Regardless of polemics, indigenisation in defence procurement and share of FDI merits national debate as Parrikar is tipped for defence portfolio in Cabinet rejig
With the Winter Session of Parliament due to begin its deliberations soon, there are already speculation about impending Cabinet changes, including that of Defence Ministry, to relieve the heavy burden on the shoulders of Arun Jaitley, who also holds the charge of another important Ministry, that of Finance.
It would not, therefore, be out of place to discuss some of the important issues that are before the country in matters of defence. There are, in fact, many important issues, some more in the nature of personal interpretations and preferences such as filling up the post of CDS and others in the realm of facts such as the level of Indian defence imports, the level of indigenisation in defence procurement and the share of FDI in defence sector in India in relation to its global share, etc.
While there can be and indeed there are differences in opinion about the former, some former chief expressing support and some other equally eminent chiefs opposing it, there can be no differences about matters of fact.
However, surprisingly in these matters of fact, which are susceptible to examination through hard data, there is almost unanimity of views, almost always wrong invariably based on urban legends or reports from third parties — more often than not totally unreliable.
The popular impressions about three such issues — the level of Indian defence imports, the level of self-reliance and the low share of defence FDI in India as compared to global levels are all false. That about the level of Indian defence imports based on a study by a Swedish think-tank, which in the past has been shown to grossly overestimate such Indian imports, that about the level of indigenisation-based almost wholly on speculative articles extrapolated on a 1994 estimate of the then level of indigenisation and that of the defence FDI based on the demands of foreign defence industries.
Indian defence imports
For well over a decade, the Swedish think-tank SIPRI has been ranking India as the world’s largest defence importer. This has seeped deeply not only in the minds of global analysts but amongst top Indians, both in and out of the Government.
On a number of occasions, defence policy makers from the level of Ministers and secretaries of the MoD to analysts in Indian think-tanks almost all have universally subscribed to the SIPRI conclusions. This is hardly surprising since even in earlier times during the 1990s, SIPRI had routinely named India as the world’s largest defence importer. During those times, India’s defence imports were often cited as the reason for India’s declining and low foreign exchange reserves.
In 1994, a detailed critiqué of the SIPRI results — based on an analysis of its methodology and data — revealed that SIPRI’s figures were gross overestimates. The study done by IDSA on the basis of data used by SIPRI indicated that while the actual value of imports based on contract details of some major purchases (An-32, MiG-29, jaguar, Il-76 and others) was USD3,742.9 million, SIPRI had estimated the value of these imports as USD10,969.114 million, almost three times as much! It is true that SIPRI had protected itself by terming the currency of exchange as TIV (Trend Indicator Value — meaning the value that one should have paid according to what SIPRI believed should be paid). Although this analysis was based on data provided by SIPRI itself, it did not find many takers in the think-tank circuit because of SIPRI’s name. An analysis of the current SIPRI data suggests that history has repeated itself 20 years later.
For example, during the parliamentary PAC (Public Accounts Committee) hearings, when asked about the cost effectiveness of the project, the Ministry intimated that the unit cost of licensed manufactured aircraft (SU-30) worked out to USD30.130 million compared to the imported cost of USD31.266 million (at 2000 economic conditions). (USD31.266 million at 2000 prices is equivalent to USD25.52 at 1990 prices.) SIPRI estimates the TIV cost of a SU-30 at 1990 prices at USD55 million!) It is not surprising, therefore, to find that according to SIPRI India is the world’s biggest defence importer.
Other evidence from the official records of other countries corroborates these conclusions. According to US official data, the value of FMS deliveries and commercial exports of defence goods from the US to Israel during 2003-12 was USD15,270.693 million; according to SIPRI, US exports of defence goods to Israel was only USD5,567 million. United States to Turkey defence exports during the
same period was officially estimated at USD6.21 billion; SIPRI had estimated such exports to be USD1.961 billion.
In spite such overwhelming evidence to the contrary, Indian policy makers continue to hold faith in SIPRI conclusions at the expense of Indian defence industry. This faith is partly based on the myth that imports constitute 70 per cent of Indian defence acquisitions. There has never been a formal official study on the degree of indigenisation of India’s defence acquisitions. The only slightly official study that was done on the subject was during the time of Dr APJ Kalam when he was the Scientific Adviser to the Defence Minister in the 1990s. Even then it was only a partial study. However, the conclusions of that study have been used unaltered for more than 20 years to conclude that 70 per cent of India’s defence acquisitions are imported.
later research studies — not official — have shown that during the period 2000-10, the level of indigenisation had improved to 40-45 per cent from the earlier estimates of 30 per cent.
It is to be hoped that under a new Defence Minister, efforts will be made to correct some of these misconceptions that may, and indeed have, led to some policy changes whose consequences do not seem to have been fully explored.
(The writer is Consulting Fellow, IDSA, New Delhi)