India’s defense procurement over the past years has followed the same plodding track of the previous government, though for different reasons. The Defence Procurement Procedure (DPP)-2016 aimed to streamline and simplify procedures to give a boost to “Make in India” initiative through indigenous design, development and manufacture of defense equipment, platforms, systems, and sub-systems. But it has fallen short in implementation and through unclear guidelines.
Defense minister Nirmala Sitharaman said recently her biggest priority is to ensure full transparency in procurement while speeding up implementation of long-pending acquisition processes. However, some projects (such as the joint venture between Rostec and Hindustan Aeronautics Ltd for Ka-226t helicopters) are mired in nascent stages, while others (such as the Indo-Russian Fifth Generation Fighter Program planned 10 years ago) remain in limbo. Recently, a $500 million deal to buy 1,600 Spike anti-tank guided missiles from Israel's Rafael Advanced Defence System was canceled, as was the $4.8 billion project to construct 12 advanced minesweepers in collaboration with South Korea at the Goa Shipyard. No reason was given, but issues related to transfer of technology and costs are believed to be the cause.
A signature addition to the DPP to prop up the "Make in India" mantra is the Strategic Partnership (SP) clause to encourage domestic private manufacturers to tie up with OEMs to manufacture specific military platforms such as fighter aircraft, helicopters, submarines, and armored fighting vehicles (AFV) and main battle tanks (MBT). Doubts by OEMs on having to take accountability versus holding a minority equity share have arrested the initiative for the moment, bringing gloom to the once-optimistic private industry that was looking at lucrative times ahead. The SP model prods queries about how proprietary technologies will be protected, the framework for legal liability in joint partnerships, how consideration will be taken to account for technology transfer, export market opportunities, and best value, compared to relying solely on the lowest bid.
In an address to an industry body recently, Sitharaman said the government has been encouraging the private sector to produce defense platforms following the strategic partnership model “being implemented to support domestic defense manufacturing.” However, delays in decision making often exasperate. “Things are different in India. Sometimes the opposite is also true…We are ready to transfer technology….[while] looking at details how to make it happen,” said Dave Sutton, director for Asia, Lockheed Martin, referring to the possible manufacture of F-16s in India under the SP model. He was speaking at the U.S.-India Business Council's Export Control and Acquisition Conference on December 4 in New Delhi. The event drew senior executives from global aerospace and defense companies with an aim to promote policies that ease doing business in India's defense market and generate new industry partnerships.
India-U.S. Partnerships
The U.S. is fast emerging as a major defense trade partner with India. Opportunities and challenges in the expanding U.S.-India defense trade collaboration and the SP discussed could represent a source of apprehension to major defense vendors, as many U.S. companies are in serious contention to help meet Indian fighter aircraft, helicopter, and UAV requirements.
“Today, the backbone of India’s strategic and theater transport fleet, its heavy attack and heavy-lift helicopter capability, naval rotary anti-submarine warfare platforms, and its long-range maritime patrol aircraft are all U.S.-origin equipment. These defense contracts are worth over $15 billion,” said Benjamin Schwartz, head of defense and aerospace program USIBC. The equipment includes P-8I maritime surveillance aircraft, C-130J Super Hercules and C-17 Globemaster-III cargo aircraft, Apache and Chinook helicopters, and U.S.-origin howitzers.
This burgeoning trade has occurred because of an increasing convergence of common interests at the international geo-strategic, political, and government-to-government level, said Schwartz.
“The growth of China’s military power has the potential to destabilize a regional security order….This reality has made a strong Indian military an important interest of the U.S.,” he said.
Bureaucracy is a major challenge to doing business at every level, and had Schwartz commenting: “This is the central challenge in U.S.-Indian defense relations. Our systems aren’t aligned in a manner than prompts rapid action.” Besides, the U.S. private sector-led defense industry “has been a challenge for India’s public sector-led defense industry to cooperate with.” There is concern as with most international OEMs that “technology security mechanisms also have not fully been established to provide mutual confidence that sensitive technologies won’t fall into the hands of the third-party countries.”
Indian prime contractors that are expected to tie up with OEMs to enable transfer of technology under the SP also have concerns. “Why cannot we be treated on par with government agencies?" asked Rahul Chaudhary, CEO Tata Power Strategic Engineering Division. The company was recently shortlisted to develop the Battlefield Management System or the Indian Army, a deal valued at more then $7 billion. The MoD is likely to withdraw the request.
Similarly, the U.S.-India Defense Technology and Trade Initiative (DTTI), launched six years ago, is not moving fast, following an initial progress phase. Impediments were identified as: the U.S. revoked sanctions and took action to increase transparency about technology-release processes and in concert with export reform, moved less sensitive items from the U.S. Munitions List to the Department of Commerce’s dual-use export authority. “Challenges remain. The most significant is that DTTI has not been able to foster major private sector cooperation,” said Schwartz. “The government-government cooperation primarily with Defense Research Development Organization is limiting the true potential of DTTI,” an official said. A senior Ministry of External Affairs official told AIN, “A continuous dialog depends on U.S. willingness to share capabilities we are interested in with a focus on co-development and co-production. We have made a modest beginning.”