The 19th bilateral summit has left a mixed feeling about the current state of the Indo-Russian relationship and its future prospects.
The 19th bilateral summit between Prime Minister Narendra Modi and President Vladimir Putin left a mixed feeling about the current state of the Indo-Russian relationship and its future prospects. Though a major and also the most expected deal on the supply of the S-400 Triumf missile system was concluded and several other agreements aimed at further strengthening the economic engagement were signed, a number of questions pertaining to the future trajectory of bilateral ties still remain.
Sanctions as a common factor
A few days ahead of the bilateral summit, a Russian media outlet, Kommersant,reported that the two sides would sign a “political document” with a clause on unacceptability of imposition of sanctions not approved by the United Nations.1 However, the word “sanctions” did not even figure in the joint statement and was never once mentioned by the officials of the two countries. By contrast, the Saint Petersburg Declaration, issued after the previous bilateral summit held in June 2017, had clearly stated that the two countries “do not accept the unilateral use of political and economic sanctions as a means of exerting pressure.”2 At that time, the Countering America's Adversaries Through Sanctions Act (CAATSA) was yet to become a legislation. Surprisingly, now that CAATSA hangs like a Sword of Damocles over Indo-Russian defence cooperation, Moscow and New Delhi seem to have decided to downplay the issue of sanctions by omitting any mention of it in the current joint statement. The idea probably is not to further irritate Washington. New Delhi is still hopeful about getting an exemption from CAATSA and that would serve Russian interests as well. In a way, the issue of sanctions seems to be bringing Russia and India together.
Defence deals and other agreements
Another calculated decision was the low-key manner in which officials addressed the issue of taking defence cooperation forward. Interestingly, this track was barely mentioned during the summit. Reference to defence cooperation is very short and placed somewhere in the middle of the joint statement. The two leaders did not elaborate on the bilateral military partnership. Moreover, the deal on the S-400 was neither announced by the leaders nor mentioned in the list of agreements. Apparently, officials were seeking to demonstrate that bilateral ties do not revolve around defence alone and that it is not the sole sphere of cooperation.
Notwithstanding official intentions, the main deliverable of the summit was the contract on S-400 SAM supplies to India. As is seen, the conclusion of the deal is an important gain for the Indian Air Force, as well as a bold step in terms of India’s overall foreign policy. It is clear that ‘Triumf’ systems were necessary for Indian defence and signing the contract was not an issue of public debate. At the same time, it turned out to be the only important agreement between India and Russia.
Surprisingly, the widely discussed deals on Kamov helicopters and Krivak/Talwar class frigates were not concluded. As the Russian Ambassador to India Nikolay Kudashev explained in an interview, talks are still underway and “new sizeable deals involving Make in India programme” are expected by the end of this year or at the very beginning of the next one.3 These contracts are to be discussed at the Inter-Governmental Commission on Military-Technical Cooperation scheduled to take place in December 2018. There is a growing perception in Russia that India has been slowly drifting away and, as a consequence, imports of Russian arms is likely to shrink in size.4 For this reason, the finalisation of contracts, or the lack of it, on helicopters, frigates and license for the production of Kalashnikov rifles will be an important indicator of the trajectory of Indo-Russian defence cooperation.
Before President Putin’s visit to India, his aide Yuri Ushakov had announced that there were some 23 documents on the agenda, with some of them “still in the phase of coordination”.5 Agreements between India and Russia during the summit were low in number and substance as a majority of them were pro forma documents. Yet, the two sides managed to differ in the overall number of signed documents. According to the Indian Ministry of External Affairs, the two countries exchanged eight agreements, whereas the Kremlin indicated nine. The Programme for Cooperation Between the Governments of Moscow and Delhi was not mentioned by the Indian side but included as a deliverable by Moscow.6 The fact that an official agreement was forgotten and, as a result, omitted in the list of documents raises questions about the significance of such ‘protocols’ and ‘memorandums’.
Iran factor
Referring to third countries by name is not a customary practice in bilateral joint statements. Aside from Bangladesh – the first destination for Russia-India joint energy cooperation in a third country – these days Iran is an important and at the same time tricky partner for both India and Russia. Iran was mentioned several times in the joint statement: Firstly, in the context of the upcoming trilateral meeting on the side-lines of “Transport Week-2018” in Moscow and, secondly, in support of the Joint Comprehensive Plan of Action (JCPOA) on the Iranian nuclear programme.7
Amidst the American sanctions on Iran becoming a new reality, several projects that both New Delhi and Moscow are interested in are under threat of being shelved. Developing Chabahar Port is of high significance to India as it is regarded as a crucial transit point in the International North-South Transport Corridor (INSTC) and some other connectivity projects aimed at increasing Indian trade with Central Asia. A transport network connecting India and Russia could facilitate India-Iran bilateral trade as well. Hence, implementation of the 16-year old agreement on INSTC is of vital importance for both Moscow and New Delhi. During the summit, Russia and India called for the development of this initiative “…by finalizing pending issues …through bilateral discussions as well as discussions with other partner countries at the earliest”. They also agreed to “make efforts to convene the INSTC Ministerial and Coordination meeting on priority”.8
The INSTC is not the only project which will probably suffer from US sanctions on Iran. The Iran-Pakistan-India (IPI) offshore gas pipeline is another example of a long-standing project that may well remain on a waiting list due to America’s restrictive measures against Tehran. Beyond the issue of sanctions, negotiations among the participating countries on this project also remain at a nascent stage. The Russian and Pakistani energy ministries have signed a Memorandum of Understanding (MoU) on the pipeline project, whereas Russia-India talks on this matter are still underway. Moscow and New Delhi have pledged to continue consultations and move forward towards a “possible conclusion of Memorandum of Understanding”.
