India’s Stalled Arms Buying Leaves Its Army Outgunned by China

By James Rupert

March 12 (Bloomberg) -- India, which has tripled its defense spending in a race against China’s military buildup, is having trouble converting the funding into weapons and equipment its military says are urgently needed.

The government in five years has canceled two tenders for artillery guns, a contract for ammunition propellant and two helicopter tenders, together worth at least $4 billion. No contract exceeding $100 million has been awarded through competitive bidding in at least 23 years, said military analyst V.K. Kapoor. Defense Ministry spokesman Sitanshu Kar said he couldn’t immediately identify the last such deal.

India’s “military capacity and preparedness are being reduced because of the inadequacy of the procurement process,” said Uday Bhaskar, director of the National Maritime Foundation, a New Delhi research institute on strategic issues. The military’s upgrading is “on hold and its obsolescence is increasing.”

The cancellations have disrupted attempted weapons sales by Textron Inc.’s Bell Helicopter unit in Fort Worth, BAE Systems Plc and South Africa’s Denel Ltd. Bhaskar said they have hurt troop readiness along more than 4,200 kilometers (2,600 miles) of Himalayan frontiers, where India has fought three full-blown wars with Pakistan and one with China.

India took 20 years to negotiate a 2004 contract for jet trainers, even as 157 pilots died in three decades of jet fighter crashes blamed partly on inadequate training craft.

Obsolete Weapons

The Defense Ministry, which wields the world’s 10th-largest military budget, has surrendered 3 percent to 9 percent of its announced budget in each of the past seven years because it couldn’t spend all the money allocated for arms, according to a January report by the New Delhi office of accounting firm KPMG and the Confederation of Indian Industry. Half of India’s weapons are obsolete, the report said.

China has almost quadrupled its official defense spending since 2000 to $78 billion for fiscal 2011, 7.5 percent more than in the previous year. India will spend $32 billion on defense this year, triple its 2000 outlay and 4 percent more than in fiscal 2010.

India has bought no artillery for more than 23 years, a period during which the government has sought to buy more than 1,500 155 mm guns for use mainly along the Pakistani and Chinese borders. Such guns were used to defeat Pakistan in a 1999 conflict at Kargil in Kashmir; India would have had too few had that fight grown into a full-scale war, said Kapoor, who is also a retired army lieutenant general.

Howitzer Delays

India’s military is adequately prepared on its borders and will benefit from an accelerating modernization program, Minister of State for Defense M.M. Pallam Raju said at a conference with defense companies in New Delhi on Feb. 16. “In the past five years we have created a faster, more transparent procurement process,” he said.

That process is being tested as India’s air force conducts flight trials in the world’s biggest fighter-jet purchase in 15 years. Chicago-based Boeing Co., Lockheed Martin Corp. and four European builders are vying under a 2007 tender to sell India 126 warplanes worth $11 billion.

India is expected to sign a separate deal for 29 naval MiG- 29 fighters during this week’s visit by Russian Prime Minister Vladimir Putin.

John Giese, a spokesman for Bethesda, Maryland-based Lockheed, called the fighter tender “one of the most challenging competitions in the history of fighter aviation.” Given the complexity, “the competition has been very efficient, transparent and professionally managed,” Boeing spokeswoman Mary Ann Brett said in an e-mail.

European Competitors

Lockheed and Boeing are competing with Paris-based Dassault Aviation SA, Stockholm-based Saab AB, European Aeronautic, Defense & Space Co., which has headquarters in Paris and Munich, and Moscow-based OAO United Aircraft Corp.

While the military says rules last amended in November let it sign a contract within 20 to 34 months, it is too early to judge their effectiveness, said Gurpal Singh, a deputy director general for the industry federation in New Delhi.

The air force asked the government in 1983 to order advanced jet trainers because pilots taught mainly in subsonic jets were losing control of supersonic MiG-21 fighters that were more than three times faster. Political and bureaucratic battles under 11 prime ministers added to the delays before BAE Hawk jets were purchased.

India’s main political blocs -- led by the Congress Party and the Bharatiya Janata Party (BJP) -- have fought over arms buying since 1987. Indian newspapers reported then that Swedish artillery builder Bofors, now a unit of London-based BAE, bribed officials to buy its guns. The scandal scuttled most of the deal and helped drive the Congress government of Prime Minister Rajiv Gandhi to defeat in 1989 elections.

Reviewing Deals

India was still seeking artillery in 2004 when Congress was elected, and halted bidding as it reviewed defense deals under the previous BJP administration. When police investigated Pretoria-based Denel for paying illegal commissions in winning a 2002 army order for rifles, the government blacklisted the state-owned company.

Four more foreign companies were barred from defense contracts last year, after the Central Bureau of Investigation said they were being investigated on suspicion of bribery. That forced Singapore Technologies Engineering Ltd. out of the race, leaving London-based BAE as a single vendor and prompting officials to halt the tender.

--With assistance from Gopal Ratnam in Washington. Editors: Anne Swardson, Mark Williams

-0- Mar/11/2010 19:30 GMT

To contact the reporter on this story: James Rupert in New Delhi at jrupert3@bloomberg.net.

To contact the editor responsible for this story: Bill Austin at billaustin@bloomberg.net,

Source: http://www.businessweek.com/news/2010-03-11/india-s-stalled-arms-buying-leaves-its-army-outgunned-by-china.html