Protection penalties

India is one of the major buyers of weapons worldwide, yet every multi-million dollar defence contract comes with problems. Nicholas Nugent considers how two current deals are causing controversy for different reasons

Under successive governments India’s defence mantra has been that the country needs to be able to fight two wars at once. Putative enemies are its two large neighbours, China and Pakistan, with whom it shares common borders totalling 6,400 km in length. Like India, China and Pakistan both possess nuclear weapons and the neighbours also aim to outgun each other in conventional weaponry.

NOT MADE IN INDIA: Modi may pay at the polls for the Rafale deal
NOT MADE IN INDIA: Modi may pay at the polls for the Rafale deal

The perceived threat from both powers justifies India’s massive defence budget. The capital element this year totals $13.6 billion,most of which will be spent buying foreign aircraft and armaments. Since the Bofors scandal of the 1980s,when so called ‘middlemen’ were illegally involved in the purchase of howitzer guns from Sweden, the government has tightened procedures for weapons’ purchases to eliminate the possibility of illegal commission payments being made.

Most big purchases now require ‘offset’ arrangements under which some of the proceeds of the sale – usually one third –have to be spent in India. Another routine requirement is for technology transfer.

So there was surprise that no offset or technology transfer requirements were outlined last monthwhen Prime Minister Narendra Modi signed a deal with President Putin of Russia for a five-battery S-400 missile defence system, also known as ‘Triumf’, worth $5.4 billion.  The purchase from Russia is to be paid for in Indian rupees –approximately Rs 40,000 crore.

This may be an attempt to avoid falling foul of the United States’ newly enacted Countering America’s Adversaries Through Sanctions Act (CAATSA). Under this legislation the US threatens retaliatory action against any country buying weapons from Russia which, from November, is bound by new, tighter US sanctions following alleged Russian computer hacking operations in the US, the Netherlands and Ukraine,as well as the alleged attempt on the lives of former Russian spy Sergei Skripal and his daughter in the UK.

Since the 1980s’ Bofors scandal, India has tightened procedures for weapons’ purchases

Washington may punish Delhi for doing business with Vladimir Putin. In an ominous sign,President Trump said India would find out ‘sooner than you think’ whether it is to face secondary measures. Only the president has the power to exercise a waiver, which is not country-specific and generally allows for the upgrade of existing systems but not the purchase of new systems.In September the US imposed sanctions on China for its earlier purchase from Russia of the S-400.

Defending its rights as a sovereign nation both to arm itself and select its own suppliers, India has said it only recognises sanctions imposed by the United Nations Security Council. Russia’s ambassador in Delhi, Nikolai Kudashev, called the US’s CAATSA legislation ‘an instrument of political and unfair pressure and not the right way of doing things’. India is also negotiating to buy assault rifles, naval frigates and helicopters from Russia. It is not clear whether these purchases would also lay it open to punitive action by the US.

It could be a bad month for India since two of its oil companies have placed fresh orders for Iranian oil just as tighter US sanctions against Iran for its nuclear programme are due to come into effect. India bought nearly 10 per cent of its oil imports from Iran last year and, as a long-standing customer for Iranian oil,hopes to be exempted from secondary US sanctions despite the firm action Washington is taking towards Iran since withdrawing from the 2015 six-nation Iran nuclear deal. State Department spokesperson Heather Nauert told journalists the US was carefully reviewing India’s decisions to buy Iranian oil and Russia’s air defence system, which she described as ‘not helpful’.

Since the signing ten years ago of the so-called US-India civil nuclear agreement, which brought India’s purchase of nuclear materials under international safeguards, India and the US have had a closer relationship, including on defence related matters. However, Russia remains overwhelmingly India’s major source of arms.Indian defence forces are this month due to hold separate training exercises with both US and Russian fighting forces.

A second major deal causing much political controversy in India concerns plans to buy the Rafale multi-role combat aircraft from the Dassault Company of France for $8 billion (around Rs59,000 crore). A deal to buy the Rafale has been under discussion for twelve years, firstly by a Congress-led government and later by Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP). The high specification Rafale, which operates both as a fighter and a bomber, was chosen over American, Russian and European rivals and is apparently favoured by the Indian Air Force.

It is the terms of the deal, and especially the offset arrangements, that are causing major ructions in the Indian parliament with opposition Congress Party leader Rahul Gandhi claiming corruption and lack of transparency over the deal to purchase two squadrons or 36 aircraft.  The ruling BJP’s spokesperson, Sambit Patra, responded to the Congress leader’s allegations, saying that ‘the Gandhi family had made money from every defence deal till 2014’.

India urgently needs to replace its ageing fighter jets

The Rafale deal seems certain to become an issue in India’s national elections, due within six months, just as the Bofors guns contract was three decades ago when Congress, led by Rahul Gandhi’s father, Rajiv Gandhi, was voted out of office.The cost per aircraft appears to be considerably higher than that negotiated in 2012 by the then Congress-led government to purchase 126 Rafale aircraft, some of which were to be assembled in India by state-owned Hindustan Aeronautics Limited (HAL).

The latest deal also includes no ‘Make in India’ element, despite that being a catchphrase of Narendra Modi’s government. Controversially the offset agreements have been awarded in part to Reliance Defence, part of Reliance Group led by Anil Ambani. The political row exploded in September when former French president François Hollande told the Mediapart investigative website that it was the Indian government that selected the Reliance Group subsidiary. Mr Modi’s government maintains that the choice was that of the aircraft manufacturers, Dassault.

The Reliance Group, part of the massive industrial empire of the late Dhirubani Ambani, is reported to be heavily in debt, mostly to state-owned banks. Critics of the deal question why an indebted company with very limited experience of defence deals should have been awarded the main counterpart or offset contract while HAL, which has considerable experience in aircraft manufacture and recently launched its own fighter jet, should have been cut out of the deal. There is no dispute between the political parties that India urgently needs to replace its ageing fighter jets.

As the government awaits decisions in Washington over its S-400 deal and its purchase of oil from Iran, Congress leader Rahul Gandhi has called on Prime Minister Modi to confirm that strict defence procurements procedures were followed in relation to the intended Rafale purchase.Russia and France, meanwhile, continue to push for the implementation of both defence contracts. For different reasons, it could be some years before either system is delivered.


Nicholas Nugent, who is currently based in India, reported for the BBC on the Bofors scandal and India’s subsequent 1989 election. He is the author of a biography of Rajiv Gandhi, India’s prime minister at that time

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