STRATEGIC ANALYSIS OF THE INDIAN DEFENCE BUDGET : FY 2020-21

• Published on February 3, 2020
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Ratan Shrivastava

Management Consultant|Strategy|Business Development|Defence Exports|Aerospace|Defence|Space. SME Defence & Space.

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Economic Context : The state of Indian economy reflected in the India's GDP to growth of 4.8 % in 2019-20, and its projected GDP growth as per IMF at 5.8 for 2020-21, coupled with the rise in fiscal deficit to 3.8%, has constrained the Government from enhancing the allocations for the Ministry of Defence.

The increased allocations to socio-economic sectors for boosting economic growth and on development of infrastructure had a bearing on the defence allocation, with a marginal increase in the defence budget allocation from INR 318,000 Crores in FY 2019-20 to INR 337,533 Crores for FY 2020-21.

Imbalance in Allocation : The allocation for the revenue head continues to be in excess of the capital expenditure. Revenue allocation is essential for the maintenance of the weapons, equipment, transport and ammunition for the smooth functioning of the armed forces, apart from repairs, overhauls and procurements for the recoupment of the stores and the reserves. 

Revenue Head : The revenue allocation saw a marginal increase from INR 201901.76 in FY 2019-20 to INR 209319.00 for the FY 2020-21 (Increase of INR 7417.24 Crores)

Capital Head : On the capital expenditure allocation, there is only an increase of INR 3340 Crores in the budgetary allocation from a RE (Revised Estimates) in FY 2019-20 of INR 110,394.31 Crores to 113734 Crores for FY 2020-21. 

Despite a rationalisation of the requirements, carried out by the Navy and IAF, this allocation with the committed liabilities, of the past will fall short of the requirements for modernisation.

CAPITAL ALLOCATION FOR ARMED FORCES

Arm/Allocation 2019-20 2020-21 Increase

Indian Army : 29461.25 32392.38 2931.63

Indian Navy : 23156.43 26688.28 3531.85

IAF : 39302.64. 43281.91 3979.27

Source:Expenditure Budget 2020-21(All figures in INR Crores

BUDGETARY ALLOCATION FOR CAPITAL EXPENDITURE

The largest increase in terms of budgetary allocation for capital expenditure is for the IAF of INR 3979 Crores followed by Army at INR 3531 Crores. The Indian Army has committed liabilities for the pending procurements of artillery gun systems, rifles and ammunition. IAF has liabilities for acquisition of aircrafts both from HAL and abroad. The allocation to the Navy has risen from 13% to 18% in the current budget.

A closer scrutiny of the allocation of the capital expenditure reveals there is an enhanced share for Aircrafts and Aero engines, for all the 3 services from FY 2019-20 to FY 2020-21 apart from their core acquisitions of weapon systems and naval fleet.

Aero Engines and Aircrafts : The allocation for aircrafts and Aero engines, for the Army is INR 4000 Crores up from INR 2115 Crores from last FY; Navy from INR 2400 Crores to INR 4640 Crores; and IAF from INR 24807 to INR 26909 Crores to the FY 2020-21. Much of the increased IAF allocation will go to HAL for funding the contract of 83 LCA Mk 1A.

The Indian Armed Forces need to continue their modernisation to meet the growing challenges in the neighbourhood but the performance on the key economic parameters, will not allow for greater budgetary support in the next financial year(s).

Some long in the pipeline reforms such as enhanced FDI for Defence manufacturing, IPR protection and Defence SEZs will bring in more commitment of investment in defence production.

STRATEGY AHEAD : WAY FORWARD

A 2 pronged pragmatic approach could hold the key for meeting our security challenges.

At the strategic level of international relations – by forging alliances with partners who hold a stake in the Indian Sub-continent and the Indian Ocean Region. 

The Quad in the Indian Ocean Region is one such welcome move, apart from securing naval berths in the friendly nations from Vietnam and Indonesia in the East to Qatar and Seychelles in the West, to counter the growing Chinese influence in the region buttressed by Chinese investments and OBOR.

The second approach involves a more pragmatic approach to continue modernisation of the Armed Forces by way of greater participation of the private industry through reliance on making in India and also assembling in India. 

This initiative has given proven results in terms of faster induction of patrol vessels for Navy, K9 Catapult for the Indian Army and large number of key systems including air frames for LCA being sourced from the private industry – moving forward, the shortlisting of L&T with MDL for the P75I project as a Strategic Partner, displays the growing confidence on the capabilities. 