With Russia eagerly looking to expand cooperation with Iran, much will depend on the Indian approach towards the US demand to halt energy ties with Tehran. As of now, it seems that India will not reduce the import of Iranian oil and petrochemicals to nil. Although private Indian companies are forced to cease connections with Iran, state-owned firms have reportedly placed orders for crude oil delivery in November.9
The Indo-Pacific
Dialogue on regional dynamics and maritime cooperation has turned into an integral part of India’s engagement with the US, Japan, Australia, France and other regional players. However, Moscow and New Delhi are yet to begin consultations on regional issues. In his press statement, Prime Minister Modi underlined that “both countries have common interest in cooperating on terrorism, developments in Afghanistan and Indo-Pacific ….”10 Notably, in the Russian version of the Indian Prime Minister’s statement, the word “Indo-Pacific” was not included. Although translation issues often occur in official documents, this is not evidently a case involving such a difficulty. No wonder that the India-Russia joint statement refers to the Indo-Pacific as “the regions of Pacific and Indian Oceans”, thus dividing one integrated region into two sub-regions.
This is not the first time that the two sides have referred to the region in different terms. After the ‘informal talks’ held between President Putin and Prime Minister Modi earlier this year in Sochi, the Indian Ministry of External Affairs stated in its press release that the two leaders agreed “to intensify consultation and coordination with each other, including on the Indo-Pacific”. Meanwhile, in his comments on the meeting, Russian Foreign Affairs Minister Sergei Lavrov underlined the mutual conviction that “new security architecture in Asia-Pacific should be based on non-bloc principles, principles of open, equal and indivisible security”. Moscow is apparently wary of the emergence of the ‘Quad’ and equivalent groupings’, especially platforms for cooperation in the military domain. In contrast, New Delhi is concerned about China’s assertive policies in the region and stands for ‘respect for sovereignty, territorial integrity, rule of law, freedom of navigation and overflight’ in the Indian Ocean and beyond.
The Indo-Pacific concept is not endorsed by Russian officialdom for it has been actively promoted by the Donald Trump administration. For India, Washington’s increased focus on the Indo-Pacific is considered favourable as it demonstrates its centrality in the region. Thus, the usage of terms is an indicator of different prisms through which Moscow and New Delhi view regional processes. Their approaches towards the Indo-Pacific are thus not broadly congruent.
Enduring concerns
The geopolitical environment that India and Russia have been operating in since 2014 continues to shape their bilateral relationship. US-Russia relations are unlikely to improve in the near-term. India-China relations, notwithstanding economic cooperation, continue to suffer from trust deficit and remain at variance on various strategic matters. Meanwhile, Moscow and New Delhi seem to be adapting to the changing geopolitical realities but they have a long way to go in terms of addressing each other’s strategic concerns. Moscow’s growing strategic convergence and understanding with Beijing and New Delhi’s growing defence and security cooperation with Washington have gained momentum due to objective reasons. Neither India nor Russia, however, view these endeavours as potential disruptors to their bilateral cooperation.
The Indo-Russian bilateral summit also sends certain signals to both China and the US. From the Russian perspective a move to supply the S-400 is an indicator of its balanced policy in Asia, whereas for India it is a demonstration of its independent foreign policy even under the threat of US sanctions.
While adjusting and adapting to the geopolitical challenges, the two countries cannot afford to overlook bilateral issues that remain chronically unresolved. The India-Russia partnership, albeit showing some positive signals by way of increased interaction at the top most level, is still lagging behind in many spheres. Box-ticking agreements may ultimately end up as a partnership without real benefit.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India
2. “Saint Petersburg Declaration by the Russian Federation and the Republic of India: A vision for the 21st century”, Press Information Bureau, Government of India, June 01, 2017, at http://pib.nic.in/newsite/PrintRelease.aspx?relid=163332
Repatriation of Rohingya Refugees: An Aberration on India’s Humanitarian Legacy
D. Padma Kumar Pillay
October 16, 2018
To force all Rohingyas to return on the grounds of “threat to security” is against India’s humanitarian heritage. The government and its agencies are capable of sifting out Rohingya elements who might actually have links to terror organisations from the rest of the group.
On October 04, 2018, India handed over seven Rohingya immigrants to the Myanmar authorities at Moreh on the India-Myanmar border. The Supreme Court allowed their deportation on the ground that Myanmar had accepted them as citizens. Around 40,000 Rohingya refugees are believed to be in India, though only 18,000 have registered with the United Nations High Commissioner for Refugees (UNHCR). The Ministry of Home Affairs has asked state governments to start collecting the biometrics of Rohingyas who have illegally entered the country so that they can be deported to Myanmar. Rohingyas have been living in India since before the arrival of the recent wave of refugees in 2017.
It is noteworthy that Parsis, Jews, Armenians, Poles and many other communities had made India their home when they were persecuted in their countries of origin. In recent history, India has hosted the Dalai Lama and lakhs of his followers fleeing Chinese occupation and ethnic cleansing of Tibet, as well as millions of East Pakistani refugees fleeing genocide in 1970-71. Lakhs of Tamil refugees fleeing ethnic conflict in Sri Lanka were given refuge, as were Afghans and Somalians. In fact, the partition of India had resulted in the movement of millions of refugees, and many of those refugees became successful entrepreneurs and professionals, making significant contributions to the Indian economy, and indeed, its social and cultural environment.
The Rohingyas are one of the world’s “most persecuted” communities. Around 1.2 million live in Myanmar’s Rakhine state where they have co-habited for generations with others for over hundreds of years. They may have converted to Islam in the wake of trade contacts with the Arab world, as happened in Kerala and Maldives, but there are even today a sprinkling of Hindus amongst them. Today, in Buddhist majority Myanmar, the Rohingyas are, however, termed as ‘illegal immigrants’ after the adoption of the Citizenship Law of 1982 which does not recognise this community as one of the 135 legally recognised ethnic groups of Myanmar.
