Implosion: India’s Tryst with Reality

by John Elliott

  But the navy’s fleet is ageing, and the introduction of new warships is years behind schedule. This is mainly because of inefficient and overmanned public sector naval dockyards that produce ships slowly – by international standards – and have prevented the private sector from establishing a significant role. The CAG estimated in 2008 that the ageing and mostly Russian submarine fleet had only a 48 per cent operational availability,22 and it has not improved since then. A 30-year submarine-building plan was approved by the government in 1999 but none of the planned 24 submarine vessels has gone into service. The country’s underwater capability took a hit in August 2013 when the navy’s most modern submarine, which had recently had an $80m refit in Russia, was destroyed in an explosion.

  There is a lack of expertise in submarine design, which could have been met by collaboration with HDW of Germany if a 1980s deal had not been scrapped, after four vessels had been delivered, because of allegations of bribes. Progress on building six Scorpene submarines in India under a 2005 contract with France has been slow and the first is not expected till 2016–17, over four years late.

  Foreign Suppliers

  India’s foreign suppliers have traditionally been led by Russia, which inherited the overwhelming dominance of the old Soviet Union and still has around 80 per cent of the orders, according to the Stockholm International Peace Research Institute.23 Between 1950 and 2012, the Soviet Union and Russia (excluding other former Soviet bloc countries) had 69 per cent of the sales, rising to 77 per cent between 2000 and 2012 (83 per cent in 2012 alone). In the same period, the UK slipped from the number two spot with 15 per cent to 4.3 per cent in 2000–12 (6 per cent in 2012). Israel rose from 1.5 per cent to number two with around 4.8 per cent (5.3 per cent in 2012), while France fell from 3.8 per cent to 1.4 per cent. In two years of negotiations from 2011, two European groups were short listed, led by Dassault of France’s Rafale fighter, on an $11bn-plus contract for 126 multi-role combat aircraft, defeating both American and Russian contenders and boosting France’s role.

  The total US order book of concluded or pending deals by mid-2013 amounted to nearly $11bn,24 which will probably make it the third-biggest supplier. It delivered virtually nothing between 1964 and 1986 and then only tiny amounts till 2006, because it was boycotting India for the supply of lethal and technologically sensitive items. It is now picking up from just over one per cent between 1950 and 2012 to around two per cent to three per cent in the last two or three years following a New Framework for India–US Defence Relationship that was agreed in 2005. India is, however, still wary of buying essential equipment from America because of the risk that supplies would be stopped if Washington disapproved of something India had done, for example in the development of nuclear arms. This may have affected decisions in 2011 on the big fighter contract, where Boeing and Lockheed Martin’s aircraft were rejected, much to America’s amazement and annoyance (though its Boeing and Lockheed fighters were said by experts to be inferior to the short listed European jets).25 The 2005 agreement led, in 2009, to a $2.1bn contract for eight Boeing P-81 maritime surveillance aircraft and a $1bn deal for six Lockheed Martin C-130J Hercules military transport aircraft26 – neither of them seen as being essential as fighters and hence not so sensitive in terms of availability of spares – and ten Boeing C-17 Globemaster heavy lift transport aircraft for $4bn.

  The public sector has become increasingly dependent on imports for its supposedly India-based manufacturing and assembly projects. Many DPSUs and ordnance factories order components quietly from abroad and cloak them in apparently Indian-made defence equipment – as was illustrated by the Tatra truck story. That enables them to avoid having to develop their own technologies and opens the door for them to accept foreign bribes. ‘We are manufacturing high-end products like SU 30 MKI, Brahmos and Scorpene subs, but these are licensed productions of foreign-designed weapons, and even here we know that key assemblies will be imported till the very end of the programme,’ says Manoj Joshi, referring to Russian Sukhoi aircraft, Indo-Russian Brahmos missiles and French Scorpene submarines.27 The DPSUs then charge the defence forces much higher prices than they have to pay their foreign suppliers, thus increasing their profits. ‘There is evidence which seems to suggest that the DPSU managers were actually going out of the way to serve the interests of the foreign company, rather than the company they headed,’ wrote Joshi.28 ‘Insiders will tell you that this is not as uncommon a phenomenon in our DPSUs and ordnance factories as it may seem.’ Another expert describes many DPSUs as ‘traders not manufacturers’.

