India's Defence Purchase Equations

An IDC Analysis 

(From our correspondent in New York)


New Delhi, 04 June 2005

India on Top

There is jubilation at Karlskoga in Sweden as the Bofors group is no longer on India's black list. The employees are looking to the Bofors Defence (now owned by United Defence) getting the 155mm gun contract and supplies of 52 cal, that the Army liked so much after the Kargil war. The gun has also cleared the difficult trials for its upgrade. The Congress will like that too. It was Olaf Palme who clinched the deal with late Rajiv Gandhi in two private meetings and the contract was good and the gun proved to be a worthy buy. HDW too look for a contract as they are out of the black list for submarines.

India is therefore the flavour of the times in the West. It has become the darling country all of a sudden, thanks to people like Manmohan Singh, Pranab Mukherjee, MK Narayanan and Montek Alhuwalia. They must have read Thomas Friedman痴 book "The Earth is Flat"! They will all be in USA in mid June to drum up support for India's economy, a seat in the UN and pitch for some defence wares and no doubt to discuss Iraq with President Bush. Manmohan Singh is to meet Bush on 19 Jun and may also address the US Congress.

USA is ready to outsource military services as it has done its other services and we wonder why the Indian Government is not biting 末 with insurance safeguards for those who volunteer. If India is a true democracy they should be allowed to participate.

There is excitement in Washington and activity, as many Indians will be on the bandwagon, NSG, IB and MEA officials and some from MOD. These are interesting times for the world as USA's military and the coalition in Iraq are in a very precarious position and USA may even resort to the draft for its Armed Forces and that will be catastrophic.

Europeans have become lazy and Europe is the sick man of the world with France and Holland rejecting the EU Constitution. USA will support Boeing against Airbus, which it claims gets government subsidy. Therefore India is in the news and in one day 末 June, 3, several reports in the world press, extolling India and its potential were in the news. Here are a few:

A Race to the Top

By Thomas L. Friedman

The New York Times, June 3, 2005

Excerpt 末 Bangalore, India. 的t was extremely revealing travelling from Europe to India as French voters (and now Dutch ones) were rejecting the E.U. constitution 末 in one giant snub to President Jacques Chirac, European integration, immigration, Turkish membership in the E.U. and all the forces of globalisation eating away at Europe's welfare states. It is interesting because French voters are trying to preserve a 35-hour work-week in a world where Indian engineers are ready to work a 35-hour day. Good luck.

Voters in 双ld Europe 末 France, Germany, the Netherlands and Italy 末 seem to be saying to their leaders 末 stop the world, we want to get off 末 while voters in India have been telling their leaders 末 stop the world and build us a stepstool, we want to get on. I feel sorry for Western European blue-collar workers. A world of benefits they have known for 50 years is coming apart, and their governments don't seem to have a strategy for coping.

One reason French voters turned down the E.U. constitution was rampant fears of 善olish plumbers 末 low-cost immigrant plumbers from Poland taking over the French plumbing trade. This became a rallying symbol for anti-E.U. constitution forces. A few weeks ago Franz Mntefering, chairman of Germany's Social Democratic Party, compared private equity firms 末 which buy up failing businesses, downsize them and then sell them 末 to a "swarm of locusts."

Indian Software, Service Exports on the Rise

By Dinesh Sharma CNET

Excerpt 末 迭evenue from the export of software and from services sold to companies from outside India (what's known as offshore outsourcing, from the U.S. perspective), reached $17.2 billion during fiscal 20042005, according to the group, which is also known as Nasscom. The jump represents growth of 34.5 percent over the previous year's revenue of $12.8 billion.

Rumsfeld Warns China on Lack of Democracy

By Carol Giacomo 末 Reuters

Excerpt 末 迭umsfeld drew a stark contrast between China and India, the world's largest democracy, which America is courting as a counter-weight to the communist nation 末 糎e anticipate that the relationship with India will continue to be strengthened. With respect to China, it's not completely clear which way they are going because you have the tension I characterised between the nature of their political system and the nature of their economic system."

India痴 Defence Purchase Equations


The real battle of the current Mahabharata (Congress Vs BJP/NDA) has begun as the UPA government with the Congress leading the charge is set to review the defence deals that the BJP government had negotiated 末 for obvious reasons, and the clock is ticking away. The Congress is thrilled that the HDW and Bofors cases have fallen by the way side and are no longer on the balck list. This is a huge win for Mrs Gandhi as unneccesarily the names of the Gandhis had been sullied and now bygones should be bygones 末 even Ottavio Quatrocchi will soon get some respite 末 so can the others. Last week the Delhi High Court ruled that the Europe-based Hinduja brothers did not cheat anyone while securing an order for 155 mm howitzers from the Swedish company Bofors for the Indian Army. The Hinduja brothers 末 Gopichand, Prakashchand and Gopichand 末 who reside in London and Geneva had been cleared of corruption charges last year and now cheating so there is jubilation in the Hinduja camp too.