The violence – and the institutionalised discrimination against the Rohingyas – surprisingly also appears to have left Nobel Laureate and Myanmar’s State Counsellor Aung Sang Syu Ki unmoved, despite her own long record of struggle against an undemocratic regime. As a result of the violence, which reportedly includes killings, house burning and sexual violence, thousands of Rohingyas have been fleeing, mainly to Bangladesh; that number has now reached half a million. Among them are about 500 Hindus, showing that the campaign of violence in Rakhine is one of deadly majoritarianism, intolerant of any minority. Around 40,000 Rohingyas have found their way into India having illegally crossed the India-Bangladesh border to escape from a living hell in Myanmar.
The Rohingyas have lent themselves to be viewed with suspicion because reports claim that some of them are involved in drug trafficking in the Northeast and are conduits for terror activities. The Government of India had filed an affidavit in the Supreme Court stating that the Rohingyas are illegal immigrants and must be deported as they are a serious security threat. India thereafter repatriated the first batch of Rohingyas to Myanmar.
Most refugees dream of going home one day. This was true of the refugees during the Partition of India, many of whom still dream of visiting their homes someday. It is true of Syrian refugees who have seen their country crumble. It was true of the Bangladeshis and the Sri Lankans as well as the dream of every Tibetan. India has successfully repatriated several refugees in the recent past. But the situation back in Myanmar is so dire that the refugees cannot imagine of returning. Further, the core principle of the UN Refugee Convention requires that refugees cannot be returned to the country where they face serious threats to life or freedom. The principle of non-refoulement, or non-forcible return of refugees, considered a rule of customary international law, is binding on all states whether they have signed the Convention or not. India has also, rightly and consistently, endorsed the principle of non-refoulement at various international platforms including the UN General Assembly’s Third Committee which discusses human rights issues, the UN Human Rights Council and at the Executive Committee of UNHCR. At the 66th session of the UNHCR Executive Committee in 2015, the Indian delegation had affirmed:
“India’s assimilative civilizational heritage, inherent capabilities as a State with a good record of non-refoulement, hosting and assimilating refugees gives us a rounded perspective on dealing with matters pertaining to refugees and other persons of concern. India has a tradition of receiving refugees and migrants since millennia. We remain committed to these principles as these have been part of Indian ethos and civilization.”1
The government and its agencies are capable of sifting out those Rohingyas who might actually have links to terror organisations from the rest of the group. India’s security and intelligence apparatus also has the wherewithal to handle individual members of the Rohingya community in India on a case to case basis. The mere possibility or “threat” of violence by some members of the group does not warrant collective punishment of the entire group. During the exodus of Tamil refugees from Sri Lanka, those that were suspected to have links to the Liberation Tigers of Tamil Eelam (LTTE) did enter India, but Tamil refugees as a group were not turned away on the grounds of “national security”. To ultimately force all Rohingyas including women and children to return on the grounds of “threat to security” is not merely a violation of international law but is also against our humanitarian heritage and standards of morality. The strident calls for “deportation” are contrary to India’s long-held humanitarian principles, including our cherished belief in vasudhaiva kutumbakam.
The Rohingyas clearly face a threat to life and are not recognised as citizens in Myanmar. Deportation thus is a move that could endanger their lives and is also in violation of the international law of non-refoulement. One of the key conditions for repatriation is the grant of full citizenship — and not “residency” or “certificates of identity “as is being offered to the Rohingyas.
One might ask why India should be hospitable to a group of refugees whose own country has disowned them. The answer lies in our ancient culture and in India’s traditional humanitarian approach to refugees from times immemorial. The Mahabharata as well as Jataka recount the example of Chakravarti Shibi, a worthy descendant of Bharat and an ancestor of Lord Ram, who offers refuge to a dove from a hawk that wished to eat it. To honour his word to protect all those who seek refuge, the noble Chakravarti offered his own flesh in place of the dove when the hawk claimed that the bird was its food and was needed to nourish his own body and that of his family and that he too as a subject seeks justice from the noble king. The king, realising his obligation, offered his own life to uphold dharma. Today India faces a similar test where one must choose between what is righteous and in accordance with our dharma and BharatiyaSamskriti.
The answer also lies in India’s responsibility as a member of the international community, as a democracy, and as an aspiring global leader. It can also show the West that the ‘Responsibility to Protect’ is not something that is to be merely spoken of within the confines of ivory towers, but is about defending and protecting people’s right to life and dignity. India has always walked the talk in standing up for the weak and oppressed since times immemorial.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India
1. “Statement by H.E. Mr. Ajit Kumar, Ambassador and Permanent Representative of India to the UN during the General Debate”, 66th Session of Executive Committee of the United Nations High Commission for Refugees (UNHCR), Permanent Mission of India, Geneva, October 07, 2015, at https://www.pmindiaun.gov.in/pages.php?id=1183
Decoding the Expansion Plans of the United States Air Force
Kishore Kumar Khera
September 28, 2018
How different will the USAF look after the proposed restructuring with 74 additional squadrons? Will there be a trade-off between quality and quantity?
War is unforgiving. Threat matrices continuously undergo change. Geopolitics, economics and technology play critical roles in defining these. Therefore, armed forces across the world continuously attempt to reequip, reorganise, restructure and redefine in order to enhance their operational capabilities. The focus of these processes invariably is to build proficiency in the relevant domains for present and future conflict scenarios. With finite financial resources, there is a perpetual debate between quality and quantity. The United States Air Force is presently in this phase and is looking to expand capacity through quantity.
