Bangalore: Likely budget cuts in the defence sector will not affect important modernization projects for the armed forces, such as the $11 billion deal to purchase 126 medium and multi-role combat aircraft (MMRCA), defence minister A.K. Antony said on Wednesday.
Spending that’s essential for maintaining the operational preparedness of the armed forces will not be cut, Antony said on the inaugural day of the 9th Aero India show.
India selected Dassault Aviation SA’s Rafale fighter jet in 2012 for the order—the single-largest deal in the Indian defence sector, seeking to reinforce its military strength in keeping with its rise as an economic power. A deal still hasn’t been inked.
“Issues including arrangement of defence offset obligations and transfer of technology seems still to be resolved,” Deba Ranjan Mohanty, chairman of the Indicia Research and Advisory, a New Delhi-based defence research organization, told Bloomberg.
The Rafale contract isn’t ready to be signed during French President Francois Hollande’s 14-15 February state visit to India, a French official said in Paris, on the condition he wasn’t identified, Bloomberg reported. Talks are “progressing well” on the key remaining issue of how to transfer production to India after the first 18 aircraft, which will be manufactured in France, he said.
Antony said six more stages of negotiations with the company were pending before the deal is finalized; the government wants to make sure there is no wrongdoing, he said.
“We want to seal the deal, but at the same time, we want to see that at every stage of the contract, there is no malpractice,” the defence minister said.
Asked whether there was any relaxation in the terms for transfer of technology or the number of aircraft to be produced in India, Antony said conditions that had been specified in the original request for proposal (RFP) inviting bids from potential suppliers would stand. “We can’t change the RFP now,” he said.
Antony said the government’s budget, which finance minister P. Chidambaram will announce on 28 February, had been constrained by the poor state of the global economy.
Demand for Indian products in key export markets has shrunk, leaving the country saddled with a current account deficit equal to 5.4% of gross domestic product (GDP) in the quarter ended September.
“Even though we are anxious to get more, the whole government is passing through a difficult phase,” Antony said.
The defence minister said the government will adopt a new defence procurement procedure in the upcoming financial year, with the specific aim of stepping up indigenization. He said the government wasn’t looking to reach a stage of zero imports, but was aiming for a substantial reduction of imports.
The minister also said that a decision was taken in January this year to improve inter-departmental co-ordination on major offset deals through a broader committee.
The offset policy, under the 2011 procurement procedure, mandates that at least 50% of any defence order worth more than Rs.300 crore should be sourced from Indian firms.
“We felt that because of lack of enough coordination between the various departments, major decision on offsets should be taken in a collegiate manner with all stakeholders,” he said.
Antony said that a plan to buy 197 light-utility helicopters for the Indian army had been forwarded to the defence acquisition council, which comprises the defence minister, the three service chiefs, and the secretaries of various departments.
The minister said he had set state-owned Hindustan Aeronautics Ltd a target of 2015 for delivery of the Intermediate Jet Trainer (IJT). “They must present the IJT for the next Aero show in 2015,” he said.
Bloomberg contributed to this story.