Israel develops capabilities, India pays the bill

India's first Phalcon AWACS was delivered by Israel on 25th May 2009. Here it touches down on Indian soil for the first time, at Jamnagar Air Base.

by Ajai Shukla

Business Standard, 9th Feb 09

For many Indian commentators, especially those on the right, Israel provides an inspiring example of how to deal with external threat. One could equally argue that notwithstanding its comfortable position as the regional hegemon, Israel and its citizens remain insecure, xenophobic and afflicted by a disturbing sense of victimhood. It’s a debate that continues, especially in that country.

What Israel unquestionably does illustrate for India --- with this country paying hundreds of millions of dollars annually for the lesson --- is a well-considered plan for building their defence industry. In becoming India’s biggest defence supplier, Israel has bared a hard-nosed strategy that our policymakers must grasp and emulate.

Since Israel does not market aircraft or ships, its defence companies have focused on the lucrative market for upgrading India’s predominantly Russian weaponry, including MiG-21 fighters; ship-borne missiles; and T-72 tanks. Their first step was to understand Russian technology, for which Israeli defence companies accepted initial contracts at cost price to build their engineers’ capabilities. With that experience gained --- at India’s cost, one must note --- Israeli systems designers progressively graduated up the complexity scale. Today, Israel’s defence industry, with capabilities honed across a generation of Russian platforms, can bid across the globe.

The opportunities for Israel are vast. Some 30,000 T-72 tanks are in service worldwide, including 2500 in India. But Israel, not India or Russia, will feed off that upgrade market. India provided Israel with the tanks, the opportunity and the money for creating that capability. Ironically, the MoD ignored India’s own defence industry; its undeniable competence could have been as easily translated into capability.

Israeli industry garnered another windfall from its offer to build the Phalcon Airborne Warning & Control System (AWACS). This airborne radar mounted on a Russian IL-76 aircraft, allows airborne controllers to monitor and control airspace for hundreds of kilometres around. No Israeli company had ever designed such an AWACS before, but India handed over US $1.1 billion (Rs 5000 crores) to Israel Aerospace Industries (IAI) and Elta. Hundreds of Israeli designers learned on the job, building AWACS capability on Indian money. Israel will now build another three AWACS for India, several for the Israeli Air Force and export more to Chile and Singapore.

Another feeding trough is the ongoing upgrade of Indian Navy ships, especially the technologically challenging system for “net-centric operations”. This digitally interlinks the fleet’s sensors and weapons --- in the air, on the surface and underwater --- into seamless information and command networks. The two Israeli companies bidding for this strategic contract, Rafael Advanced Defence Systems and IAI, began building capabilities while fitting Indian warships with the Barak missile early this decade. With detailed knowledge of the warships’ Russian combat management system, Israeli engineers are now ready to design the net-centric operations system, the crucial nerve centre in war.

In this, as in other upgrade contracts, India’s MoD has ignored the advantages of building indigenous capability. Precision Electronics Ltd, a Delhi-based company that engineers high-tech defence electronics, joined hands with US giant, Raytheon, to bid cheaper than Rafael and IAI. It seemed as if, at last, Indian capabilities would also be built. But, mysteriously, the MoD scrapped that tender last month. There is no way to verify the industry buzz that the Israelis contrived that cancellation; the only thing known for sure is that Rafael and IAI are being investigated by the CBI for corruption in the Barak sale. But it would be safe to bet that, when fresh bidding is ordered, the Israelis will come in with cheaper prices.

The Israeli strategy is: a financial loss is acceptable, to curb Indian defence industrial capability. Each time an Indian company develops capability in a strategically vital domain, foreign companies will be shut out from that realm forever.

Strangling the competition at birth is business, not criminal activity. Israel can be expected to do that. What defies logic, though, is the MoD’s dogged refusal to nurture Indian R&D the way it has Israel’s. This is of a piece with the MoD’s approach to Russia during that country’s troubled 1990s. With Russia’s economy bankrupt and military design bureaus and manufacturing units in dire straits, India placed a string of equipment orders --- Sukhoi-30MKI fighters; Talwar class frigates; and T-90 tanks, amongst others --- providing life support to that dying establishment. China, in contrast, simply bought over a bevy of top Russian design engineers, paying them to live in China and build capabilities within China’s defence industries.

Ashok Kanodia, the MD of Precision Electronics, admires and envies the Israeli companies. Admitting that his own strategy involves bidding at cost price, Kanodia explains, “My gain will be the engineering capability and experience that is created, with the MoD paying the bill. Monetary profits are for later.” But he ruefully admits that, with the MoD apparently unconcerned with developing Indian capabilities, Israeli firms are now unstoppable.

The MoD, it would appear, has failed to understand that the essence of defence indigenisation is about building domestic design capability. All that South Block seems to have is an oft-repeated target: moving from 70% reliance on foreign equipment to 70% supply from Indian companies. But how exactly this will be done, the MoD has never pronounced. Since a target cannot substitute for a strategy, it is time that South Block implements a clear policy that would allow Indian companies --- especially in the private sector --- to build their capabilities with some assurance of business. That might be the best thing that Israel has done for India.