Intent and Plan
“The Air Force is too small for what the nation expects of us,” the United States Air Force (USAF) Secretary Heather Wilson reiterated at the annual Air, Space and Cyber Conference in National Harbor, Maryland, on September 17, 2018.1 She articulated her intentions last year for a bigger air force when assuming this appointment.2 But before making any long-term decisions on the force structure, she wanted to have a better idea of what threats the United States would face in coming years, stating, "I'm a believer that threat drives strategy, strategy drives force posture."3
The USAF expansion plan is to primarily counter growing military challenges from Russia and China.4 The broad plan unveiled after a long study for the expansion of the USAF seeks to add 74 more squadrons to the current strength of 312 squadrons.5 The exact details of the study are still awaited and about six more studies on force restructuring are likely to be submitted by March 2019 to refine the current assessment. Broadly, the expansion plan is based on the 2018 United States National Defense Strategy that calls on the USAF to defend the homeland, provide a safe and effective nuclear deterrent, meet a peer threat and deter a near-peer threat while maintaining campaign momentum against global extremism.6
On the human resource front, USAF active personnel strength reduced from 357,000 in 2006, hitting a low of 311,000 in 2014 before rebounding to roughly 322,800 now, with the intention of hitting 350,000 by about 2024.7 Nearly USD one billion per annum is reportedly being spent by USAF to retain personnel, including incentive pay and bonuses. As of mid-2017, the force was 3,000 personnel below strength in terms of aircraft-maintenance staff and around 1,200 short of tactical-combat-aircraft pilots.8 Making good the existing shortfall and then planning for future expansion will be a herculean human resource mobilisation task. It is estimated that the full implementation of the plan would need an additional 40,000 personnel.9
Inventory Analysis
Looking at the current inventory mix of the USAF, the emphasis on fighters and airlift capabilities are apparent (Figure 1). Fighter aircraft try to achieve airspace control so that other kinetic elements can operate freely. Additionally, these aircraft provide long range accurate delivery of kinetic weapons to achieve tactical and operational objectives. The transport fleet is required to achieve a high mobility quotient for the combat forces. With a global outlook for military operations and current deployment in almost all parts of the world, the necessity for very high airlift capability is essential. Aerial refuellers (Tankers) and Command and Control, Intelligence, Surveillance and Reconnaissance (C2ISR) assets are also in substantial strength. The tanker force helps in the deployment and employment of combat power, minimising en route halts. This compresses the deployment timeline and, additionally, helps in retaining an element of surprise by allowing combat aircraft to project force far away from their operating bases. In so far as C2ISR assets are concerned, their significance is related to the ability to enhance battlespace transparency for the accurate planning and controlling of missions for safe execution. Invariably, these, along with space resources, are the first assets to be employed to gain a picture of the battlespace.
The USAF expansion plan envisages an addition of 74 squadrons. An analysis of these additional squadrons brings to fore the changing character of likely combat engagements. The two most prominent verticals being planned for expansion are C2ISR platforms and aerial refuellers (tankers) (Figure 2). In addition, an additional seven squadrons for fighter combat aircraft and five squadrons for bombers are being planned. But no accretions are envisaged for the cyber and missile force; their capability enhancement would be through equipment upgradations only. And although Unmanned Aerial Vehicles (UAV) have expanded their operational role, no major expansion is planned in this field.
The prime reason for such a lopsided approach in favour of manned combat aircraft is the limitations of UAVs in a hostile air defence environment. Russia and China have developed and deployed advanced air defence systems. A number of countries are in the process of acquiring high technology air defence systems from Russia and China. The proliferation of such advanced air defence systems will limit the efficacy of UAV operations. That may be a possible reason for the limited expansion envisaged for the UAV fleet in the restructuring plan. With an increase in manned combat aircraft, an increase in resources for Combat Search and Rescue (CSAR) is an obvious fallout. Consequently, the plan envisages an additional nine squadrons for CSAR.
Once the proposed accretions fructify, the USAF force structure will, for the first time, have an equal numbers of squadrons for C2ISR and fighter aircraft (Figure 3). In the heavy aircraft category also, parity will be achieved between tankers and airlift aircraft for the first time. Special operations squadrons and space units will increase their share from current levels.
A close examination of force accretion planned over and above the existing inventory given in Figure 4 indicates that the current USAF dispensation feels an acute shortage of bombers, C2ISR and space assets for likely missions in the coming decade. The expansion plan increases their quantity by over 55 per cent. A major increase in C2ISR and space assets is indicative of an increased requirement to monitor a larger area for a longer duration and with multiple sensors. This kind of surveillance and reconnaissance has become a necessity owing to the changing character of war. Unlike during the Cold War when the focus was on major military manoeuvres with large formations as the key threats, now small teams can operate to achieve critical objectives with strategic implications. This calls for greater monitoring of the area of interest. Hence an increase in C2ISR and Space assets is an obvious assessment.
An added implication of this changing character of war is on special operations. Gradually, their relevance in kinetic operations has increased and these operations are becoming the first option for planners. In certain situations, special operations help achieve the objectives without large-scale force-on-force engagement. With hybridisation of war, the salience of special operations will only increase. It is probably this assessment that has led the USAF to project a 35 per cent increase in the number of special operations squadrons. As the majority of aerial platforms of the USAF are capable of aerial refuelling, an increase in receivers would entail a corresponding increase in tankers. To retain the existing Tanker-Receiver ratio, the tanker force is to enjoy a 35 per cent accretion in numbers.
For one of the largest air forces in the world to ambitiously expand by nearly 25 per cent seems contrary to the long-term trend. Notwithstanding a number of new facets like cyber, space and missiles added to the arsenal of the USAF, its number of aircraft has been declining steadily for decades since the peak strength of 26,104 aircraft in 1956 (Figure 5). The USAF aircraft inventory has shrunk by over 80 per cent during the last 60 years.
