India The Largest Defense Importer: Failing To Get Our Defense Act Together?

Posted on April 5, 2012 in Specials

By Sapan Parekh:

According to a recent report published by the Stockholm International Peace Research Institute (SIPRI), India has become the largest defense importer during the period between 2007-2011, thus overtaking China, which fell to the fourth position. During this period, India alone accounted for 10 per cent of global arms imports.

Also, no prizes for guessing the country that provided us with most of the defense equipment. Russia, our all-weather friend, supplied us with 80% of our defense imports, the most well-known (and expensive) among them being the Sukhoi-30 MKI, MiG-29K fighter aircraft, nuclear aircraft carrier Admiral Gorshkov and nuclear powered Akula -II submarine.

Also, imports of such magnitude are not a one-off thing. India, for the next decade at least, will continue to remain the top importer due to a fledgling defense-industrial base (DIB) and a high defense expenditure, which has been deemed necessary because of the Sino-Pakistani threat.

For the five-year period 2012-2017 alone, India is expected to spend $120 billion on capital expenditure in the defense sector. Among the major expenditure is the deal involving the import of 250 to 300 advanced fifth-generation stealth fighter jets from Russia over the next 10 years. This deal, which could be worth up to $30 billion (this was the size of our defense budget last year), is believed to be the largest in India’s military history.

In addition to this aircraft deal, India is in final commercial negotiations with French Dassault Aviation for a  $20 billion project to acquire 126 Medium Multi-Role Combat Aircrafts. In addition to this, the Indian Air Force is planning to import basic trainers at the cost of Rs 3,000 crore from Switzerland. Other notable (read expensive) imports for the Air Force includes six new mid-air refueling aircrafts ($2 billion), six C-130J  ‘Super Hercules’ tactical airlift planes (over $1.2 billion), four P-8I long-range maritime patrol aircraft (over $1 billion) and six C-17 Globemaster-III strategic airlift aircraft (over $2.4 billion).

In the coming decade the defense forces, as a whole, are on course to induct over 600 helicopters, ranging from heavy-lift and attack to maritime multi-role and light utility ones, a majority of them from foreign companies, for over Rs 20,000 crores.

The navy is also not far behind in imports. Global tender for over Rs 50,000 crores ‘Project-75’, involving construction of six advanced diesel-electric stealth submarines, armed with both land-attack missile capabilities and air-independent propulsion (AIP), is to be issued soon.

Given that air force and navy are spending big, it seems that the army does not want to be left far behind. Over Rs 20,000 crores worth of artillery, involving 1,580 towed guns, 814 mounted gun systems, 180 self-propelled wheeled guns, 100 self-propelled tracked guns and 145 air-mobile ultra-light howitzers, are planned to be acquired in near future.

If all this was not enough, we have the so-called “indigenous” platforms being made with foreign components. For instance, the Light Combat Aircraft (LAC) ‘Tejas’ has its missiles, radar and even the engine sourced from other countries.

No doubt, these imports give us cutting edge sophisticated equipment, (at least in most cases) but they also leave us vulnerable to choking of supply lines or of maintenance in times of war. This is increasingly true for equipment sourced from western countries especially United States, which is known for its tactics involving arms embargo having used it quite effectively against countries like Iran, North Korea and Libya.

Also, high value military imports add to our country’s trade deficit by guzzling our foreign exchange reserves and thus contribute to fiscal instability of our country.

So what should be done?

We can start off by raising the FDI limit in the defense sector to 49 per cent from the current 26 per cent. Defence Minister Antony had earlier opined that 26% was “enough at the moment”. Clearly, the unenviable tag that we have achieved indicates otherwise.

Raising the FDI limit will give confidence to foreign defense behemoths to transfer sensitive technologies to joint ventures with Indian partners. In addition, it would go a long way in helping small and medium defense equipment manufactures to get long-term investments, which is usually denied to them by traditional banking channels because of the long gestation period involved in defense projects. Also, this view has not only been advocated by the Finance minister and the Home minister, but also by the ASSOCHAM (The Associated Chambers of Commerce and Industry of India).

In addition, the government could provide tax breaks to the private sector involved in manufacturing strategic defense equipment. This method of attracting private investment has proved successful in Brazil and could be replicated with fantastic results in India too.

Increased R&D spending by the government and strengthening the public sector defense companies should accompany all these steps.

Thus, the conclusion is embarrassing but clear: with India failing to get its act together to build a strong defense-industrial base, it will continue to be the world’s largest arms importer in the foreseeable future. Nothing short of a ‘1991’ like reform moment for the defense sector can save the day for our country.