector and its “national security” dimension, which the government never forgets to remind us of, we need a stringent regulatory regime, not a weak one, something big capital does not want.

Just as tweaking specifications can work in favour of a single vendor, a heightened threat scenario and jingoism can bring about a mad rush for “big ticket” military hardware. More fear can drive governments into bigger orders. Exaggerated fear of infiltration across the Line of Control (LoC) led to fencing it, and this created a need for sensors, radars, and night-vision facilities. Israel landed a lucrative contract for this. Each time an infiltration occurs, no one bothers to ask what went wrong with the thousands of crores spent on hi-tech fencing if it remains, as the army claims, porous as a matter of routine. And Indian generals are keen to try out new military toys at the Line of Actual Control (LAC) to send a message to China.

Lest we forget a capitalist will invest in this day and age not for ‘reasonable’ profits but for extraordinary profits. Once these units are set up there will be additional pressure on the exchequer to ensure that they are provided with adequate orders to ensure profitability.

Wrangling over Rafales

Now comes the news that the negotiations have run into “rough weather”. (10) Apparently the benchmark now being used for price is the deal France signed with Egypt for acquiring 24 jets for 5.2 billion euros or little less than $7 bn US dollar. In fact “sources told the PTI that price being offered to India will be the same as the price worked out with Egypt and Qatar. (11) Price “cannot be less than what the other two countries (Egypt and Qatar) have bought it for”. In other words per unit price will be lot more.

WE also know that IAF has asked for 80 jets i.e. 44 additional jets. (12) and that whereas IAF has brought down its requirement of FGFA’s to 65 from 127, at an approximate cost of $100 mn per jet, it has asked for 80 Rafale and 72 Sukhoi jets each.

Instead of bringing clarity and purpose to military sector all that Modi Sarkar has managed is to tie itself into knots. Business Standard carries a Reuter story (13) which cites “two senior officials” as saying that the two sides, India and France, were “wrangling over the unit price”. An official was cited as saying that “since there is no technology transfer price that was on the table..the (earlier) commercial talks cannot hold”.

But if the benchmark for unit price of Rafale fighter jet is what Dassault is getting from Egypt and Qatar, and there is to be no technology transfer, as well as the earlier commercial deal stands cancelled, then surely ‘wrangling’ was to be expected. It appears from reading between the lines that the Modi Sarkar perhaps thought they would be able to acquire the plane at a lower price than the 2012 deal, by removing the cost of technology transfer. Thus they calculated that the price arrived at in the 2012 minus the technology cost should be the new price. It was the unit price, “discount of 25%”, or $6 bn for 36 jets, which was touted as the attractive feature of the deal Modi Sarkar signed with the French Government. Now it is clear that the unit price was never fixed when Modi Sarkar cancelled the earlier deal and the price now being offered is vastly different from what was ‘imagined’ by Indian leadership earlier. Indeed with IAF asking for 80 jets and also wanting some modifications in armament technology being provided, over and above what was earlier worked out, then prices will go up and not come down.

Recall that the Union Defense Minister had famously claimed a “saving” of Rs 60-65,000 cr in the Rafale deal when the 2012 agreement was cancelled and Modi Sarkar went in to purchase 36 fighter jets, instead of 18 under the agreement, and declared that this ‘saving’, due to cancellation of production by HAL, would be better utilized. But to begin with there was no real ‘saving, it ’ was only a notional saving. And even this appears ephemeral now because the unit price is going to go up. Therefore, if this ‘new’ deal was expected to result in saving scarce resources but instead ends up being more expensive and without adding to indigenisation, why is this ‘good’ for India? A question arises as to how are we going to make a ‘saving’ when the cost of acquiring 36, let alone 80 which IAF wants, is set to escalate from less than $200 mn to more than 290 mn for each Rafale fighter jet? And there will be no ToT.

In addition what is a sticking point in the negotiations is the “offset clause” which mandates that any contract valued above $50 mn and above obliges the supplier to invest 30% of the contracted value in India. In the 2012 deal Dassault had agreed to 50% offset, i.e. 50% of the contracted value would be invested in India. Now be it 50 or 30 per cent offset, France has pointed out that while it is willing to set up an unit to build Falcon business jets, or even Rafales or “any other project” it can only be in future.

Again, there are two other issues that are coming in the way. India wants to integrate an Israeli mounted display besides tweaking the weapon technology to enable use of other missiles. This Dassault is uneasy with, because weapon manufacturers do not like to share technical details with rivals. Finally France pointed out that having two bases for Rafales in India, instead of single base for Egypt and Qatar, would increase costs because planned machinery, testing facilities etc will have to be duplicated and will further push up costs.

Newspapers have been full of stories about the delay and long time taken for military hardware acquisitions. This was also used by Modi Sarkar to claim that the ‘new’ course, cancelling 2012 agreement and going in for off-the-shelf purchase, would result in faster delivery, savings, and creation of production facilities. Now it appears we will remain for some more time in the ‘wrangling’ stage and there is no chance of Rafales being manufactured in India anytime soon, and the heavy cost of maintaining a fleet with diverse fighter jets will continue to plague Indian military, and jeopardize strategic autonomy.