Source: Based on data in the Mitchell Institute Study, 201014
To fulfil the requirements of the expansion plan, an addition of over 400 aircraft will have to take place during the next decade. This will be over and above the replacement of ageing aircraft like the F16 with the F35. It is likely that other arms of the US military organisation will have a similar wish list to expand capabilities, citing the 2018 United States National Defense Strategy. The additional demand for aviation assets from the US Army, US Navy, US Marine Corps and US Coast Guard is likely to be a matter of time. A similar 25 per cent increase by all entities over the next decade will have major implications on force levels and finances. That will be a major dampener. If the plan were to be sanctioned, it will indeed be a bonanza for the aviation industry.
What may happen?
Once all the restructuring studies are submitted and a comprehensive USAF restructuring plan made, the project costing will be done. Based on types of aircraft and equipment planned for induction and the associated increase in manpower, the overall financial outlay for the USAF may have to increase by at least 25 per cent from current levels assuming that no quality compromises are made. That will mean an increase in the USAF’s share in the defence budget.
Another factor that will play a major role in redefining the USAF’s restructuring plan is the creation of the Space Force. The new organisation will probably hive off space assets of the USAF for consolidation under one agency. Furthermore, this entity will probably have a priority for budgetary allocations and further compress the resources that could be made available to the USAF. Before treading on a restructuring path, taking the US Congress along and pacifying other contenders for the annual defence allocation will be the key battles that the USAF will have to fight and win. The outcome of these battles will define the course of the force’s restructuring. Going by the history of such ambitious expansion plans across the globe, it is safe to assume that the restructuring plan will have to be scaled down qualitatively or quantitatively.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
It is important to pay greater attention to the system of costing followed by the MoD given that costing errors could result in the sanctioning of an unaffordable procurement programme, contract being awarded at a higher price, cost and time overruns, and default on contractual commitments.
Costing is one of the foremost weakest links in the defence procurement process. The Defence Procurement Procedure (DPP), which applies to all capital acquisitions for the armed forces, requires cost estimates to be prepared at two stages: first, when a procurement proposal is sponsored by the user Service Headquarters (SHQ), and subsequently before the opening of the commercial offers. The purpose of working out the cost estimates at each of these two stages is different, but the challenges faced by the costing community across the SHQs and the Ministry of Defence (MoD) are the same. MoD has responded to this challenge by increasing the number of cost accountants drawn from the Indian Cost Accounts Service (ICoAS). They are top class professionals, but they cannot be expected to operate in a policy vacuum and deliver the intended results. It is a matter of some concern that this vital aspect has not received as much attention as it deserves.
What is the purpose of costing and is it unavoidable?
The purpose of the first stage of costing is to examine the affordability of an acquisition proposal. Ideally, this should entail assessing the financial implications of various options. It is, however, doubtful if that is done. Typically, the user SHQ sponsoring a proposal works out the financial implication of only one chosen option to acquire the requisite capability. As per the prescribed procedure, SHQs are required to prepare a statement of case (SoC) indicating the one-time as well as the recurring cost of acquisition, the basis of costing, and the base year with reference to which such costs are estimated. The sponsoring service is also required to confirm that funds will be available to make contractual payments over the entire delivery period which usually spreads over several years. This is to ensure that the government does not assume a financial obligation that it cannot meet. The need for the first-stage cost estimation is, therefore, unquestionable. The proposal moves through various committees in HQ Integrated Defence Staff and MoD based on this SoC.
The cost of acquisition is estimated again just before the opening of the commercial offers. This estimate could be higher or lower than the initial cost estimate, depending on the movement of prices since the time the proposal was approved in principle (in MoD parlance, this is referred to as Acceptance of Necessity, or AoN). The estimate worked out at this stage serves as a benchmark with reference to which the reasonableness of the commercial offers is assessed by the contract negotiation committee. It should not be necessary to set a benchmark in multi-vendor cases because in a competitive environment vendors would normally quote their best price. The DPP, however, requires a benchmark to be established in all cases, probably because the competition is generally very limited. Considering this fact, the need for benchmarking, as a means of ensuring the reasonableness of the commercial offers, cannot be viewed as unnecessary.
Challenges in costing
The biggest challenge faced at both of these stages is the virtual absence of a laid down methodology for costing. There is very little, if anything, in the DPP to guide the personnel in the SHQs working out the first-stage cost estimates. There are no standard guidelines to ensure uniformity in costing across various SHQs. This lack of attention to detail in the DPP is partly because of the ubiquitous tolerance for the disconnect between the first stage cost estimation and the actual costs incurred subsequently for acquisition, operation and maintenance of the equipment.
It is arguable, but experience shows, that not much importance is attached to the initial cost estimates. To the best of one’s knowledge, no formally sponsored proposal is ever turned down on the grounds that the basis of cost-estimation is faulty or that it is financially unviable. From the financial point of view, the determining factor is an indication in the SoC that funds are or will be available. This certification is more of a formality than a means of assessing the affordability of the acquisition proposal in the long run. This is evident from the fact that the DPP requires the sponsoring SHQ merely to confirm that funds are available to make any payment that may become due in the current year and that the requirement for future years has been included in the five-year plan. This is inherently problematic as the yearly outlays never match the requirement projected in the five-year plans.
There is another challenge associated with the first stage costing. In some cases, the initial cost estimate indicated in the SoC becomes outdated by the time the AoN is accorded to start the tendering process. Ideally, in such cases, the initial cost estimate should be revised to make sure that the AoN is given based on the estimate that is current and, therefore, more realistic. But this is not a standard practice followed in all the cases, probably because the DPP does not contain a specific provision for mandatory revision of the initial cost estimate in such cases.
These snags in the system are glossed over in the hope that the problem will take care of itself when the second-stage cost estimation is carried out before the opening of the commercial bids for benchmarking the reasonableness of the commercial offers. This is somewhat delusionary because those responsible for determining the benchmark face similar challenges as the ones faced at the initial costing stage. The DPP does not contain the methodology of costing/benchmarking in any manner of detail. While the Defence Procurement Manual (DPM) of 2009 does contain some details, these too fall short of a clearly defined costing methodology and, in any case, leave many loose ends untied. This drawback has slipped into the DPP and the DPM, as indeed in procurement manuals of the Defence Research and Development Organisation (DRDO) and the Ordnance Factory Board (OFB), primarily because the General Financial Rules (GFR) on which all these manuals are based also do not contain any detailed guidelines on costing methodology.
