By Neelam Mathews
New Delhi
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The Indian defense budget for fiscal 2012 (April 2012-March 2013), adjusted for the 12.9% decline in the value of the rupee to the dollar last year, is less than 2011 in real terms. Plans are to allocate $36 billion, or 2.6% of GDP, to defense this year. In 2011, the budget was $35.2 billion, or 2.03% of GDP.
Based on the current value of the rupee, this yields a budget with buying power of $31.4 billion in 2011 dollars. And while the defense budget’s share of GDP is up 28% from 2011, India’s rate of GDP growth was 16.6% less than in 2010—7.5%, compared with 9%.
The rupee’s loss of value is attributable to worried investors selling emerging-market assets on the presumption that Europe’s debt crisis will lead to global recession. Nevertheless, major programs are under way by the air force, navy and army, as India undertakes a $50 billion modernization drive in the next five years that will improve the capabilities and power projection of its forces. One factor driving modernization is the rise of China as a regional power, expanding its presence in the Indian Ocean and building forces and infrastructure in Tibet and Pakistani-occupied Kashmir. India lags China in ICBMs, nuclear submarines, antisatellite weapons and fifth-generation fighter aircraft. The defense budget seeks to fill at least some of these gaps.
The biggest deal this year is the $11 billion Medium Multi-Role Combat Aircraft (MMRCA) program for the air force, which will see a bidder selected for the 126 aircraft by March—at least according to the current timeline. The downselected bidders are Dassault Aviation with the Rafale and Eurofighter with the Typhoon. If the deal goes as planned, it will boost the air force’s share of the defense budget to a projected 35% this year from 28%. This in turn will affect allocations for the army, which received 51% of the budget last year, and the navy, which got 15%. (Allocations for these services had not been announced at press time.)
On the other hand, homeland security, which is under the jurisdiction of the Home Affairs Ministry, has a budget that will increase, says Laxman Behera, research fellow at Indian Defense Strategic Affairs. Homeland security’s budget was $4.4 billion last year. “Internal security has urgent needs that cannot wait. Overall, we are compelled to modernize forces including the police,” adds Behera. The homeland security budget will be announced on Feb. 29.
International defense and aerospace companies are seizing opportunities in India’s competitive and rapidly expanding market. India’s modernization plans and recent upgrades mean the military is importing more than 70% of its arms. Factors behind this effort include protection of its robust economy based on trade and challenges ranging from border conflicts with Pakistan and China to terrorism and piracy.
Meanwhile, with contracts for the long-delayed upgrades of 51 Dassault Mirage jets signed and the down payment made in late 2011, the $2.4 billion project is finally underway. Dassault and Thales will modernize onboard equipment and systems to bring the aircraft to Mirage 2000-5 standards. Clearance for procurement has also been given for 450 MICA multitarget air-to-air intercept and combat missiles from MBDA for the Mirages. MICA has a maximum operating range of 60 km (37 mi.).
The upgrade involves new avionics including the Thales RDY2 multimode radar, as well as new navigation and electronic countermeasures. The MPDU mission computer, also on the Rafale, will be installed in the Mirages. Thales will now need to tap current and potential partners for offsets and finalize its joint venture with Samtel.
The first two Mirage aircraft will be upgraded in France within 44 months. The next two will be modified over 14 months by Dassault, Thales, and government contractor Hindustan Aeronautics Ltd. (HAL) in Bengaluru (formerly Bangalore). HAL will then upgrade the rest.
A contract to integrate Rafael Advanced Defense System’s Derby medium-range air-to-air missile with India’s Tejas light combat aircraft is in the works. Delivery of the missiles is expected in the second half of 2012. The active radar- and infrared-guided Derby, which provides all-weather, beyond-visual-range capability, has been acquired for the navy’s Sea Harrier FRS51 fighters, 14 of which have been modified for the missile.
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The Defense Research and Development Organization will spend $4 billion over the next three years on locally manufactured strategic and tactical missiles, including the Astra air-to-air missile, BrahMos supersonic cruise missile, Akash surface-to-air missile and the Shourya ballistic missile. Also scheduled for production are 1,100 Pinaka rockets, 1,000 84-mm rocket launchers and 7,500 missiles.
Honeywell became the sole vendor in a bid to re-engine the air force’s Jaguar fleet when Rolls Royce pulled out. Honeywell will supply its F125IN engine, which has 9,850 lb. of thrust. It is projected to save the service $1.5 billion in lifecycle costs. The engine includes a dual full-authority digital engine control system, modular construction, integrated engine-monitoring system and high thrust-to-weight ratio, according to Honeywell.
The air force has started taking delivery of six Lockheed Martin C-130J transports. A letter of request has been sent to the U.S. for procurement of six more, according to Defense Minister A. K. Antony.
HAL is planning to modernize its facilities to better handle impending orders for such aircraft and programs as the fifth-generation fighter, a joint project with Russia; the medium transport aircraft, a joint venture with Irkut Corp. and Ilyushin Design Bureau of Russia; indigenous light combat aircraft; the light combat helicopter; MiG-29 upgrades; and the intermediate jet trainer.
Navy leaders are working to give India a new fleet with greater range. Navy Chief Admiral Nirmal Verma says force levels will increase to 150 warships and 500 aircraft. The navy’s current fleet strength is 118 surface ships, 14 submarines and 216 aircraft. When he speaks of range, he means “deployment at long distances with the ability to stay for some time.” In other words, “reach and sustainability.”
India’s plans to construct its first indigenous aircraft carrier at Cochin Shipyard suffered delays following problems in design and integration of the propulsion system and procurement of critical equipment. Verma says the carrier should be launched “by the middle of 2012, or so.”
The navy plans to soon commission the refitted aircraft carrier INS Vikramaditya (formerly the Soviet carrier Admiral Gorshkov). It also wants to add nine surface warships. These include a Shivalik-class frigate; Kolkata-class destroyer; antisubmarine warfare corvette; offshore patrol vessel; two Talwar-class frigates from Russia; three catamaran survey vessels; and 25 fast interceptor craft.
The largest army initiative, a $13 billion modernization program, will add 90,000 soldiers and raise four new divisions along India’s border with China. “The army will purchase 2,600 vehicles as part of its future combat vehicles program, and is likely to see strong public and private sector participation from ordnance board and industry players such as Tata Group,” says Rahul Gangal, defense advisory and investments director at aerospace specialist Aviotech of Hyderabad.
The purchase by the army of 197 light helicopters has been re-tendered, following an objection by Bell-Boeing. This delays the award to one of two short-listed contenders: Eurocopter with its Fennec AS550 C3, and Kamov with the 226T. There has been no indication as to when the contract will be announced.
Defense Minister Antony told parliament recently that priority was being “given to ensure that artillery units are equipped with modern weapons.” The army reportedly needs 1,580 155-mm/53-caliber towed guns; 180 155/52 wheeled and self-propelled guns; 145 155/39 ultra-light howitzers; and 100 more 155/52 tracked guns.
Analysts advise that India should sustain its defense expenditures at a consistent pace for an extended period. This is likely, given that defense is in modernization mode. If the current momentum of budgeting is sustained, defense spending is likely to be around $100 billion by the end of 2021, resulting in significant market opportunities for industry in India and outside.
Until recently, the defense ministry has been unable to spend all of its annual allocations due to complicated procurement procedures. As a result, large programs have suffered delays, which in turn led to cost escalation and technology obsolescence. This situation is changing, though it remains to be seen to what extent.
Photo: Geoffrey Lee