  This poses the question, why such a situation has been allowed to continue for so long. The immediate answer is that the characteristics of jugaad and chalta hai provide the cover for the powerful defence establishment’s vested interests to maintain the status quo and enjoy the consequential hefty bribes and other favours. Foreign suppliers support this because they prefer to manufacture and assemble expensively abroad, and pay the bribes (usually indirectly to obscure the sources), while relying on India’s low-cost manufacturers for relatively minor components. Such an approach prevents Indian companies growing into competitors as final assemblers of complex weaponry.

  Everyone, with some exceptions of course, from public sector chairmen down to office peons and manual labourers, thrives on a system that, despite the patriotism and loyalty of many of those involved, sees the protection of employment as its primary aim, with technical, commercial and financial issues as subsidiary considerations. Along with the DPSUs, the defence ministry does not want change, and nor do the mass of the armed forces, despite considerable unhappiness with what is available from the public sector. There are also politically powerful trade union federations in the industry that thrive in the present set-up and resist change.

  Senior retired officials, who have spent large parts of their careers in the defence establishment, are amazingly critical of how they had to work, citing misguided procedures, excessive secrecy, and a lack of planning, communication and transparency.29 I have heard them talk about how procedures are aimed more at spending budgeted funds than building defence capability, and that procurement of weaponry is ‘not seen as an issue of national security’ but as a bureaucratic exercise.

  Antony and Other Blockages

  In recent years, the failure to introduce reforms has been led by the defence minister, A.K. Antony, a mild veteran Congress politician from the southern state of Kerala, where he was earlier chief minister. He is proud of his uncorruptable reputation, and is regarded as one of the politicians most trusted by Sonia and Rahul Gandhi. This has made him secure in the post, despite increasing criticism of his lack of drive and effectiveness. Appointed in 2006, he shied away from as many reforms as he could, and slowed down plans that were being backed by his predecessor, Pranab Mukherjee, now India’s President. Antony’s Kerala base is significant because the Congress there is pulled leftwards by a communist-led coalition that is its main rival for power in the state assembly. This strengthens his support for public sector trade unions that resist change to protect their members’ jobs. Uday Bhaskar, a defence and security policy expert and former navy officer,30 wrote Antony an open letter in May 2012, saying his track-record was ‘disappointing’. Bhaskar taunted him by suggesting that the defence forces were so ill-prepared that India could ‘inadvertently repeat the 1962 experience’ – a reference to its defeat that year by China. The Cabinet Committee on Security and Political Affairs, Bhaskar added, suffered from ‘perceived abdication in decision-making’ and there was ‘stasis in higher defence management’.31

  Even though Antony’s stance accounts for policy blockages from 2006 to 2013, there is a larger question of why earlier governments did not try to improve domestic performance and reduce India’s reliance on foreign suppliers. Structurally, the problem lies in the make-up of the Ministry of Defence where, under the defence secretary, who is the top bureaucrat, there are two secretaries separately responsible for production and procurement. The defence
production secretary has line management responsibility for the performance of DPSUs and the ordnance factories, so is in effect required by his remit to support the public sector and not the private sector, which therefore has no top official in the ministry whose job it is to argue its case.

  ‘Arming without Aiming’

  More broadly, it has been suggested that tolerance of the current system stems both from a deep post-colonial ambivalence about the use of force, and from the country’s avoidance of foreign entanglements, which together limit its desire for foreign clout. This lack of a broad-based strategic foreign and defence culture means it is only necessary for India to equip its army and air force, and to a lesser extent the navy, to defend the country against its neighbours, notably on the long and disputed Himalayan borders with China, where it lost in 1962, and with Pakistan, against which it has fought and won three wars and one undeclared near-war. Based on that argument, guns, tanks, missiles and aircraft can be bought haphazardly or developed domestically, even more haphazardly and unreliably, to fight across mountains and deserts, plus ships that are required more now that China is muscling in on nearby oceans and seas. For this limited canvas, defence and arms equipment do not need to be planned at the strategic policy level that happens, for example, in the US, the UK and China.