All the aforesaid procurement manuals merely suggest that the cost estimates may be prepared using the Budgetary Quote (BQ) obtained from the prospective vendors, Maximum Retail Price (MRP) shown in the brochures, Last Purchase Price (LPP) of the same or similar product purchased in the past, or by carrying out a Professional Officers’ Valuation (POV). The Manual for Procurement of Goods, 2017 issued by the Ministry of Finance (MoF) permits the procuring agencies to rope in internal and external costing agencies or, as a last resort, make a rough assessment based on the opportunity cost of not using that item at all. These two methods are, however, not followed in defence. There is a certain amount of tentativeness about all the aforesaid approaches to costing as none is backed by a clearly articulated methodology.
This makes the task difficult for the costing community and the cost estimates prone to being questioned. To illustrate, let us assume that in a given case it is decided to adopt the POV method which entails analysis based on costs of various components, such as the raw material, labour and overheads. This would require component-wise data which the private sector companies, both Indian and foreign, may not be prepared to part with. Even if this data were to be available, the costing community will need to decide the margin of profit to be considered while estimating the product’s cost. Unlike the practice followed in some other countries, there is nothing in defence contracts that binds companies to provide access to their costing data. There are also no guidelines, much less a law, that could be invoked to decide what kind of profit margin could reasonably be taken into account for the purpose of costing. It is indeed surprising that despite these constraints this approach is often adopted in some cases for working out cost estimates.
Let us consider another situation where LPP is to be adopted as the basis for costing. In this case too, the costing community will have to deal with several questions: How should the LPP be escalated to make a realistic assessment of what the equipment is likely to cost now? What escalation factor should be adopted? If the country from where the equipment is to be imported uses multiple inflation indices, such as the Wholesale and Consumer Price Indices used in India, which inflation index should be used? Most defence manufacturing companies source components and assemblies from other countries. The question of which index to use would become more complex in such a situation. There may be a situation where the prices are believed to have come down since the previous purchase. In such situations, the costing community will have to grapple with questions such as by what factor to deflate the LPP so as to arrive at a realistic current price. These issues assume greater significance where the last purchase was made several years earlier.
Ramifications of costing
Costing is not a science but a method whose efficacy depends on the application of well-developed accounting techniques, access to relevant data and information, standardised guidelines to be followed by the costing community and, in some cases, legislative backing that binds the vendors to provide access to their books of account/costing data and regulates the margin of profit that vendors could rightfully build into their costs. Costing errors could result in an unaffordable procurement programme being sanctioned, contract being awarded at a price higher than what would be reasonable, cost and time overruns, and default on contractual commitments. It is, therefore, important to pay greater attention to the system of costing followed by the MoD.
Are costing issues unique to defence procurement in India?
It may be reassuring that the issues highlighted above are not unique to India, but that should not reinforce complacency. Some countries like the UK have made earnest efforts to improve costing efficiencies in defence procurement. The effort is led by the Cost Assurance and Analysis Service (CAAS), which estimates the “cost of a product or service in advance of the activity being undertaken when contracts are to be placed non-competitively’ by investigating ‘the company tender detailing the quoted direct and indirect costs together with estimating allowances, risk and profit.” This function is performed with the full realisation that “Estimating uncertainty, allowances and risks are a key consideration when estimating the cost and agreeing (to) a fair and reasonable price for a contract”, and that ‘The main uncertainty is contained within the basic estimate and is linked to issues such as escalation, breaks in production, tail-off cost, design growth, loading or capacity, warranty or guarantee, over provisioning and insurance excess.”1
These are the kinds of issues that bedevil the costing of defence acquisitions in India. It would be a good idea to link up with CASS and see if the methodology (including tools, techniques, models, principles, etc.) developed by it could be used in India with or without our culture-specific customisation. Somewhat similar functions are probably also performed by the Director of Cost Assessment and Program Evaluation (CAPE) in the office of the US Secretary of Defense. It would be worthwhile to also study the system followed by CAPE and pick up elements from its system that may be of help in improving the system of costing in India.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
While 11 of the 12 prescribed sanctions will have little or no effect on India-Russia defence relations, the twelfth, unless waived, has the potential to completely derail the India-US Defence and Strategic Partnership.
Ever since the Countering American Adversaries Through Sanctions Act (CAATSA) was enacted on August 2, 2017, there had been much speculation in India about its potential impact on India-Russia defence relations especially in the context of India’s possible purchase of the S-400 missile system. That was because CAATSA was enacted to punish Russia by sanctioning persons engaging in business transactions with the Russian defence sector. It was felt that CAATSA sanctions would make difficult payments in US Dollars to Rosoboronexport for the S-400 purchase. Although CAATSA, meant to discourage exports of Russian defence equipment, was enacted more than a year ago, there were no CAATSA related sanctions until last week even though Rosoboronexport, the export arm of the Russian defence industry, had already concluded contracts worth more than USD eight billion this year.
All this changed on September 20, when the US imposed CAATSA sanctions on a Chinese entity, the Equipment Development Department (EDD) of China’s Central Military Commission (CMC), and on its Director. The sanctions were in response to China’s purchase of Su-35 aircraft and the S-400 system. CAATSA had not specified any specific sanctions, only that five or more sanctions from a list of 12 had to be imposed on the person whom “the President determines, knowingly engaged in a significant transaction” with a person who is a part of Russia’s defence sector, in this case Rosoboronexport.
