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Business News/ Opinion / Flying away with fighter jets from France
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Flying away with fighter jets from France

Defence preparedness should not be confused with manufacturing prowess

Illustration: Shyamal Banerjee/MintPremium
Illustration: Shyamal Banerjee/Mint

It says a lot about India’s defence procurement policies that eight years after floating a big tender for fighter aircraft, the country is yet to sign a deal. Late last week, a tentative first step in that direction was taken in Paris with the decision to buy 36 Rafale aircraft in fly-away condition. The 36 planes are being bought in a government-to-government deal instead of the usual negotiations between India and the manufacturer of the planes. The original plan to buy 108 aircraft from the manufacturer Dassault Aviation is mired in complex negotiations that have gone nowhere for many years now. It is a story of self-inflicted wounds that has left India with gaping holes in its defence preparedness.

Originally, under the Medium Multi-Role Combat Aircraft (MMRCA) tender floated in August 2007, 126 planes were to be purchased. 18 of these planes were to be bought in fly-away condition and the remaining 108 were to be manufactured in India by Hindustan Aeronautics Ltd (HAL). These planes were to be manufactured under a transfer of technology (ToT) agreement between Dassault and India.

The deal got into trouble for two reasons. One, cost over-runs and two, difficulties in the ToT process. India wanted Dassault to be responsible for the 108 aircraft manufactured by HAL in every way—from production costs to maintenance to performance, something that Dassault is reluctant to agree with.

It is easy to pin the blame on Dassault for delays and all that has gone wrong in the deal. The French company is being blamed for inflating the cost of each plane manufactured in India by anywhere between 40-50 crore, a deal-breaker in a contract for 108 aircraft. Dassault, in turn, did not want to take responsibility for manufacturing delays at HAL.

The truth is that India’s defence procurement policies today are beset with conflicts of interest. One should begin with a simple question: What does the country want from foreign procurement contracts? Is it to buy defence equipment to defend India or is it to boost India’s domestic defence industry? Over years, these two goals—which should be kept distinct—have become increasingly mixed. Under the policy of “offsets", the foreign manufacturer is made to spend a certain amount of the contracted sum in India in buying from local manufacturers. On paper, this is an attractive idea.

If a foreign manufacturer spends a fraction of the money in India, it gives a boost to the domestic industry. In practice, these offset contracts are hard to enforce as creative ways can be found to overcome the spending limits. In the end, it becomes a cat and mouse game between the foreign contractor and local bureaucrats.

The unanswered question—or the question no one wants to ask—is this: which Indian companies gain the most from these offsets? This is nothing but a variant of the original infant industry argument. Protecting infant industries led to the creation of white elephants across the Indian economy. In case of defence industries, the consequences are far worse: India’s security is imperilled. From the sanctioned 44 aircraft squadrons, the Indian Air Force (IAF) will soon be down to 34. Even those 34 squadrons will have a large component of aging planes. In an effort to promote domestic defence manufacturing, the original reason for buying equipment from abroad has been blurred.

There is plenty of room for domestic defence equipment manufacturing. There will always be a class of weapons that no foreign country will sell India. Advanced nuclear submarines and ballistic missiles are good examples. India should concentrate its energy there. What can be purchased directly, in government-to-government deals, should be done without delay. Technology transfers and offsets are a bad way to build domestic defence capabilities. Indigenous capabilities should be built directly on India’s proven strengths. The armed forces should not be made to bear the burden of this process.

Do technology transfers delay the acquisition of critical weapons for India’s armed forces? Tell us at views@livemint.com

Follow Mint Opinion on Twitter at https://twitter.com/Mint_Opinion

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Published: 12 Apr 2015, 06:22 PM IST
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