  Stephen P. Cohen and Sunil Dasgupta of America’s Brookings Institution described this as ‘the puzzle of enduring shortcoming in Indian defense policymaking’, in Arming without Aiming, a book that was originally published in 2010. They looked at ‘the enduring nature of these weaknesses’, and why the Indian political system had allowed them to persist for so many years. ‘Previously, others have argued that culture and identity, caste and class divisions, poverty, the absence of political will, and the threat environment, explain Indian defense policy choices,’ they wrote in a new preface to a paperback edition.32 ‘But we noted that India’s defense policy was rooted in a doctrine of military-strategic restraint that was, at its outset, an ideological rejection of the use of armed force as the tool of colonizers. In rejecting colonization, India also rejected the instruments used by the colonizers. After independence, the cold war’s neo-colonial hue solidified Indian preferences for restraint. Since then, the bureaucracy has institutionalized restraint in so thorough a manner that a breakout is hard to imagine in the absence of a major crisis.’

  Cohen and Dasgupta acknowledge that not everyone agreed with their interpretation when it first appeared (and became a surprising best-seller in India). They note in the paperback edition – optimistically from their viewpoint – that ‘many Indians do not see their country as being bound by strategic restraint’, and instead ‘want India to behave like a great power in the mold of the United States, Britain, and China – assertive powers willing and able to defend their interests with military forces when necessary’. Arguably, however, they are seriously underestimating the strength of policy opinion that does not want India to play a big international role beyond its regional interests, irrespective of how much that might annoy policy hawks both in Delhi and in Washington DC (including experts at the Brookings Institution).

  One needs therefore to look to other catalysts for change on arms purchasing. One is technological because software and electronics are playing a growing role in defence equipment and are making it easy for foreign suppliers and countries, including seemingly friendly ones such as the US, to undermine the effectiveness of guns, helicopters or aircraft that they supply by withholding sensitive and sophisticated refinements. ‘This is no longer just a question of strategic autonomy; today it is also a military-technical issue, in an era when the capabilities of defence equipment depend more on software than on hardware and when it is increasingly easy to compromise weaponry sold to another country through the introduction of malware and kill switches,’ says Shukla.33

  Public Failings

  Output per employee in the DPSUs and ordnance factories is less than half the average level in India’s general manufacturing industry in the public as well as the private sector, according to a Boston Consulting Group report.34The report put the defence public sector figure at Rs 15 lakh per year compared with Rs 20–40 lakh in industry generally,35 and suggested that the defence figure should be double its present level at around Rs 30 lakh. Despite the navy’s relative successes, Indian warships are being built way over cost and time estimates – frigates of the Godavari class took 72 months to build and Delhi class destroyers 114 months, while more recent Shivalik class frigates are taking 112 months compared with a 60-month target, says Manoj Joshi.36

  A basic problem with both the defence research and production corporations is that they focus on developing and manufacturing a specific gun, aircraft or ship, instead of building the sort of general engineering capabilities that private sector companies such as L&T, Godrej and Tata Power have done with finely tuned metals and engineering systems, according to Naresh Chandra, a veteran civil servant who headed a government taskforce on national security in 2012. ‘Don’t beat your brains out over developing a gun or a tank, but find your overall strengths, buy in what you need with a well-developed supply chain and assemble your platforms,’ he says.