What conclusions can be drawn from this episode in the event India decides to buy the S-400 from Russia? The conclusions are stark. 11 of the 12 prescribed sanctions will have little or no effect on India’s current dealings with Rosoboronexport, and hence on India-Russia defence relations. However, the twelfth sanction has the potential to completely derail the India-US Defence and Strategic Partnership unless the sanction were to be waived. This needs some elaboration and explanation.
CAATSA
CAATSA is a specifically enacted legislation. Its “ultimate goal”, in the words of a senior State Department official, “is to prevent revenue from flowing to the Russian Government.” Towards that aim, the sanctions were meant to deter “significant transactions,” a term that the legislation had left undefined. However, in announcing the sanctions on EDD, the US Government classified the purchase of the S-400 system as a “significant transaction.”
Therefore, India’s purchase of the S-400 system from Russia would also be regarded as a significant transaction and invite mandatory sanctions.
Indian analysts, and reportedly the Indian Government as well, had hoped for a waiver from such an application of sanctions. While it is true that CAATSA had provided for the waiver of the ‘initial application’1 of the sanctions, it would have been difficult for any President to issue a certification, to be submitted to the US Congress for such a waiver, that “the Government of the Russian Federation has made significant efforts to reduce the number and intensity of cyber intrusions conducted by that Government.”
Therefore, there would be no waiver of the initial application of the sanctions as desired by India.
The sanctions, as stated, are to be imposed on the person “who knowingly engaged in a significant transaction.” In the case of China, it was the EDD which is responsible for managing procurements of the Chinese military.
Who in India would be determined as the person who “knowingly entered into the transaction” for the S-400?
It could either be (i) The Defence Acquisition Council (DAC) headed by the Defence Minister, or (ii) The Defence Procurement Board (DPB) headed by the Defence Secretary. The choice of person to be sanctioned would be made by the US President or the Secretary of State or the Secretary of Treasury who have been delegated these powers.
What sanctions will be imposed?
Section 231 of CAATSA does not specifically identify any particular sanction. It merely requires the President to “impose five or more of the sanctions described in section 235 (of CAATSA)”. That section lists 12 types of sanctions. Of these, 10 will have very little, or no, impact on India’s current relations with either Russia or the US. Some of these are:
prohibition on loans to the sanctioned person [sec. 235(a)(3)];
prohibition of Export-Import bank assistance for exports to sanctioned persons [Sec. 235(a)(1)];
prohibition on procurement by United States Government to procure goods or services from the sanctioned person [Sec. 235(a)(6)];
denial of visas to persons closely associated with the sanctioned person [Sec. 235(a)(11) and (12)], etc.
None of these is of any material consequence. There are only two sanctions that may impact either India-Russia relations or India-US relations.
The first of these, which is likely to have an impact on India-Russia relations, is the “Prohibition of Banking transactions” [Sec. 235(a)(8) of CAATSA]. Under this, the Secretary of the Treasury would prohibit the opening, and prohibit or impose strict conditions on maintaining, in the United States of correspondent accounts or payable-through accounts of Financial Institutions engaged in transfer of funds from the sanctioned person to the Russian defence sector. This would mean difficulties for India in making payments in US Dollars to Rosoboronexport for the purchase of the S-400 systems.
The second sanction will have far greater consequences, not for India-Russia relations, but for India-US relations. And that is the “Export sanction” [Sec. 235(a)(2)], which has the potential to completely derail the India-US Strategic and Defence partnership, as it will deny the license for, and export of, any items controlled by the US to the sanctioned person under
the Export Administration Act (EAA) (all dual-use high technology goods and technology);
the Arms Export Control Act (AECA) (all defence related items);
the Atomic Energy Act (AEA) (all nuclear related items); and
all other items from the US requiring prior review and approval of the United States Government.
Since neither the Defence Acquisition Council nor the Defence Procurement Board would apply for any license controlled by either the EAA or AEA, the denial of such licenses will have no impact. However, the denial of licenses under the other two heads will stop all commercial or FMS sales of major military equipment and systems to India. Therefore, if either the DAC or DPB, and it is a big if,were to be sanctioned under Sec. 235(a)(2),it will effectively bar India from buying any major defence equipment from the US. That will effectively put a stop to any Defence and Strategic Partnership between India and the US. The MDP (Major Defence Partner) designation would lose its relevance in that context.
This will not, however, bar India from obtaining spares and replacements for the items already in the Indian inventory.
It may therefore become necessary for the US to either not include these two types of sanctions on the DAC/DPB or give India a waiver from these sanctions.
However, even if the President were to exercise the waiver authority, it would not in any manner whatsoever relieve any of India’s problems on payments to Rosoboronexport. That is because Rosoboronexport faces exactly identical multiple sanctions under various other legislative Acts and Executive Orders. These are:
Executive Order 13582 of August 17, 2011: On April 6, 2018, Rosoboronexport was designated under E.O. 13582 for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the Government of Syria inviting financial sanctions as described above. E.O. 13582 has no waiver option.
Section 5 of the Ukraine Freedom Support Act of 2014: Rosoboronexport had been specifically designated under Section 4 of UFSA for sanctions relating to the defence sector. Section 5 dealt with financial sanctions on Financial Institutions knowingly facilitating financial transaction on behalf of Rosoboronexport. While sanction under Section 5 was optional, Section 226 of CAATSA amended Section 5 of UFSA and made mandatory the sanctions in that section which were previously discretionary. However, this sanction can be waived by the President under Section 236 of CAATSA by making a “determination that such a waiver is in the national security interest of the United States.”
Therefore, even if the President were to exercise the waiver authority granted by the National Defense Authorisation Act (NDAA) 2019 and CAATSA, the problems faced by India in transferring payments to Rosoboronexport will still persist under E.O. 13582.
However, including the “Export sanction” in the menu of sanctions imposed on the DAC/DPB will compulsorily require a waiver of the CAATSA sanction if the India-US strategic partnership is to survive.
