Wednesday, April 4, 2012

Hard Choices

Kanwal Sibal

ARMS PRCHASES ARE POLITICAL IN NATURE AND NOT SIMPLE COMMERCIAL TRANSACTIONS

The decision on the MMRCA contract has provoked a discussion on the degree of strategic thinking that goes into arms purchases by the Indian government. India is one of the largest arms importers; it is accepted as a truism that arms purchases are political in nature and not simple commercial transcations. If they are based on political considerations, then they ought to fit into some strategic context. This much is clear.

US, Russian and European suppliers were competing for the MMRCA deal. A huge defence deal such as this anywhere cannot be ignored by the governments of the countries whose defence companies are involved in the competition. Maintaining a national defence industry is a hugely expensive business. Exports, by enlarging the market base, help greatly to amortize costs. A defence supply relationship with a country also creates political leverage with it. Export orders become more important at a time when domestic orders are drying up because the political environment is more peaceful in the West and defence budgets have been reduced, at least in Europe. The defence industry involves many high quality jobs, and at a time of growing unemployment, protecting existing jobs or creating new ones is a major governmental concern. No wonder then the governments of the countries whose companies were vying for the MMRCA contract were active in drawing attention to the political and strategic considerations that should weigh with India in taking its decision.

The exclusion of the US companies at a preliminary stage invited the rebuke from US circles that India had opted for a transaction not a relationship. This meant that India was not thinking strategically while taking this decision, that it was thinking purely in commercial/technical terms. The implication here is that at times, even if a choice were available, India should settle for what may be relatively inferior technology for larger and longer term political and strategic considerations. In the case of the MMRCA this would have meant that India should have chosen one of the two US aircraft as this would have consolidated the base of the developing US-India defence relationship, increased levels of mutual confidence, enhanced mutual political stakes and opened doors for higher grade technology transfers in the future. All this would have given more substance to the declared strategic relationship between the two countries.

In the case of Europe thereis greater sense of comfort in dealing with them in defence matters as the Europeans are more commercially oriented and do not burden their defence sales with extraneous political baggage
The four European governments have been arguing that an Indian decision in favour of their aircraft would create defence and technological partnerships with four major European countries, with long term tie-ups with their defence sectors. India would have a multi-nation relationship rather than with a single country. Furthermore, with a more open approach to technology transfers and more possibilities for India to participate in the further development of a still not fully mature aircraft, India’s strategic goal of establishing a larger indigenous defence manufacturing base could have been better achieved.

India and France have had a long standing defence relationship. French Mirages have served the Indian Air Force well for more than a couple of decades and India has not been subject to sanctions by France(unlike US and the UK in the past). France is a country with which our defence relationship has been tried and tested over a long period and therefore futher investment in it is without risk. France, in addition, has maintained a relatively more independent defence manufacturing base, which gives it more political space to act independently on the international stage. It is therefore in India’s interest that the French industry is not squeezed out of international competition and that France remains an option for Indian acquisitions. All these arguments would be in favour of a strategic choice in favour of the French aircraft, more so as France was the first country with which India began a strategic dialogue after our 1998 nuclear tests and the first western country with which India established a strategic partnerhip.

Whether India exercises a strategic choice while making defence acquisitions begs the question whether it is always possible to do so. There may be many factors that stand in the way of consciously making “strategic” choices. What India wants may not be available from a preferred source; the potential supplier may not be willing to transfer technology to the extent India wants; conditions attached to the sale of defence equipment may be too onerous; reliability may be an important consideration; the price factor and financial terms are always a critical element and so on.

A country’s strategic choices also depend on the international situation at a particular point in time. India’s nonaligned policy during the Cold War was an impediment in building a defence supply relationship with the US, but it was not in building one with the Soviet Union. The US brought the military alliance system right to the doors of India, and this too impeded defence ties with the US. Not surprisingly, the end of the Cold War saw India taking the initiative to procure military equipment from the US by placing an order for weapon locating radars.

Britain and the US were not sufficiently willing in the 1960s to transfer technology and allow local assembly of western aircraft in India and the Soviet Union was willing, and this prompted India to turn to the Soviet Union for the acquisition of MiG 21 aircraft. The state of relations between India and the Soviet Union at that time did not necessarily justify this “strategic choice”- the Soviet Union did not then (and now) take any favourable position on the Sino-Indian border conflict, whereas the US did. However, the rupee payment arrangements for the purchase of Soviet equipment served foreign-exchange deficient India’s needs well.

India continues to make large acquisitions from Russia for a variety of reasons. Russia has proved a reliable supplier; a high degree of mutual trust exists betwen the two countries. Russia is willing to make available its front line equipment to India. It has leased a nuclear-powered submarine to India and is assisting in the Arihant programme. Russian equipment is often considerably cheaper to procure. In any case, with the Indian armed services so heavily dependent on Russian equipment, it is very difficult for India to rapidly diversify even if it wanted to. Upgrades and modernization of the existing equipment prolongs the India-Russia defence connection. New acquisitions are made or planned such as additional Sukhoi MK 30I aircraft and the Multi-role Transport Aircraft (MTA) and the Fifth Generation Fighter Aircraft (FGFA) in order to continue to buttress the strategic relationship between the two countries with military orders. (Looking back India took an important “strategic” decision to place large orders on the Russian defence companies to help them survive after the demise of the Soviet Union and the drying up of government orders for defence equipment because of political and economic disarray in the country).

