Budget cut warning as India opens air show

India's defense minister warned of budget cuts on Wednesday as he opened the country's air show with a sobering message for global defense groups used to years of lavish spending.

Referring to efforts to reduce the budget deficit caused by slowing economic growth and higher spending on subsidies, A.K. Antony said the government of India, the world's leading arms importer, was "passing through difficult days".

"The whole government is facing some financial problems, so we need to tighten in all areas for a better future," he said.

Having seen the defense budget cut this year, reportedly by about 100 billion rupees (two billion dollars), Antony appeared to be preparing the ground for painful negotiations over the upcoming budget due at the end of the month.

He stressed that essential programs would not be affected — in particular the deal to buy 126 Rafale fighter jets from France's Dassault Aviation — but said the armed forces would have to prioritize in their spending.

"Acquisitions that are very important for operation preparedness of the armed forces immediately and in the short term will have priority," he said.

According to the Stockholm International Peace Research Institute, India received nine percent of global arms transfers from 2006 to 2010, making it the world's leading importer of weapons.

New Delhi initially budgeted about 1.93 trillion rupees ($36 billion) for defense spending in this financial year to March, an increase of 17 percent from 2011-2012 when spending was hiked by another 12 percent.

Defense spending next year will be under pressure by new Finance Minister P. Chidambaram, who is leading the austerity drive in the government and has promised a "responsible" budget ahead of elections in 2014.

The new focus on cost saving could have repercussions for a range of procurement contracts which are either in the final stages of negotiation or are out to tender.

But asked about the headline deal for the Rafales, Antony insisted there was no question of it being delayed for financial reasons.

"There is no question of delay because of budget cuts. It is one of the biggest procurements from the ministry and air force," he said.

Exclusive negotiations are under way to determine the final price and the amount of technology transfers, with the issue set to be taken up by French President Francois Hollande when he visits New Delhi next week.

One long-discussed deal that could face further delays is for 197 light reconnaissance and surveillance helicopters, with Eurocopter and Russia's Kamov competing, industry analysts say.

The Aero India show, now in its ninth edition, has grown exponentially in step with India's huge modernization drive and diversification of its buying to include the US, France and Israel as well as traditional supplier Russia.

A total of 78 countries have confirmed their attendance, with nearly 700 Indian and foreign companies on display.

India this year welcomed its first high-level delegation from China after New Delhi extended an invitation to Beijing for the first time in January, months after the neighbors agreed to resume military cooperation.

Air Vice Marshal Zheng Yuanlin headed a five-person Chinese group at the five-day show.

The last Aero India in 2011 saw India initially snub China, but the Chinese ambassador in New Delhi was allowed to attend in a negotiated compromise.

Suspicion of China runs deep in the Indian military and hawkish comments from senior commanders often conflict with the political leadership, which tends to stress the need for a partnership between Asia's two biggest nations.

India and China claim parts of each other's territory, while Beijing's military build-up along their frontier, as well as competing interests in the South China Sea and Indian Ocean, are frequent sources of friction.

Many of India's new acquisitions are designed to guard against possible future threats from China — rather than traditional foe Pakistan — and protect Indian economic interests globally as the country extends its influence.

Since concerns last year about India's credit rating and budget deficit, India has been curbing spending.

Chidambaram has promised that the fiscal deficit will be no more than 5.3 percent this year and no more than 4.8 percent next year.

Courtesy: AFP