Lest we forget

It is worth noting that the real issue stalling the fructification of the 2012 deal signed on January 31, 2012 for 126 MMRCA at a cost of $13 bn was when Dassault reneged in its deal both refusing to ensure quality of the MMRCA manufactured by HAL in India and hiked its price by several billion dollars in clear violation of the terms of tender agreement. If Dassault reneged or was found violating a commercial deal, then instead of pushing ahead why did the Government cancel the deal, which it now appears will be a far costlier proposition minus the ability to indigenise. Can India trust the same Dassault when it was unwilling to abide by terms of a signed commercial deal? What prevents them from not arm twisting India to extract maximum for itself, especially in a time of crisis? France is notorious for having shared the secrets of its Exocet missiles sold to Argentina, with Britain during 1982 Malvinas/Falkland war, ensuring military advantage for the British military.

Besides, if the long drawn out process route where tenders are issued, players are shortlisted, meticulous scrutiny results in selection and then negotiations are held to ensure Transfer of Technology, is long and must be replaced does it behove that you begin a new decision making process by cancelling a near complete deal? Thus once an agreement is reached to squelch it and replace it by a model where government to government deal is going to result in both higher numbers of off-the-shelf purchases, 36-80, dependence on Dassault for 30-40 years for spare parts and critical components, and the offset clause mandating 30% investment in India will result in a joint venture between an Indian private corporation and Dassault, may not result in indigenisation. How is this in India’s interests?

To sum up, making it attractive to foreign military hardware manufacturers and persisting with imports is going to increase military sector’s dependence. And bring in military corporate sector to influence strategic perception and decision making. Paradoxically, whereas citizens remain in ‘need to know’ deniability and obfuscation the foreign corporations and all the weapon manufacturers who have earned notoriety will have far greater access to India’s military sector. Given that RSS always sided with the colonial Raj, with their heroes surrendering before the Raj, as they did before Indira Gandhi during the emergency. Now with their ardent espousal of neo-liberalism, which will put to shame even the UPA 2, the problems we are faced is going to become huge.

The downgrading of public sector in the military sector is the worst decision possible. Reasons are clear. Instead of building up our capabilities in accordance with our resource base and needs, as well as strategic objective of independent foreign policy, India’s ‘national’ security is going to be hawked to big powers and military behemoths, via the private sector hawked to the teeth to foreign bankers, that dominate world’s arms trade. (14)

In the real world of power politics foreign military purchases and foreign controlled weapon manufacturing bring with them greater dependence on the outside powers and their influence pedaling to tweak policies which benefit them. When big powers or even Israel invests in the military sector outside their territory, its not out of charity they invest, they ensure that they become ‘active players’ in domestic polity of the country now as ‘stakeholders’ by virtue of their investments and technology, to secure their investment and promote their commercial and strategic interests.

Keeping this in mind Rafale ‘new’ deal is in keeping with the new policy approach, to attract foreign manufacturers with Indian corporate as their junior partners, or to settle for off-the-shelf purchases. It is an augmentation of our dependence on foreign suppliers and manufacturers. This is not in Indian people’s interest, when it is geared to please foreign military vendors and foreign powers who dominate this sector globally, and to appease them to satisfy the hubris of our decadent ruling class which is viciously anti-people. So this is a sign of what Modi Sarkar is up to.

WE ought to realize jingoism helps camouflage India’s role as a supplicant. More RSS gets shrill, know that ruling class is feverishly engaged in hawking India. This time it is to foreign military behemoths.

Footnotes:

1. “Is India punching below its weight? NSA Doval”; Manish Chand, India writes.org
http://www.indiawrites.org/diplomacy/is-india-punching-below-its-weight-nsa-doval-thinks-so-what-about-you/

2. See “Modi Government is missing the big picture on Pakistan”; Manoj Joshi, The Wire.com 25/08/2015.

3. Significantly, none other than a former Special Director of IB, Rajinder Kumar, of Ishrat Jehan fame, wrote in the Economic Times “Little expectation from NSA level talks”, on 22/08/2015 refers to this.

4. This turned out to be a dud action and could not even come anywhere near the NSCN(Khaplang) which was the target. Very soon Indian officials also scurried to Mynanmar to assuage the military junta there for going public on the intrusion, and are now trying to renew ceasefire talks with NSCN(Khaplang). The very fact that GoI cleared two Naga delegation, Naga Hoho and Easterna Naga People’s Organisation, to visit NSCN Khaplang leaders in Mynamar, so soon after a “formula’ for resolution of Naga issue signed with NSCN (IM), testifies to that. Official interlocutor R N Ravi rubbished the opposition of MHA officials and said “our position” is that no Naga group should be excluded to ensure “a permanent and endurable peace”. He added that Government of India can not be “indifferent” to trans border relations of the Naga people for ears”. “Govt now ready to talk to NSCN-K” Manoj Anand, Asian Age 19/08/2015. Recall also that MHA has not only been accused of creating conditions forcing NSCN-K to break the ceasefire but was party to creating splits within the Khaplang faction to isolate him. Now with the Eastern Naga People’s Organisation demanding separate state of six Eastern Nagas, shows the compulsions on the ground because this is where NSCN-K is strong. See “Naga organization demands East Nagaland” by BIkash Singh, the Economic Times 19/08/2015.