Earlier on 4th March 2005, the Delhi High Court Special Judge Aruna Suresh had closed a case of corruption against HDW (Howaldswerske), the German submarine manufacturer. This judgement and order totally absolved HDW of any wrong doing in the 1980's in connection with the supply of 4Type 209/Gabler design submarines to the Indian Navy and once again opens the door for this company, along with its partner, MAN Ferrostaal AG to cooperate with India in its naval submarine and modernisation programme.

It may be recalled that the Union government had banned all dealings with HDW and put the company on its black list after the public outcry over the submarine scandal in which hefty commissions were allegedly paid to powerful arms merchants, including former senior naval officers. It was the Indian Ambassador in Germany who inadvertently blew the whistle, when he inquired from MEA Delhi if commissions were to be paid for the 6th and 7th submarines too. It is well known that commissions are paid world over as a SOP. India on the other hand had made agents illegal and now have reversed the decision. This practice will be hard to break.

HDW submarines, of the Shishumar (Type 209) class had been in operation in the Indian Navy for a couple of decades now and Mazagon Docks continues to handle their maintenance. HDW have now offered the latest Type 214, from HDW/MAN Ferrostaal, which are equipped with the Air Independent Propulsion (AIP) system and a sophisticated range of weapons and sensors. The manufacturers also claim that they can offer this version with missiles at prices more favourable than those that India has currently been offered by other countries. Consequently, the 6 Scorpene submarine procurement deal from France, appears to be in trouble as the price has escalated and the MESMA system has not been proved. Defence Minister Pranab Mukherjee had also stated that there were some problems with the Scorpene deal and it was being looked into. Last heard the media had reported that new bids had been called for.

The BJP Government had negotiated the Scorpene deal when George Fernandes was the Defence Minister.

As part of the Indian Navy's ambitious submarine programme, Project 75, the government had approved the construction of 24 submarines in 30 years. Currently, the navy operates 12 Russian and four HDW submarines. In the first part of the project, the Navy had wanted to upgrade its HDW submarines with powerful missiles. The HDW submarine has eight 21-inch torpedo tubes that can fire the AEG-SUT Mod-1 wire-guided, active/passive homing torpedo, with a 250 kg warhead.

According to the Navy, the best way to upgrade HDW submarines was to fit them with Klub class Russian missiles, which had a range of over 300 kms and were cost effective. This upgradation, involved lengthening the submarine 末 a major modification which HDW were capable of doing. However, HDW was blacklisted towards the end of the 80s, after allegations of massive kickbacks. It may be recalled that on 11th December, 1981 the Indian government signed the agreement with HDW under which two HDW 209 class submarines were to have been built in Germany, and the company was to supply kits for two other submarines, to be assembled at Mazagon Docks, Bombay. As per the agreement, HDW was to train Indian personnel in assembling the submarines, and were to have opened a consultancy service in Mumbai for the Navy. 

Addressing Indian fears of further inordinate delays in the acquisition programme,  officials of HDW, speaking on conditions of anonymity, mentioned that they could present a proposal to the Indian Government within 46 weeks. In their opinion, Mazagon Dock (MDL), Mumbai, would require barely six months to gear up to start manufacturing the new Type 214 vessels. They based this confidence upon the demonstrated capability of MDL to independently maintain and refit the earlier Type 209 Shishumar class HDW submarines, two of which were built at MDL itself.

155mm Guns

NYT on 3 June had released an item that in South Africa a Schaibir Shaikh Agent for CSF THOMPSON (now THALES), had bribed the Deputy President Jacob Zuma for supplies to the South African Navy and a deal with Malaysia possibly for the G 5 155 mm guns to be supplied by DENEL. India was to follow suit with DENEL and now MOD had frozen all deals with DENEL for some wrong doing in anti material rifles supply in 2003.

F-16 Fighters

Following the Bush administration's offer to India to supply F 16s/F 18s, the USA had given the nod to supply F-16 fighter aircraft to Pakistan. The US Defence Security Cooperation Agency head Air Force Lt-General Jeffrey Kohler had said that Islamabad had proposed to buy nearly 75 F-16 (Falcon) fighter aircraft. Kohler said that Pakistan had also inquired about buying 11 used F-16s. A team of executives from Lockheed Martin's F-16 assembly plant in Fort Worth, Texas, is now due in Islamabad to discuss the proposed sale, he said, adding that he had held arms-sales talks with Pakistani Defence Ministry officials last month.

India will do well to look at the offer of assembling F-16s in India as it can come cheap. USA is getting some 3000 JSF 35s for $50 million per piece and 400 F-22s at $70 million per piece. India missed the offer of the F-5 plant, which earlier the USA threw away 末 it should now bargain for the F-16 plant and with Indian and Israeli help the aviation industry can take leaps ahead.

India is the flavour of the times and Indian leaders should look at the opportunities with open minds and ride the tide as it rises for India. USA is awash with money despite its deficits and India can dip into the till easily. USA is willing to cooperate.

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