India-US defence relations have suffered because the US has chosen to arm Pakistan as an alliance partner in earlier decades and now as a major non-Nato ally. It is difficult for India to ignore this even as it is willing to expand defence ties with the US. The US has a history of imposing arms embargoes on countries on political grounds. This raises concerns about the reliability of the US as a supplier. Unlike in the case of other countries, the US attaches conditions to arms transfers such as end-use monitoring that detract from a country’s sovereignty. US concerns about the security of its technologies makes technology transfers from it difficult. The recipient country cannot modify or upgrade US supplied equipment through indigenous reasearch and develpment as that is seen as a violation of IPRs.

The US tends to look upon arms sales to a country as a political gesture to it, not as a commercial deal alone. The recipient country has to “merit” receipt of military equipment even on payment. The assumption is that the US possesses the most advanced technologies and these are eyed by other countries. The US also believes that providing arms to countries, even in troubled regions, helps in stabilizing peace as it makes countries feel less vulnerable to outside threats. If a country like India has to establish a deeper defence relationship with the US it has to take into account these problematic factors in making its strategic choice. The reluctance that still exists in opening the throttle for procuring more from the US is explained by these aspects of US arms sales policies and assumptions.

In the case of Europe there is greater sense of comfort in dealing with them in defence matters as the Europeans are more commercially oriented and do not burden their defence sales with extraneous political baggage, though in the case of Germany human rights considerations have prevented them from supplying certain kinds of equipment to certain countries that can be used by their governments against local insurgents. The links between the US and the UK defence industry creates some uncertainties with regard to servicing of UK supplied equipments carrying US parts that could be subject to an embargo were the US to impose sanctions. It is for this reason that in acquiring the Hawk trainer aircraft from the UK, India insisted that they carry no US made parts. All in all, however, the power equation between individual European countries and India is less unequal than with the US and therefore India has a lesser sense of political vulnerability vis a vis them. The French, with a more autonomous defence industry, are that much more keen to preserve their share of the global market that is dominated by the Anglo-Saxons, and therefore can be relied upon more not to risk their reputation for political reliability.

A strategic approach to arms purchases therefore requires that India take into account the political risks or lack of them in dealing with supplying countries. It is clear that from this point of view India has shown proof of such an approach in having a robust defence relationship with Russia and a tentative one with the US. The latest opening to the US in terms of defence trade has come after the trust generated by the India-US nuclear deal and the establishment of a strategic partnership between the two countries. A strategic approach also requires that no overdependence is created on one single country as that can create vulnerabilities even if the relationship with that country is friendly and stable over a long period. Here, it can be argued that some overdependence exists in relations with Russia, but that occurred as a result of Cold War dynamics and western policies towards India, as well as the huge financial advantage in conducting even defence trade in rupees at a time of acute foreign exchange shortages. But even in that period India kept a line open to the West with sizable defence procurements from France, the UK and Germany and some from Italy. The list of equipment bought from France since the 1950s is impressive- the Ouragan, Mystere and Mirage aircraft, the Chetak and Cheetah helicopters, radars, AMX tanks and so on. We also acquired the HDW submarines from Germany.
Our real problem is that we have failed to develop a large enough indigenous defence manufacturing base. If we were thinking strategically we should have begun to fill up this lacuna in our defence planning a long time ago
The need to diversify the sources of procurement would seem a strategic necessity, though the interlinkages between western defence companies is now such that there is hardly a pure national company. In that sense, thre is no unalloyed strategic choice to be made. Nevertheless, India has diversfied its sources of acquisitions, but this creates the problem of maintaining vastly different inventories with attendant increases in administrative, maintenance and manpower costs. India now procures equipment from Russia, France, Israel, the UK, US, Germany and Italy. In part this diversification of sources will occur even more because of revisions in our system of procurement. We are moving away from government to government procurement to international tendering. Whereas the first offered scope for a ‘strategic’ approach, the latter makes it essentially a techno-commercial transaction. The change has been dictated by the need to make the system more transparent in order to dispel charges of corruption. The L1 system has meant that the lowest bidder wins irrespective of “strategic” considerations. It is hardly possible under this system to buy more expensive equipment from a “strategically” more important country if cheaper equipment is available from a country less important in the strategic sense. In the case of the MMRCA contract we have taken into account life cycle costs. This may give some elbow room to buy initially more costly but superior equipment. Our system, plagued by accusations of corrupt practices, has resulted in companies being blacklisted and this further distorts the availability of options.

We are today buying defence equipment from several countries. When decisions are taken in the relevant Ministry and receive cabinet approval, the defining approach is not strategic; it is essential administrative and financial. For a strategic approach the foreign policy angle has to factored in, but this is not done as the decision on procurment is essentially the domain of the Defence and Finance Ministries with no consulatation with the Ministry of External Affairs and pro-forma approval by the cabinet.

Our real problem is that we have failed to develop a large enough indigenous defence manufacturing base. If we were thinking strategically we should have begun to fill up this lacuna in our defence planning a long time ago. No country can have truly independent foreign and security policies if it is dependent on its defence on procurement of foreign arms. The strategic choice that we need to make is not to make purchases of foreign weapons in accordance with what that might bring in terms of building strategic partnerships with individual countries, but be self-reliant as fas as possible in the field of defence.
Author is Member Advisory Board in Vivekananda International Foundation and Former Foreign Secretary

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