5. ‘India scraps duty benefits for defense PSUs to woo private companies”; The Economic Times 02/06/2015.

6. “To level the playing field, government withdraws sops for defense”; Pranav Kulkarni. Indian Express 02/06/15.

7. “Parrikar says Indian will buy 36 Rafale jets from France instead of 126”, HT Correspondent; The Hindustan Times, 01/06/2015.

8. “Upgrading Forces still a long way off” by Manoj Joshi; Mail Today 27 April, 2015.

9. “Fear of CBI,CAG and CVC Delaying Decision: Anil Ambani”, 07/02/2015 Times of India 2015. And “Remove Hurdles in Defence business”:Anil Ambani; The Hindu,19/02/2015.

10.“Rafale Deal talks runs into rough weather”; Pranav Kulkarni, The Indian Express 13/08/2015.

11. “Talks for Rafale runs into rough weather”; PTI, The Statesman 13/08/2015.

12. “IAF halves its demand for Russian fighter jet”; Ajay Bannerjee, The Tribune 11/08/2015.

13. Rafale deal runs into problems again”; Reuters, Business Standard 13/08/2015. On 06th May 2015 the Economic Times claimed in a story :“25% Discount on Rafale Jets”; by Pranab Dhal Samant and Manu Pubby, claimed, quoting “sources,” that in contrast to the $300 per Rafale jet under the 2012 contract for 126 Rafales, the “new deal” would be little more than $200 mn per jet and the total package for the deal would be $8 bn They also mentioned that HAL’s estimate of manpower required to manufacture jets in India was 27 times higher than manpower Dassault uses for constructing an aircraft. Such sweeping claims were never questioned and were put out without due diligence. The Statesman carried a PTI agency story [“France offers Rafale fighters in home price”; 08/05/2015 The Statesman] which claimed that “sources say” that per jet price would be $200-220 mn. And it was pointed out that Qatar which signed a deal for 24 jets will pay $7 bn or about $290 mn for each jet. Its apparent the argument drove home the point that buying them off-the-shelf was eminently sensible choice.

14. Reliance Infra and Reliance Defence Systems Ltd made scheduled open offer to retail shareholders of Piparav Defence & Offshore Engineering Co Ltd to acquire 26^ of the shares. On March 5th Reliance Infra offered to buy 18% equity stake of the promoters including the main promoter Nikhil Gandhi. This company owned India’s largest covered infrastructure facilities, it has 30 lakh square feet covered area for fabrication and integration, to build ships, submarines and aircraft carriers. [Hindustan Tmes; “Reliance Infra makes Rs 1263 cr offer for Piparav Defence”; 11/03/2015).

A month later the Economic Times reported [ “Shipbuidling Private contractor faces delays”; Manu Pubby 17/04/2015] that Piparav Shipyard had delayed delivery of a patrol boat estimated to cost Rs 2500 cr by 18 months. The reason was delay in finalizing design partner. Thus while Anil AMbani was negotiating a helpful government was pressurizing the promoters of Piparav.

And to leave no one doubt, Times of India’s Rajat Pandit [“Govt moves to turn Buyers navy into a Builders navy”; Times of India 17/07/2015} reported that Ministry of Defense was negotiating with Russia for three Grigorovich class frigates “to be built by Anil Ambani owned Piparav Shipyard”. Same day Anil Ambani, having acquired Piaparv Shipyard for Rs 2082 cr, announced investment of Rs 5000 cr over next few years [The Hindustan Times “In defense of Make in India: Anil Ambani to invest Rs 5000 cr”, HT correspondent 17/07/2015.] Shares of the company rose by 4% in a day. I am told that’s a big one day rise.

And finally, Anil Ambani promoted Mumbai Metro One Pvt Ltd (MMOPL) has asked the Maharshtra government to provide his company operating subsidy of Rs 21.75 cr every momth and a one time grant of Rs 1000 cr due to “financial loss” and without generation of “adequate revenue” its “extremely difficult to run metro operations”,(“Will not pull out of Mumbai Metro op” the Mail Today 20/08/2015).

With such excellence acquired in cornering public fund can one trust the same corporation to remain loyal to country’s interest?

Am I the only who smells rat somewhere. Was he not the one of the first Corporate honcho to endorse Narendra Modi? Is this the pay back? Lets also remember that Anil Ambani owned power Discom in Delhi has been damned by a draft report of the CAG for overcharging consumers and Mumabi Metro Pvt Tld has asked the Maharashtra Government to pay them Rs 23 cr every month as well as give a one time grant of Rs 1000 to cover “the losses” Ambani owned company had incurred. Is such corporate houses can enter the military sector rest assure that public exchequer would be ‘milked’ dry.

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