There needs to be more such partnerships of the Public Sector and Private Sector, to meet the shortfalls in the budgetary allocation to fill in the wide gaps of technology, capital and to broad base the defence production in the country.

With the creation of the office of CDS (Chief of Defence Staff) and the enhanced powers of procurement to the services, it is hoped that the three wings of India’s armed forces may operate in synergy in terms of defence spends, both for capital and revenue expenditure. India’s security concerns mandate a strong army, navy and air force where the three wings work cohesively for maximum tactical and operational efficiency.

Source for Data: Union Finance Ministry Expenditure Budget Bill FY 2020-21.

#MissionShakti - INDIAN ANTI SATELLITE MISSILE MISSION : IMPACT & GAINS FOR INDIA AS A SPACE POWER

India test-fired a sophisticated anti-satellite missile with “Mission Shakti”,  and destroyed a live, out of use Indian satellite, flying in  its low-Earth orbit at 300 kilometers in 3 minutes, on 27th March 27, 2019, successfully demonstrating its capability based on complete indigenous technology.
This successful  mission, has made India the fourth country, to acquire such a specialised and modern capability, till now held only with the three members of UN Security Council – viz US, Russia and China.  India is opposed to the militarization of Space, and this capability will not be used, against any particular nation - but is purely India's defence initiative, for its security, without breaching any existing International treaties on Space.
For India, as a space faring nation, to develop the capability of ASAT through "Mission Shakti"  is a strategic weapon ; which if needed, can be used,  to intercept and interdict, deny and destroy, the ability of the enemy country, to use their space based systems, to gather space based intelligence and space based military applications, against India. India has successfully demonstrated its capability based on complete indigenous technology.
The military potential of satellites are several – such as surveillance, communications, navigation, early warning and can provide for continuous intelligence and monitoring, adding the vital fourth dimension, as a credible deterrent and a force multiplier - in addition, to the Land, Sea and Air - in case of a conflict, specially, when long drawn out wars, may give way to shorter and intense conflicts,in the future.
This capability will deny any adversary, the use of satellites and other space-crafts, as a platform for any offensive operations, against India by targeting ,the adversary country's surveillance, communication and military satellites. It will also safeguard and defend India’s considerable space assets - and deny the enemy nation any offensive use, of their space assets against India.
ASATs can render the enemy navigation and communication systems useless as a resource and as a platform,  to use their air and missile assets against India. ASAT operations are technically challenging and highly complex , as there is a requirement for a precise hit at very high speed on an orbiting target. 
The complexity of the mission, can be understood, by the fact, that India hit a satellite, orbiting at 300 kilometers above the earth, travelling at high speed of 29000 kilometers per hour – To find and locate the correct satellite, in a maze of space objects field and debris , and successfully destroying it in 3 minutes, is nothing short of a splendid and spectacular precision, displayed by Indian scientists of ISRO and DRDO.
India being a space faring nation with more than 100 space-crafts, missions and space based assets and a rapidly growing space program which includes, its successful Mars (MANGALYAAN) and Moon (CHANDRAYAN) missions, and the proposed Human Space Flight program (GAGANYAAN)  need safeguarding its assets in Outer Space with a credible deterrent.  
In addition, India’s vital infrastructure and connectivity programs such  as Digital India for bridging the digital divide,E-Governance initiatives  by linking of Gram Panchayats/ villages, BharatNet, high speed bandwidth and advanced telecom for providing effective communication in varied topology and remote areas of the country, DTH services, health and primary medicare, meteorological, communications, navigation(NAVIC and GAGAN) and surveillance, needs to be protected  pro-actively, with a credible and forceful deterrent. 
With the successful completion of “Mission Shakti” and  with the “No First Placement” principle, India is now comfortably placed as a space super power matched only by US, Russia and China. As part of this elite league, India is now in a position to not only safeguard its space interests , but also contribute for a peaceful outer space treaty, acceptable to United Nations.
The UNODA (United Nations Office for Disarmament Affairs) in its October 2018 declaration started the process of a new international treaty for banning militarisation of space, in the tentative time frame 2018-2020, with pressure from China and Russia.  
The PAROS Treaty (Prevention of Arms Race in Space) being discussed at UN Conference of Disarmament, for placing objects  or carrying any type of weapon into orbit or using force against space objects, if finalized,  would have made it difficult, for India, to carry out any ASAT mission, due to compliance related issues.
Once the treaty is done and if India not demonstrated the ASAT capability, it could be at a disadvantageous position and would be difficult to enter into the privileged club of nations with ASAT capability, which India could ill afford.
India has had a robust missile defence program and it is a signatory to all the major treaties with reference to the Outer Space.
As informed by the Indian Ministry of External Affairs, India has implemented a number of Transparency and Confidence Building Measures, which include, the registering space objects with the UN register, Pre - Launch notifications, compliance with the UN Space Mitigation Guidelines, participation in Inter Agency Space Debris Coordination in collaboration with other space agencies,  with regard to space debris management, undertaking Space Object Proximity Awareness and Collision Avoidance Analysis and is a participant to the UN Committee on the peaceful use of Space. The test does not violate any existing international treaties and is not directed at any country.

