Tuesday, 3 April 2012

India to Miss Its Own Defense Spending Target: Report

Corruption is one of the major obstacles that hampers development of local-foreign joint ventures in defense production, a new report has said.

India will miss its own target of buying 70% of its defense equipment locally over the next decade due to a lack of local capability combined with bureaucracy and corruption, according to a new report by information provider IHS Jane’s.

Instead it will likely only be able to remain at current levels of 30%, meaning some $137 billion of the $195 billion India plans to spend on defense equipment between 2013 and 2022 will go to foreign firms.

This is likely to create opportunities not only for Russia, India’s long-term military supplier, but also for U.S. and European manufacturers, the report said. It noted that India had selected French aerospace company Dassault in February as its preferred bidder for a $10 billion contract to supply fighter jets.

India has been attempting to ratchet up domestic production but –as the report states- a combination of bureaucratic paralysis, corruption and lack of domestic industrial capability. Jon Grevatt, IHS Jane’s defense industry analyst for the Asia-Pacific region, and author of the report, comments, “The maze of administration is obstructing the global defense industry, its local industry and the potential economic benefits.”

One example of India’s failure are delays over plans to locally produce six new-generation submarines. Delays in getting the project up and running have led India’s navy to push for the government to instead import submarines.

Corruption is another major obstacle that hampers development of local-foreign joint ventures in defense production, the report said. The largest such scandal in India’s history dates to 1987 over the import of 410 howitzers from Bofors of Sweden – a scandal that many say led to former Prime Minister Rajiv Gandhi’s failure to get reelected two years later.

Fresh allegations from outgoing Indian army chief Gen. V. K. Singh that he was offered a $2.7 million bribe to clear the purchase of substandard military vehicles show that concerns over corruption have not gone away.

The IHS report says that concerns over graft have in fact made getting defense deals cleared even more difficult, with bureaucrats unwilling to make decisions, leading to further delays.

Defense Ministry “vigilance officers” now monitor every step of an acquisition. However, increased oversight has led to greater bureaucracy and a genuine fear among officials of making decisions. Accusations of “procurement irregularities” have been common and have caused several procurement programs to be severely delayed or cancelled, the report said.

India’s Comptroller and Auditor General criticized a number of New Delhi’s procurement programs in July 2009, prompting the Defense Ministry to investigate allegations of irregularities. Project cancellations resulted from the allegations, such as the Indian army’s tender for 197 Eurocopter AS550C3 Fennec light observations helicopters, the report noted.

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