India’s Defence Ministry did the previously unthinkable earlier this month. As reported previously in The Diplomat, India eliminated two major US aviation firms—Boeing and Lockheed Martin—from the race to secure a lucrative $11 billion contract to supply 126 combat jets to the Indian Air Force.
After a gruelling, two-year process including field trials of the six aircraft in extreme weather conditions, the Defence Ministry shortlisted two European firms—EADS and Dassault Aviation. Swedish Firm Saab and Russian RSK MiG were the other two bidders left disappointed.
The decision sent shockwaves through Washington’s defence establishment as it had expended significant political, diplomatic and commercial capital in trying to secure the contract. Indeed, US President Barack Obama lobbied on behalf of the US firms during his November 2010 visit to New Delhi, following up with a letter to Indian Prime Minister Manmohan Singh.
But was the decision worth the potential political fallout?
As Ashley Tellis, noted India analyst and a former security adviser in the George W. Bush administration, says, ‘India has chosen a plane over a strategic partnership.’
The clear implication is that India shunned an opportunity to cement emerging strategic ties with the United States by rejecting its planes. But Air Force and Ministry officials have stuck to their guns, arguing that they made the decision based purely on the merits of the respective bids.
According to sources in both organizations, there were several factors working against the Americans, including the fact that the Indian Air Force had found that the two US planes on offer had reached their ‘technological’ limits (the Rafael and Eurofighter Typhoon were believed to have scope to add further ‘teeth’ at some point), India’s rival Pakistan uses the F-16 Super Viper being offered by Lockheed, and perhaps above all, the United States was insisting that India sign what officials believed were intrusive agreements giving the Americans the right to carry out on-site inspection of US-supplied platforms.
Lost in all the fuss over the rejection of the US firms’ offers has been that the Russians were also extremely upset that India has, in their eyes, turned its back on an almost four decades-long defence partnership with Moscow. Indeed, Russian Prime Minister Vladimir Putin is said to have personally called his Indian counterpart to express disappointment over the Indian decision.
Russia was the first of the disappointed bidders to write to the Defence Ministry, although all four have now filed, requesting more information on why their particular fighter was given the chop.
The response is no surprise to Indian officials. ‘We’ll deal with the backlash,’ one top Ministry official, who asked not to be named, told me following the filing of the letters. ‘One contract isn’t the end of a relationship. In any case, both the Americans and the Russians still have a lot of opportunities to win big contracts with India’s growing need to acquire new weapons and platforms.’
This makes sense. The Americans have already secured a significant presence in the Indian defence market, and will undoubtedly see sales boosted further in the coming years.
In January 2009, for example, Boeing was selected to provide eight P-8i long–range maritime reconnaissance aircraft to the Indian Navy in a contract worth about $2.1 billion. Earlier this year, meanwhile, six Lockheed Martin C-130 J Super Hercules transport aircraft were inducted into the Indian Air Force in a deal valued at an estimated $1.2 billion.
And there’s more. In the next few months, India is set to finalise two major contracts with the United States through the Foreign Military Sales (FMS) route—a government-to-government agreement—to buy up to 15 C-17 Globemaster heavy lift transport aircraft (worth more than $4 billion), and will also agree a $1.2-billion contract to buy M-777 ultra-light howitzers for the Indian Army. Indeed, outgoing US Ambassador to India Tim Roemer admitted that the C-17 order alone would benefit ‘30,000 American workers and 650 American suppliers located in 44 states.’
But Sanjaya Baru, writing in the respected Business Standard daily, suggested that despite the protestations that the Indian decision was based only on the technical merits of the European fighters, there might have been a largely overlooked strategic consideration as well.
‘The decision to favour Europe in this deal could also have been prompted by concerns about European economies falling like ninepins and being bailed out by cash-rich China,’ he wrote. ‘Building partnerships in Europe is important, even if less so than building one with the US. Moreover, while promoting Europe as a partner of the Indian Air Force, the US can still emerge as the key partner for India’s increasingly important Navy.’
It’s an intriguing possibility. In the meantime, it’s not just the Americans who have plenty of contract consolation prizes to fall back on. In December 2010, India inked a Memorandum of Agreement with Russia for the development of a fifth-generation fighter aircraft in a project expected to cost anywhere between $25 billion and $30 billion dollars over the next decade.In addition, India is already thinking of ordering more Sukhoi-30 planes from Russia.
The Indian Navy, meanwhile, is awaiting the final delivery in December 2012 of aircraft carrier INS Vikramaditya (formerly Admiral Gorshkov), which has been refurbished and revamped at a cost of over $2.9 billion.
Indeed, despite the snub over the MiG-35, the Russians continue to dominate the Indian defence market, even with the recent high-profile entry of the Americans.In March this year, the Stockholm International Peace Research Institute (SIPRI) ranked India as the world’s largest arms importer, ahead even of China, its biggest competitor in Asia. More importantly, it noted: ‘India received 9 percent of the volume of international arms transfers during 2006-10, with Russian deliveries accounting for 82 percent of Indian arms imports.’
SIPRI’s findings aren’t surprising. Over the past decade, India has increased its defence spending by more than 64 percent, bringing it to about $36.3 billion in the 2010-2011 budget. One estimate suggests India’s defence spending could even hit $80 billion by 2015 as it seeks to modernize its mammoth armed forces.
Given such dramatically high stakes, and with its increasing buying clout, India is now finally in a position to dictate terms to the United States and Russia. The days when New Delhi could be held hostage in negotiations because of a lack of hard cash for the military platforms of its choice are apparently behind it.
Nitin Gokhale is Defence & Strategic Affairs Editor with Indian broadcaster, NDTV 24×7