July 9 (Bloomberg) -- Working off 1980s blueprints, India’s biggest state-run weapons maker last year went to the deserts of Rajasthan to test a locally produced piece of artillery. When it fired, the barrel cracked.
A year later, India’s military is still waiting for its first new piece of artillery since its last purchase in 1986. Besides delays from Indian manufacturers who are seeking to replicate a weapon Sweden designed three decades ago, plans to buy 1,500 mid-range howitzers have also failed to be executed.
India’s struggle to upgrade weapons used to guard borders with Pakistan and China shows Prime Minister Narendra Modi’s challenge in transforming a sector plagued by scandal and inefficiency before his first budget. While the country of 1.2 billion people is both a nuclear power and the world’s biggest arms importer, defense spending is near a half-century low as a percentage of the economy and many weapons are obsolete.
“The fact India has not been able to buy artillery is symptomatic of the problems of governance within its armed forces,” said Harsh Pant, a defense studies professor at King’s College in London who has written books on India-China ties. “Overhauling the military is going to be a huge challenge. Modi has the mandate to do it, but he is going to have to move very quickly because he will come up against lots of entrenched interests that don’t want reforms.”
The previous government budgeted defense spending for the year ending March 31 at 2.2 trillion rupees ($37 billion), up 10 percent from the previous 12 months. India’s consumer-price inflation exceeds 8 percent, the highest in Asia.
In the last financial year, defense spending was estimated at 1.8 percent of gross domestic product, the lowest since 1963, the Institute for Defence Studies and Analyses, a government funded research group, said last year. Per person India’s military spending is about three times less than China and among the lowest in Asia, according to the Stockholm International Peace Research Institute.
About 60 percent of defense spending goes to paying salaries for about 1.3 million soldiers, the world’s third-largest standing army. What’s left is used mostly to buy weapons from abroad because India’s state-run factories aren’t able to meet the army’s needs, leaving tanks without shells and soldiers without bulletproof vests, according to a parliamentary defense committee report published last year.
“We are lagging at a faster and faster pace,” Avinash Chander, head of the department for Defense Research and Development Organisation, a government unit that develops military technology, said this week. “That requires resources commitment as well as a focus on the key areas.”
Standing on the deck of India’s biggest warship last month, Modi called for the country to minimize its reliance on imports and become self-sufficient in weaponry. His government is considering proposals to make it easier for foreign companies to invest in the defense sector.
The Federation of Indian Chambers of Commerce & Industry, a top business lobby, says it supports raising the limit to more than 50 percent only on a case-by-case basis for equipment such as aircraft engines and advanced missile guidance systems. The limit is now capped at 26 percent for most investments, with anything more than that requiring special approval.
Foreign companies with advanced technology will require management control before investing in India, according to Rahul Bedi, an analyst at IHS Jane’s in New Delhi.
“Nobody in their right mind is going to transfer technology to the Indians with the Indians in charge,” Bedi said. “It doesn’t make any commercial sense for anybody.”
Raising the investment cap would make it more attractive for companies such as Boeing Co., BAE Systems Plc and Lockheed Martin Corp. to tie up with domestic firms to make weapons. In the last 13 years India’s defense industry has drawn about $5 million in foreign investment, less than the amount for glue and gelatin production, government data shows.
“Companies like Lockheed have targeted India as one of the most important and appealing weapons buyers over the next two decades,” said Loren Thompson, an analyst with the Lexington Institute, an Arlington, Virginia-based research organization, and a consultant to defense companies including Bethesda, Maryland-based Lockheed Martin.
“What the U.S. companies see is a rapidly expanding economy in which the military standards are high enough to justify the purchase of world-class weapons,” he said.
India surpassed China in 2010 to become the world’s largest arms importer, and now buys three times as many weapons as its northern neighbor, according to SIPRI. While India depends on imports for 70 percent of its weapons, many planned purchases have stalled.
Two years after Paris-based Dassault Aviation SA won an $11 billion order for 126 Rafale fighter jets, the world’s biggest contract for warplanes in about two decades, a shortage of funds is holding up the deal.
“It is fair for complex matters that it takes some time,” French Foreign Minister Laurent Fabius said in New Delhi last week, expressing his frustration over the delays. “There is a difference between some time and too long.”
As talks over the aircraft drag on, U.K. Foreign Secretary William Hague said he lobbied Indian ministers yesterday to revive their interest in the Eurofighter Typhoon warplane, which is partly built by U.K.-based BAE Systems.
India lost half its fleet of 872 Soviet MiG fighter planes purchased between 1966 and 1980 due to crashes, former defense minister A.K. Antony told parliament in 2012. More than 200 people died in the accidents, which were caused by human error and technical defects, he said.
In 1986, when India last purchased artillery, Sweden’s Bofors AB was accused by Indian police of paying $14.3 million in bribes to obtain the $1.3 billion contract. No one has ever been convicted in the scandal. Three tenders for artillery since then have been scrapped because of corruption concerns.
“The lack of new artillery undermines our defense preparedness very seriously,” said Dipankar Banerjee, founding director of the Institute of Peace and Conflict Studies in New Delhi, who commanded troops on the border with Pakistan. “Modi has his heart in the right place with the military, but that doesn’t mean he will be able to execute that plan.”
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