IntroductionIndia’s defence budget has generally been in the range of 2 to 3 percent of its GDP. This includes the expenditure on pensions. Since 2009, defence expenditure as a percentage of GDP has shown a decline (Figure 1). In terms of actual expenditure, however, there has been a year on year increase in the defence budget, as indicated by the graph (Figure 2). While the increase in defence expenditure over the ten year period 2009-2019 has doubled, in real terms it only reflects a marginal increase when inflation is taken into account.
Figure 1
Figure 2
India’s military modernisation has not kept pace with the requirements of the force, largely due to budgetary constraints. To make up for decades of neglect in a short time frame is a Herculean task, especially as additional budgetary support is unlikely to be made available. There is a view in defence circles, more so in think tanks, that the defence expenditure should be increased to a minimum of four percent of the GDP for at least one decade, to meet the requirements of the Armed Forces, but that outcome is unlikely to come about. The expenditure on defence, as a percentage of the total Union Budget is about 15 percent, and any further increase can only be at the cost of other sectors, which are equally vital for the welfare of the country. Either other means would have to be found to augment the budget or ways and means have to be found to optimise what is available.
With limits on what can be spent on defence, we need to look at optimising efficiencies. A great deal can be achieved through a radically different approach to the indigenisation effort, better and faster decision making for defence acquisitions, and through revitalising defence manufacturing, both in the public and private sector.
Indigenisation
Technology is an enabler, and this is one field where India has to push hardest. As of now, India is behind the technological curve in many defence related fields, and has to play the catch up game. A dual approach is required. One, getting to world standards in existing technologies and two, getting on board, as far as future technologies are concerned.
India’s space programme is a success story and this needs to be replicated in other sectors. The Indian Regional Navigation Satellite System (IRNSS), also called NavIC, (Acronym for Navigation with Indian Constellation) is now operational and has been recognised as a component of the World-Wide Radio Navigation System (WWRNS) by the Maritime Safety Committee of the International Maritime Organisation (IMO). NavIC covers India and an area 1500 kms around it and provides accurate real-time positioning and timing services. This has both military and civil applications. The US Congress formally acknowledged India’s NavIC global navigation satellite system (GNSS) to be an “allied system” in its finalised 2020 National Defense Authorization Act (NDAA). The US military and government users can now utilise NavIC along with the US Global Positioning System (GPS), QZSS, and Galileo. Presumably, it will also allow similar privileges for India’s military and government to formally utilise GPS. The advantages are huge. More importantly, the commercial applications are immense, which can offset the cost of the establishment, and over time become a profitable venture. Niche technologies like Artificial Intelligence (AI) and robotics , must hence be modelled on the lines of ISRO.
Another success story is in missile development. India has developed a range of strategic and conventional missiles, under the Integrated Guided Missile Development Programme, which began in the 1980s. Despite being put under sanctions in 1989 by the Missile Technology Control Regime (MTCR), which led to the denial of certain technologies, India successfully developed indigenously all the restricted components denied to it by the MTCR. While certain missiles are still being imported by India, like the Russian, French and Israeli BVRAAMS (Beyond Visual Range Air to Air Missiles), these will soon be replaced by missiles made in India like the Astra, which is already fitted on the Su 30 Mk 1 aircraft and are now being tested on the Tejas. With export curbs on weapons and platforms being eased, India hopefully will start exporting advanced weapon systems like Tejas, helicopters and missiles, to achieve the target set by the Prime Minister of weapons exports of USD 5 billion by 2025. To this can be added small arms which have a wide market. Export of the recently inducted Joint Venture Protective Carbine (JVPC), which is now being introduced into service could be considered.
Decision Making
Decision making on defence deals in India has been slow and tardy which has exponentially raised the cost of military equipment and delayed acquisition of critical systems. The saga of the Rafale fighter aircraft is a case in point, wherein after years of effort, the deal was scrapped at the last moment in 2014. Later, it was left to Prime Minister Modi to make an executive decision to buy 36 aircraft off the shelf, as a strategic imperative. Time delays and cost overruns have cost the nation dearly, both in terms of operational capability as well as financial outflows. Unfortunately, the Rafale case is not an exception, but rather the norm in defence acquisitions.
In the Army’s modernisation process, the artillery is finally looking up. But here too, we have seen many twists and turns which have led to exponential increase in costs and impacted on operational capability. The Bofors scam saw the supplying Swedish firm being blacklisted in India. But the gun itself was an excellent piece of equipment which later proved its worth in the Kargil War. India had paid for the technology transfer and had the blueprints to manufacture the gun, but failed to do so. It took three decades before the Army got to acquiring the next gun for the artillery—the M777 Howitzer from the US. This was folly of the highest order. Had we manufactured the gun in the 1980s itself, it would have hastened the modernisation of the artillery by at least two decades at a much lower cost. We must not repeat such follies again. The manufacture of an advanced version of the gun, called Dhanush is only now under production and the Army has placed an order for 114 guns.