OPPORTUNITIES FOR THE INDUSTRY IN THE INDIAN SPACE INFRASTRUCTURE AND SPACE PROGRAM

The Indian Space Program has set new benchmarks, since its first satellite, Aryabhatta,  with more than 150 missions, over 60 launches and the country is extremely proud of Indian Space Research Organisation, which has consistently pursued its mandate with determination and focused on developing indigenous capability, constantly breaking new ground with the development of technology and applications. 
The indigenous development of complex missions as Chandrayaan and Mangalyaan, our Moon and Mars missions, and that too at a fraction of the cost of its peers, has re defined and set new benchmarks, globally and it is truly the flag bearer of the “Make in India” statement.
In order to realise the stated aim of making 18-20 satellites per year and doubling the number of launches to 10-12 launches a year, there is a need to enhance the Space Infrastructure,  including the possibility of building space vehicles in a joint venture with the industry partnership by 2020-21, hence, there is a greater need for the industry  both in the Public and the Private Sector, to come forward and join hands to support this initiative.
ISRO has been generous in sharing its work load with the industry and up to 80% of the work related to launch vehicles is already being done by the industry, both in the public and private sector, allowing ISRO to focus on core areas of vehicle integration, vehicle engineering and mission design and Quality Assurance and validation.
The requirement of the Indian space industry is significantly short of the stated goals.  The space exploration and the space sector have an immense opportunity for the Indian and the global industry, due to the enhanced demand for satellites and space launch vehicles (@ 18-20 satellites per year and 12 launches per year). The key to success will be through a significant reduction of the cost of access to space, and the ISRO has been instrumental in developing the space and satellite industry clusters in the country.
 Almost 75% of the launch vehicle work is being done by the Industry, with ISRO concentrating on its core activities of design, development, integration and assembly. ISRO has plans to privatise the operations of its popular Polar Satellite Launch Vehicle (PSLV) by 2020-21 and private industry has been engaged with ISRO and ANTRIX to formulate a strategy to enhance the capacity and capability of managing the PSLV program on an end-to-end basis. ISRO is looking to set up a joint venture to manufacture the launch vehicle itself. The Government of India, has committed Rs 10,469 crore to India’s space agency to build 40 rockets over the next five years, which includes ten heavier rockets or the Geo Synchronous Satellite Launch vehicle (GSLV Mk-III) 

The assembly, integration and testing of IRNSS satellites in the private sector is a concrete step towards the eventual privatization of commercial satellites with the design, engineering and manufacturing of the components for satellites and launch vehicles already in the private sector domain.

Satellite Manufacturing Opportunities in India
 The Indian Satellite markets are at the cusp of major expansion, as there is a mandate for launching ~75-80 satellites (1500kg upto 6 tons) in the next 5 years to meet the growing requirements of Indian communication, navigation, social sector and entertainment  needs. This is a major opportunity as it needs an enhancement in the capacity, supplier / vendors and expansion of the industrial base to cater to the needs of ISRO.
The satellite manufacturing activity is being moved from in-house activity to AIT concept. ISRO has already selected 3 vendors (BEL / ADTL and TASL) for the first phase of Assembly, Integration of Testing of Satellites as URSC-ISAC. 27 satellites are to be manufactured, under this program over the next 3 years.
In satellite manufacturing, there is a requirement to augment the capacity, capability and cost of access. There is a need for the ownership of the Sub Systems for providing End to End solutions – there is an opportunity for the industry for moving up the ladder from being vendors to partners and scaling up.

