Put Off by Funds Crunch, Defence Firms Take Flight Out
By N C Bipindra | Published: 09th February 2014 08:44 AM |
It’s a bubble that has burst. India’s dalliance with global arms companies appears to be heading for curtains with India not signing a single new defence contract with foreign firms in the 2013-14 fiscal. Add to it Defence Minister A K Antony’s pessimistic forecast for the next six months on the first day of the defence exhibition DefExpo-2014 on Thursday.
Speaking at the event, Antony said India had no funds for new defence acquisitions this fiscal after `7,870 crore from the capital budget was transferred to the revenue budget to meet rising expenses relating to salaries and pensions, fuel costs and maintenance. That decision has effectively brought down the capital budget for 2013-14 to `78,871 crore from the allotted `86,741 crore.
The Defence Minister also said India has not yet made down payment (about `600 crore) toward a `4,000-crore contract for six more C-130J special forces planes, though it was signed in December 2013, due to lack of funds.
The domestic and global defence industry has interpreted this statement from Antony to mean India would not sign any defence contracts due to its economic troubles and austerity measures for the next six to eight months.
With the UPA government unlikely to return to power after the Lok Sabha polls this year, it would take the next government at least three months to settle down in the job and another three months to understand the defence purchases that are in the works and in advanced stages of negotiations before it would sign them.
This has led to major global defence firms recasting their plans for India, with some of them stopping their expansion plans, others applying brakes on their campaign in tenders and some others reworking their strategies, industry insiders, who do not wish to be named, told The Sunday Standard.
Insiders also said the exact number of companies doing a rethink at this point of time was not available readily, but “the overwhelming sentiment was shared by nearly all of them.”
Industry sources said US firm Boeing, which emerged as one of the largest defence suppliers to India from the US with contracts worth `35,000 crore in the last five years, will now focus on “deliveries” of planes and missiles that it has signed contracts for over the next six months, instead of signing new contracts.
Boeing is currently supplying eight P-8I maritime patrol planes and the anti-submarine warfare Harpoon weapon systems, apart from 10 C-17 strategic transport planes. Its Chinook helicopter is the winner of the tender for 15 heavy lift helicopters and its Apache has been chosen by Indian Air Force as the attack helicopter it wants to meet the requirement of 22 gunships.
Industry sources said US firm Raytheon has already begun re-evaluating its presence in India and its expansion plans may not go through. It would, however, continue to have a liaison office in New Delhi to pursue business. Raytheon has over the years pushed for sale of its Patriot missile defence system, Javelin anti-tank guided missile and Stinger man-portable air defence missile system, but has had no success.
In the case of BAE Systems, its most successful programme in India has been the Hawk advanced jet trainers, 66 of which were supplied by it to the Indian Air Force to train fighter pilots. It will now focus on deliveries of 57 more Hawks, of which 17 would go to the Indian Navy and the rest 40 to the IAF. The company is waiting for the last two years to get the orders for supplying additional 20 Hawks for the IAF’s Surya Kiran aerobatics team.
BAE Systems had in the 2011 decided not to bid for the 155mm 52 calibre towed artillery gun tender after Indian Defence Ministry had tweaked the original parameters. BAE Systems then felt that its gun was superior to the specifications sought by the Indian tender and decided to keep away. In November 2013, the UK firm again decided not to bid in the tender for naval 127mm guns for integration on board its 13 mainline warships.
European firm Airbus too is waiting to sign a `6,000 crore contract for supplying six A300 MRTT midair refueller to the IAF for the last two years. It is also waiting for a decision from the Defence Ministry on the tender for 197 light utility helicopters worth `7,500 crore for the Army and Air Force. This tender is stuck due to investigation into complaints against a Brigadier demanding a bribe of `25 crore from Italian major AgustaWestland.
At the DefExpo-2014, in progress in Delhi, the mood has turned sombre following Antony’s announcement that India has no funds to do defence business anymore and has resulted in major confabulations within defence companies, both foreign and domestic private sector, on going slow till “business prospects show up” in India.
The development regarding the AgustaWestland deal for 12 VIP helicopters too hasn’t helped, after the Defence Ministry decided to keep it out of the DefExpo, despite no court has passed any strictures or judgment on the corruption case it is fighting in Italy and the CBI investigation here is yet to completed, the industry sources added.