The army’s search for a 155 x 52 mm Towed Howitzer finally culminated a decade back in two vendors vying for the same. Israels’ Elbit for its ATHOS 2052 howitzer and the French Nexter, for its Trajan gun. Elbit was in partnership with Bharat Forge and Nexter with Larsen and Toubro. In 2019, Elbit won the contract. But in the meantime, DRDO had also got in the act and made the Advanced Towed Artillery Gun System (ATAGS), which is currently under the last stages of trials and has 95 percent indigenous content. For manufacture of ATAGS, the DRDO is partnering with Bharat Forge Limited, Mahindra Defence Naval System and Tata Power Strategic Engineering Division.
There appears to be a lot of confusion in the thought process, both in the artillery directorate and in the MoD, over the way ahead. We have two guns now, the indigenous ATAGS being priced at Rs 15 crore and the ATHOS at 10.5 crore, with Bharat Forge a partner in both. Faster decision making would have resulted in India already having a few hundred howitzers from Elbit, and the indigenous manufacture of the same could have started by now. This is one area which needs great reform. A time bound acquisition procedure is an imperative and we need to build the eco-system for the same.
The second is the productivity factor of the public sector work force. While it is appreciated that certain costs must have been sunk in by DRDO in research and development of ATAGS, it cannot lead to such a wide price differential. The same occurred also in the Rafale fighter aircraft deal, wherein the fighter jets to be manufactured in India were projected at a higher cost than the ones bought in full built condition from Dassault. The figure below gives a comparison carried out ten years ago between a private sector company (Ashok Leyland) and a public sector company (Vehicle Factory Jabalpur) in terms of cost and worker productivity. The situation across the board is not too dissimilar, and calls for great reforms in the public sector entities and in the working of the Ordnance Factory Board (OFB).
|
Indicator |
VFJ |
AL |
VFJ |
AL |
|
|
2008-2009 |
2008-2009 |
2009-2010 |
2009-2010 |
|
No of Employees |
4809 |
11938 |
4368 |
13,662 |
|
Output per Employee |
0.15 |
0.49 |
0.17 |
0.50 |
|
Per unit cost of Employee |
3.83 |
1.04 |
4.79 |
1.04 |
An Acquisition Methodology
A look into advanced weapon systems and platforms acquired recently or which are in the process of being acquired indicates that huge budgetary support is required for the same. The S 400 deal with Russia comes at a cost of Rs 40,000 crore. The deal for 36 Rafale fighter jets from France cost India Rs 59,000 and weapon acquisitions from the US, largely for attack helicopters, strategic lift aircraft and artillery guns also came at a heavy price. Add to this the acquisition of missiles and other weaponry from Israel and the overall cost of defence imports gives a very grim picture. Reversing this trend will take time but that would depend on developing indigenous manufacturing capability in multiple sectors.
It would be worth considering buying into technology for creating an eco-system which at present does not exist. An example is in the aviation sector. Brazil’s Embraer was up for sale and Boeing was in talks with them for the last two years for purchase of 70 percent shares of the entity for USD 4.2 billion. The deal however fell through in April 2020. What happens if India was to get into such a deal and buy out the Embraer which manufactures single aisle aircraft. As of now, Hindustan Aeronautical Limited (HAL), a Defence Public Sector Undertaking (DPSU), is the only major entity in the country in the aviation sector. For the aviation industry to come of age in India, the country needs to build its own passenger aircraft. So, if an Indian corporate acquires Embraer, backed by the government, it would give a huge boost to the aviation sector. Government support would be required to make it a leveraged buyout (LBO), enabling the banks to be the lenders for the deal. By 2040, India would need at least 2,300 such aircraft, at a cost of USD 320 billion. Indigenous manufacture would create tremendous economic opportunities as well as an indigenous eco-system as also provide strategic benefits. Starting from scratch to build such aircraft would take decades of effort and would mean diverting precious resources to the effort. LBO’s is an option India must seriously consider. We would need to change our operating methodology to execute such deals which can give great payoffs over a period of time. Buy outs can be considered for other sectors too, like semiconductor manufacturing. This involves front-end fab manufacturing and the back-end assembly, including packaging and testing. India has done well in design and verification for the semiconductor industry. However, it continues to import 100% of the chips, memory and display. The cost of imports of semiconductor chips alone is a staggering USD 10-12 billion every year.
Conclusion
While financial outlays are important, much can be achieved in military modernisation though improved acquisition procedures, informed decision making, improved productivity of the public sector work force, co-opting the private sector in a big way in the manufacturing process and by creating a business friendly eco-system. We also need to shed our ideological chains with respect to exports of weapons and platforms. Thankfully, this process has begun. Most importantly, we need to have a clear vision of the future and plan accordingly. Much can still be achieved with what we have, should we set our minds to do so.
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