Launch Vehicles  :
There is a budgetary commitment of INR 10,469 crore for the  40 launch vehicles, over the next five years, which includes ten heavier rockets (GSLV Mk-III)
ISRO has a need to launch ~12 rockets (PSLV / GSLV) per annum, from the current rate of about ~6-7 rockets per year in order to launch the increased number of satellites.  There is a stated intent for the privatisation of the PSLV rocket in the PPP domain through a consortium approach which represents a unique o Launch Vehicles: Sub Systems (Such as Control Panels) end to end collaboration.
SSLV, under development, for payloads up to 500 kgs will be a bespoke and "On Order" launch vehicles for nano sats / constellations / cubesats for LEO that can be launched as and when needed. SSLV is to be completely outsourced to the Industry in collaboration with ANTRIX.
Sourcing and Supply Chain - ISRO has incubated and nurtured a supply chain based on frugal engineering - which is extremely focused on cost reduction without compromising the quality / performance parameters.  The technologies that have been transferred to the Industry for productionising and the components and sub- assemblies that can be exported have been notified. 
There is an opportunity for the industry to become a part of the Global Supply Chain as foreign OEs can substantially reduce their cost of access by sourcing from the Indian satellite and launch vehicles sourcing and supply chain.
The commercial arm of ISRO, ANTRIX is a public sector enterprise and is free to enter into commercial arrangements, Strategic Alliances and JVs with the Indian and foreign industry as preferred partner from public sector, in the Indian space programs.
However, certain challenges and restraints, remain for the Industry to manage, in order to take advantages of the opportunities available, in the Indian Space programs – some of the challenges are that the Indian space and satellite industry has till date been beholden to the ISRO, and capitalised  based on a single customer hence scaling needs to be done .In most cases the industry remains in the SME sector - even though large players as HAL / BEL / L&T and Godrej are major vendors to ISRO.
The restraints come in the form of the space clusters being concentrated near the ISRO labs / establishments responsible for a particular function and there is little in common with the Defence contractors.  ISRO has invested, both in R&D and also as a partner in the production in terms of capital and human resources, in the SME industry that has been nurtured by it, therefore it is a stake holder in the capitalisation as well as strategic growth of these companies while teaming up with the foreign industry.
ISRO will remain the sole customer, for the industry unless the Indian Industry moves to adjacent domains. There is an opportunity for the industry to develop R&D and patents and thereby move up to value chain as vendors to the global supply chain.

Author:
Ratan Shrivastava, is a Defence & Space, Aerospace industry expert and consultant. He has led the Aerospace & Defence Consulting Practice at Frost & Sullivan, Asia Pacific and in South Asia & Middle East.
Ratan Shrivastava, is Advisor, FICCI Space Division. Views are personal.

HUGE DIPLOMATIC WIN FOR INDIA AT THE XIAMEN BRICS SUMMIT : 04 Sept 2017.

A Huge Diplomatic Win for India, at the Xiamen BRICS Summit , on  the Joint Declaration, on Terrorism,  emanating out of Pakistan ! The BRICS leaders, for the first time, name and specifically list out,  Terrorist Outfits, such as Jaish -e- Mohammad / Lashkar -e- Toiba and Hizb, operating out of Pakistan. China, Pakistan's all weather friend has joined in the naming and shaming. Signs of changing times and isolation of Pakistan, by the international community due to its terror linkages. Text of the BRICS Declaration at Xiamen "We express concern on the security situation in the region and violence caused by the Taliban, ISIL/DAISH, Al-Qaida, & its affiliates including the Haqqani network, Lashkar-e-Taiba, Jaish-e-Mohammad, TTP & Hizb ut-Tahrir"

Does this mean, it's just a step away ,for India, to get the motion across in UN, banning  and tagging the Jaish Chief, Mazood Azhar,as a UN designated Terrorist? PM Narendra Modi went to Xiamen for the BRICS Summit, just days after India and China, ended the Doklam stand off after 73 days.

As per my assessment (Ratan Shrivastava), its a welcome step and shows that some of China's close allies, as Russia, would like to join the international community in shaming of the terror groups emanating out of Pakistan - though it will be early days yet to write off the support from China, for Pakistani terror groups at the UN.

US - INDIA DEFENSE PARTNERSHIP TO SET THE TONE FOR THE MEETING BETWEEN PM MODI AND PRESIDENT TRUMP

US - INDIA DEFENSE PARTNERSHIP - IN THE NEW ADMINISTRATION

Defense Partnership between the United States and India, could set the tone for the first bilateral between PM Modi and President Trump, when they meet on Monday, 26th June at Washington.

The way forward for India, as a major Defense partner (NDAA), and the progress on the DTTI initiatives, that began under the Obama administration are the points of interest, in the the transition, of the Indo-US partnership under the Trump administration.