  The DRDO has a hefty budget – Rs 10,610 crore for 2013–14 – and 52 laboratories. It employs some 5,000 scientists and about 25,000 support staff who are involved in projects ranging from combat vehicles and armaments to submarines and aircraft. But instead of being a centre of excellence, it has frequently failed in both technical and financial terms to meet the needs of the military, which then buys abroad. According to a report by the ministry’s Controller General of Defence Accounts (CGDA) in 2012, only 29 per cent per cent of the products it developed in the previous 17 years were being used by the armed forces.37 That is mainly because of DRDO failings, but it is also the result of the defence forces enjoying buying abroad and consequently resisting, or at least not welcoming, some DRDO developments.38

  The CAG report noted that, in several cases, the DRDO bought equipment after spending large amounts of money on its own unsuccessful research and development, or offered equipment that was more expensive than was available on the open market. It spent Rs 6.85 crore developing explosive detectors, which it offered to the army for Rs 30 lakh each at a time when foreign versions were available for Rs 9.8 lakh each, including the cost of repairs and maintenance.39

  The main DRDO successes have been surface-to-surface missiles called Agni and Prithvi, but it has failed to produce smaller missiles for the army and navy, which bought instead from Israel. The army resisted buying its Akash surface-to-air missile for a decade but now recognizes that it is a success. After 30 years of work, the DRDO’s Aeronautical Development Agency (ADA) has also failed (initially hampered by US sanctions that blocked component deliveries) to produce an acceptable version of a light combat aircraft called the Tejas to replace Russian MiG 21s.40 HAL, which should be focusing on developing the technological and manufacturing capability to produce aircraft of Indian design, prefers to focus instead on building foreign fighters and other aircraft under licence where it has had a monopoly for decades. Russia’s Sukhoi-30MKI, ‘which was initially bought fully-built from Russia for Rs 30 crore per fighter, is now made by HAL (substantially from Russian systems and subsystems) for well over 10 times that figure,’ Shukla wrote in a report in December 2012 that went unchallenged.41 ‘Building expensively suits HAL well; since its profits are a percentage of production costs, higher costs mean higher profit.’

  The development of the army’s Arjun battle tank is a story of almost 40 years of delays, performance controversies, specification changes, increasing use of foreign components, and indecision about how many tanks to order or whether to abandon it.42The DRDO began work in 1974 and continued for 35 years till the tank entered service with an armoured regiment in 2009, during which time popular Russian tanks were used. Foreign component purchases still account for nearly 60 per cent of Arjun’s production cost, and there is a strong lobby in the army wh
ich prefers Russia’s old T-72s and more recent T-90s, even though the Arjun has done well in comparative desert trials against the T-90. Shukla argues that it is poor production facilities at the ordnance factories for the Arjun, and for the Tejas at HAL, that deter the army and air force from favouring Indian tanks and jets. ‘The Tejas and the Arjun have a common problem: they are excellent indigenous designs that are undermined by poor production quality,’ he wrote.43

  The DRDO is now beginning to change under a new director general, Avinash Chander, who was appointed in June 2013. Previously in charge of the successful Agni missile programme, Chander has introduced top-line management responsibility for equipment development and production programmes by placing each of the DRDO’s seven technology clusters under executive directors who have been moved from the organization’s palatial Delhi headquarters to work in laboratories in Bengaluru, Hyderabad, Pune and elsewhere. They will no longer be advisers and co-coordinators, working separately from project managers, but will be responsible for projects developed by their laboratories. There is also a plan to build up India’s export of equipment and partnerships with foreign manufacturers – the US is discussing jointly manufacturing anti-tank missiles in India and arranging for the DRDO to work with Lockheed Martin and Raytheon on future missile developments.

  Private Sector

  The public sector’s dominant role was introduced when defence production was included in the Industrial Development Regulation Act of 1951. This was not changed by the 1991 reforms, but it was relaxed in 2001 when private ownership was formally allowed into defence manufacturing. Non-lethal items were opened up on a general basis, and lethal products were also released subject to licences issued case-by-case by the commerce ministry’s Department of Industrial Policy and Promotion, with the approval of the defence ministry’s Department of Defence Production. Foreign direct investment was also permitted up to 26 per cent of a company’s equity. More than 26 per cent was allowed in 2006, but most applications were rejected (26 per cent is a significant figure in Indian company law because it gives an investor blocking rights on decisions since it can call emergency general meetings).