Indian PM Modi Risks `Trust Deficit’ as India Rips Up Arms Contracts


September 5, 2017

Indian Prime Minister Narendra Modi’s ambitious $250 billion plan to modernize India’s military is being tripped up by the country’s own best practices.

September 5, 2017

Indian Prime Minister Narendra Modi’s ambitious $250 billion plan to modernize India’s military is being tripped up by the country’s own best practices.

Rigid rules that forbid single bidders, cap prices and blacklist companies accused of graft — together with a lengthy trials process and insistence on local manufacturing — have pushed Modi’s administration to cancel at least $25 billion worth of tenders over the past three years. These include last month’s decision to withdraw an order to buy 44,000 light machine guns despite warnings of a serious shortage of weapons amid a tense eyeball-to-eyeball standoff with Chinese troops.

While the border dispute has since eased, Modi’s army chief warned that such encounters will only increase in the future. A report from India’s expenditure watchdog in July showed that the military lacks enough ammunition to fight an intense war and blamed "tardy progress in procurement."

Picture: Indian Air Force Sukhoi Su-30 MKI fighter aircraft patrol the skies over the Himalayas.

"The idea of the defense procurement procedures is to ensure that the armed forces are equipped with the best the country can afford. It was never the intention to prevent procurements," said K.V. Kuber, a New Delhi-based independent defense analyst who has served on government panels shaping procurement policies. "By canceling imminent contracts, besides depriving the forces of the military platforms they need, it causes avoidable trust deficit in the industry, both domestic and foreign."

India had held long-drawn trials of at least four vendors for the machine-guns tender, which was approved by the Defence Acquisition Council in September 2013. At the end of the tests only Israel Weapon Industries qualified to submit commercial bids, automatically ruling out the company. IWI, which has a tie-up with India’s Punj Lloyd Ltd. to locally manufacture components of its Negev light machine guns, didn’t reply to emails seeking comment.

‘Not Fully Understood’

Other cancellations include a $20 billion tender for 126 combat planes, first issued in 2007. The order was withdrawn after Modi in 2015 decided to buy 36 Rafale planes directly from the French government. Then there was the $1.6 billion Flight Refueling Aircraft, tendered a decade ago and retracted in 2010 as India’s government thought the price was too steep. The tender was refloated and once again the Airbus 330 tanker aircraft was shortlisted after trials, only to be shot down in late 2014 for the same reason.

"The A330MRTT has twice emerged as the preferred choice for the Indian Air Force’s requirement for mid-air refueling tankers but, for reasons not fully understood by us, on both the occasions the tender was withdrawn," Sunny Guglani, Airbus spokesperson for India, said by email. "The AS550 Fennec had emerged as the technically-compliant L-1 bidder (lowest cost) in the first instance of the reconnaissance and surveillance helicopter tender and entered into commercial negotiations with the customer before the process was canceled.”

The second time the tender didn’t progress beyond the field evaluation trials, he said.

Guglani was referring to India’s plans to buy 197 light utility helicopters, a lifeline for soldiers posted at the world’s highest battlefield on the inhospitable Siachen Glacier in the Himalayas. The acquisition process went through three cancellations, the latest in 2014. Now, India and Russia have agreed to manufacture the Russian Kamov Ka-226T helicopter in India to meet the armed forces’ requirement, and 15 years have gone by since the first tender for the helicopters were issued in 2003.

‘Unrealistic and Ambiguous’

Part of the problem is that the Finance Ministry has the authority to intervene in specific spending decisions of the Ministry of Defence, often with an eye to limit costs, according to Arming without Aiming, a book published by Brookings Institution Press in 2012. It also cites "an unrealistic and ambiguous policy of offsets," where foreign companies are mandated to locally produce part of the contract. If anyone recommends easing these rules, he or she becomes vulnerable to charges of corruption, while bureaucrats lacking military knowledge lobby the government to preserve their decision-making powers, authors Stephen P. Cohen and Sunil Dasgupta wrote.

The government in November said Ministry of Defence officials can ease some of the procurement rules as long as they can show that the weapons purchase is critical.

India’s Ministry of Defence spokesman Nitin Wakankar said he had no comment to offer on the canceled tenders. The government on Sunday named Nirmala Sitharaman as India’s first woman defense minister in 35 years.

Other tenders canceled since May 2014 include:

  • 65,678 assault rifles (worth $750 million, canceled in June 2015) and 44,600 carbines ($500 million, 2016), both standard weapons of an infantry soldier
  • 204 armored recovery vehicles ($275 million, May 2017) for T-90 main battle tanks that was to be awarded to Polish firm Bumar; Bumar’s President Adam Janik didn’t reply to an email seeking comment
  • 702 light armored multipurpose vehicles ($190 million, August 2016)
  • 98 torpedoes to arm the Indian Navy’s new Scorpene submarines ($200 million, June 2016)
  • 16 multi-role helicopters ($300 million, canceled in June 2016 after a decade-long process)

Vested Interests

While India had chosen the Italian firm WASS to supply its Black Shark torpedoes, the order was canceled because the parent company Leonardo SPA — previously called Finmeccanica — was alleged to have paid bribes for a now terminated contract to supply 12 posh helicopters to transport the Indian president and prime minister.

The withdrawal of the machine guns order will delay procurement by at least five to eight years, according to Deepak Sinha, a retired brigadier from the Indian Army who is now a distinguished fellow with the New Delhi-based Observer Research Foundation. While India’s humiliating loss to China in the 1962 war was blamed on obsolete weapons — most of which had been introduced into service during World War 2 — the situation is much worse now, he said.

"There are vested interests, including those within the system, in delaying projects," Sinha said.

(Updates with new defense minister in 12th paragraph.)

Courtesy/Source: Bloomberg