Indo-US ties overcame the "hesitation of history" to become "the most defining partnership" of 21st Century during the last 3 years of Obama-Modi bromance.

The nomination of Kenneth Juster, a key Presidential aide and an expert at Indian economic and commercial markets, is an indication, that India has surely not fallen off the radar for the new administration though it is not as agile as India would have liked.

MQ 9B Guardian : The sweet spot could be a move forward and a formal announcement , on the recent clearance by the US Department of State and Department of Defense on the proposed sale of the MQ – 9B Guardian Drones to India – the first for a non NATO country.

The approval for sale of MQ 9B Guardian is an acknowledgement of the greater role India can play in the Indian Ocean region, monitoring the Chinese submarine and surface vessels activity and the Chinese aggressive expansion through an eye in the sky and increasing security cooperation in the Indian Ocean and Pacific region.

There is an increasing view on the Capitol that India could be a natural ally in Afghanistan in the US efforts to contain the Haqqani Network and Taliban proliferation with the porous Pakistan. It is expected that India will not send boots on ground but bolster the common security interests.

Energy is another area of promise with the import of LNG and once India enters NSG , the market will open up for the 10 Nuclear Power Plants announced by India for US majors.

F 16 Block 70: US defence giant Lockheed Martin and India’s Tata group, on Monday, the 19th June, signed a Letter of Intent to build the F-16 Block 70, single engine aircraft, in India, in order to bid for the lucrative contract for more than 100+ single-engine fighters for Indian Air Force. Please note, the operative word is Intent.

The timing of the announcement, on Day 1 of the Air Show, indicates that the deal was in works for some time between LM and TASL , its long term partner in India which manufactures Sikorsky helicopter Cabins and components of C 130J at its facility near Hyderabad.

It goes without saying that such an announcement by Lockheed Martin, the biggest Aerospace & Defence OEM of Pentagon would have not happened with a nod of the Department of Defense,as it will involve complex ITAR approvals, licensing and technology transfer.

Yet there are several questions which need an answer, as we move forward with this announcement -

Is it about Optics? Or is it a chance to put the ageing aircraft on the High Table?

How will this work, without directly affecting American jobs - while creating Indian jobs? The F 16 Block 70 is hardly 40% LM as the rest of the aircraft belongs to IP owned by its vendors including radar and avionics.

If Lockheed Martin is to retain the supplier base in USA, while integrating the aircraft in India - then it could potentially conflict with the idea of Make in India and surely not in sync with the Strategic Partnership Policy, of Ministry of Defence.

It could be about creating a subtle political, economic and moral pressure - on the Ministry of Defence & Indian Air Force to favorably consider an aircraft of last millennium - in comparison to its European counterparts - the Gripen E of SAAB and Rafael of Dassault, are latest models and technology of this century and Gripen E is surely a cut above the F 16 Block 70 with Swedes having done their homework on transfer of technology to India.

Fort Worth, Texas, is the lone facility of F 16 as on date it and was facing closure, due to drying up of orders – thus moving capital assets to an Indian partner of long standing (TASL)which already manufactures airframe and components of C-130J and Sikorsky S-92, in a host country(India) with a potential of orders of hundreds of aircraft, worth billions of dollars, makes imminent business case.

MRO : Even in case this partnership, does not ultimately manufacture the aircraft, it could become the MRO hub for hundreds of F 16s variants operational in Asia & Middle East, saving precious dollars and US based jobs while creating jobs in India, which will be beneficial to both the parties. After - market services are required for this in-service aircraft with a residual life of at almost 30 years with many air forces.

It could also be the test case for the Strategic Partnership Policy , as potentially it is going to be the first proposal for the newly minted Chapter VII of DPP 2016.

So do we expect any announcement on this from the joint statement or even a mention of the proposed joint build of this ageing F 16 Block 70 aircraft as a “Make In India” program?

The answer lies in the fact that PM Modi, made a call to the Swedish PM Stefan Lofven this week, appreciating the gesture of Swedes towards Make in India.

Points for Friction : There will be some friction points as the Visa Regime, the Stent pricing (Medtronics) and the climate change - but officials on both sides are working overtime to contain these issues.

The visit of the PM to US is aimed as an ice breaker with both sides gauging if the US India relations will continue to progress on the trajectory set by Obama administration or there will be a lull as the focus of Trump administration is on the developments in West Asia and Middle East.

 America First & Make In India - Can the twain meet?