US is India’s top arms supplier; France to fly into top spot this year

Parliamentary report reveals high import content in “indigenous” arms

By Ajai Shukla

Business Standard, 13th March 17

Parliament’s Standing Committee on Defence (hereafter “Committee”) reveals in a new report released on Thursday that the United States (US) has been India’s biggest supplier of weapons platforms over the last three years. It is followed by Russia, Israel and France in that order.

Non-official think tanks and non-proliferation groups like the Stockholm International Peace Research Institute (SIPRI) publish annual assessments of global arms transfers. This, however, is an authoritative declaration from the government of India.

The Committee’s Report No. 31 divulges that India concluded contracts worth Rs 28,895 crore ($4.35 billion) with the US during 2013-14, 2014-15 and 2015-16.

India’s foreign arms partners

Country	2013-14		2014-15		2015-16		Total
	Contracts	Value	Contracts	Value	Contracts	Value
Russia	2	1,342	7	6,085	3	947	8,374
Israel	5	3,751	1	875	4	2,979	7,605
USA	7	6,787	2	58	4	22,050	28,895
France	2	299	3	1,537	0	0	1,836
Others	5	1,072	5	2,707	6	3,195	6,974
Total	21	13,251	18	11,262	17	29,172	53,685

(Source: Standing Committee on Defence, Report No. 31)

Russia was a distant second in this period with contracts worth Rs 8,374 crore ($1.26 billion), Israel third with contracts worth Rs 7,605 crore ($1.14 billion), and France fourth with contracts worth Rs 1,836 crore. India also signed contracts worth Rs 6,974 crore ($1.05 billion) with “others”, which include Germany, UK, Ukraine and Poland.

These rankings move up and down sharply as big contracts are inked. Last year’s Rs 55,400 crore ($8.33 billion) contract for 36 Rafale fighters will see France vaulting to the top of the rankings for 2016-17.

Separately, the Committee also demolishes the myth of substantial indigenous production, that the MoD perpetuates by citing orders placed on defence public sector undertakings (DPSUs) and Ordnance Factories (OFs).

The report details the extent to which orders for “indigenous” weapon systems and equipment actually pay for imported equipment. This is because the equipment supplied by DPSUs and OFs contains many components, sub-systems and systems acquired from foreign vendors.

Yet, the MoD, when providing Parliament with figures, treats all orders placed on DPSUs and OFs as indigenous orders. On Friday, the defence minister told parliament that, of the Rs 66,821 crore in capital procurement in 2013-14, Rs 31,576 crore was paid to Indian vendors; and of the Rs 65,584 crore capital procurement in 2014-15, Rs 39,599 crore was paid to Indian vendors.

However, the Committee details how much foreign component each DPSU or OF puts into the “indigenous” kit it supplies.

For example, Hindustan Aeronautics Ltd (HAL) retains the import content of the Sukhoi-30MKI fighter at 44 per cent, even after building it in India under licence for over a decade. The import component of the Hawk trainer, which is built in Bengaluru, remains 58 per cent, the Dhruv helicopter is 50 per cent imported, the Tejas fighter 40 per cent imported and the Dornier-228 aircraft 60 per cent imported.

Bharat Electronics Ltd (BEL) also imports a substantial part of the equipment it supplies. The Committee report divulges that the import content of input material it uses was 36 per cent in 2013-14 and 2014-15, which rose to 44 per cent in 2015-16.

Imported content accounted for 18.62 per cent of the value of production of Bharat Earth Movers Ltd (BEML) in 2011-12; 25.29 per cent in 2012-13; 19.67 per cent in 2013-14, 15.87 per cent in 2015-16 and 21.68 per cent by end-December 2016.

Bharat Dynamics has been reducing its import content over the last six years. It had 41.01 per cent import content in its production in 2011-12, 35.20 in 2012-13, 20.06 per cent in 2013-14, 13.70 per cent in 2015-16 and 9.36 per cent by end-December 2016.

The same is true of warship builder, Garden Reach Shipbuilders & Engineers (GRSE) which imported 27.64 per cent of its value of production in 2012-13, 24.9 per cent in 2013-14, 15.6 per cent in 2014-15, 10.38 per cent in 2015-16 and 6.97 per cent up to December last year.

Mazagon Dock Ltd (MDL), started building its new, complex destroyers and frigate classes with a high import content but reduced it progressively as it went along. MDL imported 58 per cent of the Delhi-class destroyers (Project 15), brought this down to 43 per cent in the follow-on Kolkata-class destroyers (Project 15-A), and is bringing this down to 32 per cent in the new Project 15-B destroyers.

MDL imported 48 per cent of the three Shivalik-class frigates (Project 17), and plans to reduce the import content of the follow-on Project 17-A frigates to 28 per cent.

Goa Shipyard Ltd (GSL), which builds relatively simpler vessels imported 14.51 per cent of the value of four Naval Offshore Patrol Vessels (NOPVs) and 35.5 per cent of the Coast Guard Offshore Patrol Vessels (CGOPVs) it built in the last three years.

Hindustan Shipyard Ltd (HSL), the MoD’s newest shipyard, imported 27 per cent of its production in 2015-16, and 21 per cent of its production in 2016-17 till December.

The percentage of import of the OFs, according to the Committee, was 15.15 per cent of its total production of Rs 11,123 crore in 2013-14; 8.9 per cent of its production of Rs 11,364 crore in 2014-15; and 12.66 per cent of the Rs 13,081 it sold in 2015-16.

DPSUs’ foreign buys raise import ratio

Year	Total capital spend	Paid to foreign vendors*	Paid to Indian vendors*	Import-Indian ratio	Diverted abroad by DPSUs^	Adjusted payment abroad	Adjusted payment to India	Actual Import-Indian ratio
2013-14	66,821	35,245	31,576	53:47	18,274	53,519	13,302	80:20
2014-15	65,584	25,985	39,599	40:60	14,781	40,766	24,818	62:38

 *  MoD figures provided to Standing Committee

^  Figures from IDSA publication, by Laxman Behera

This is borne out by independent research. Laxman Behera of the Institute of Defence Study and Analyses (IDSA) calculates that DPSUs funnelled Rs 18,274 crore worth of business to overseas entities in 2013-14; and Rs 14,781 worth in 2014-15. As seen in the chart, that dramatically enhances India’s foreign arms dependency.