We thus have a paradoxical situation. For 11 of the 12 sanctions mentioned in Sec. 235 (a), it makes no difference whether or not a waiver is issued. For the twelfth (namely Export Sanctions), a waiver is absolutely essential to maintain the momentum of India-US relations.
CAATSA has provided the President two mechanisms through which a waiver can be issued. Sec. 236(b) of CAATSA (“Waiver of Sanctions that are Imposed”) or Sec. 231(d) (“Modified Waiver Authority for Certain Sanctionable Transactions under Section 231 of CAATSA”). It is not clear why the US Congress chose to add Sec. 231(d) to CAATSA (through the National Defence Authorisation Act 2019), since waiver through that section has the potential to cause some heartache in India as it requires the President to certify that the government (of India) with primary jurisdiction over the person (in this case the DAC/DPB) —
‘‘(i) is taking or will take steps to reduce its inventory of major defense equipment and advanced conventional weapons produced by the defense sector of the Russian Federation as a share of its total inventory of major defense equipment and advanced conventional weapons over a specified period; or
‘‘(ii) is cooperating with the United States Government on other security matters that are critical to United States strategic interests.”
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
1. Initial application refers to the first application of sanctions after the determination has been made.
China Looks to Africa to Reduce Trade Dependence on the US
Anand Kumar
September 18, 2018
China may or may not succeed in transforming Africa into a substitute market. If it does, the bilateral trade relationship is likely to become more unbalanced and tilted in its own favour leading to greater exploitation of Africa.
China recently organized the Forum on China-Africa Cooperation (FOCAC) summit in Beijing from 3-4 September 2018. The main objective of the summit was to intensify China’s economic relationship with Africa. This summit was held at a time when China is facing a trade war with the United States. Donald Trump has made his intention clear that he wants to rejuvenate the American economy. He thinks that one way of doing it is by imposing tariffs on Chinese goods which are able to come into America by “manipulation of currency” and are hurting American economy. Trump has also adopted similar measures towards his European and NAFTA partners. He has been quite successful in reviving the American economy but his restrictive policies have also increased concerns of his trading partners including China.
As the US remains China’s largest trading partner, any restrictive trade policy the former adopts is going to adversely affect the Chinese economy. China, which has the ambition of becoming the largest economy of the world at the earliest possible time, has to find a way to meet this new challenge. It appears that it is looking towards Africa as a possible alternative market.
China-Africa trade has grown from a mere USD 765 million in 1978 to 220 billion in 2014. However, it reduced thereafter, reaching USD 170 billion in 2017. Bilateral trade has now once again started picking up and in the first five months of 2018 it gained 17.7 per cent year on year to nearly USD 82 billion.
Nearly 30,000 Chinese companies are active in Africa out of which 300 are major corporations. Chinese companies are involved in a big way in infrastructure building in the continent, which suffers from a major deficit in this sector. China wants to capitalize on this opportunity. It appears that at present only China has either the appetite or capacity to carry out infrastructure building in the continent on a large scale.
Xi Jinping has called this a win-win partnership wherein Chinese companies get lucrative contracts and Africa gets the required infrastructure. There are, however, concerns about this growing Chinese engagement with Africa. Critics suggest that China is thereby engaging in ‘debt-trap diplomacy.’ It is also encouraging corruption and degrading the environment in the continent. But China refutes this allegation and says that this is a US attempt to constrain China by vilifying it.
The Chinese argue that their investments come with ‘no political strings attached.’ But this is also the reason why China is able to sell all kinds of projects at exorbitant prices to Africa. The costs of Chinese projects are under the scanner. It is believed that the Chinese are charging three times the cost of what a project actually costs. Moreover, while the Chinese may not be attaching political strings, they do attach economic strings.
To refute the allegation that it is following debt trap policy, China says that it is not a major creditor to Africa. The continent’s total debt burden is about USD 6 trillion. Most of this is owed to organizations such as the World Bank, the IMF and the Paris Club dominated by Western nations. Chinese loans are a small portion of the total loans disbursed throughout Africa. But it is also true that Chinese loans have been increasing in recent times. China plans to invest nearly a trillion dollars in the next twelve years in Africa.
To be sure, the way China Africa cooperation has played out has raised concerns about debt, corruption and environmental degradation. The problem of debt is acute in Zambia, Djibouti and the Democratic Republic of Congo (DRC). Often this debt situation is ambiguous and countries like DRC don’t even know how much money they owe to China. The president of DRC actually visited China just to know the amount of debt his country has to repay. Yet, a strong defence of Chinese economic engagement in Africa came from some top African leaders during the recent FOCAC summit.
Africa has a vast untapped economic potential which China wants to capitalize on. However, it will not be easy for China to grow its business and trade in Africa given the widespread political instability prevalent in some parts of the continent. At the same time, some African economies are doing very well and growing at the rate of six to seven per cent per annum. China is now trying to give more attention to the better managed economies like South Africa, Nigeria and East Africa.
China is quite concerned about its trade prospects with the United States given the economic policies of Trump. In August 2018, Wei Jianguo, former vice minister of commerce of China and current vice president of the China Center for International Economic Exchange, disclosed that in the next five years, China plans to increase the value of its exports to Africa to USD 500 billion annually, and thus use Africa to replace the United States as China’s largest export market. Similar intentions were also expressed by some Chinese officials during the latest FOCAC summit. In this way, China hopes to nullify the impact of Trump’s economic measures.
China may or may not succeed in transforming Africa into a substitute market. If it does, the bilateral trade relationship is likely to become more unbalanced and tilted in its own favour leading to greater exploitation of Africa. What is interesting is Africa has been persuaded to move down this path.
Dr. Anand Kumar is visiting professor and chair (India Studies) in the Department of Political Science and Public Administration in the University of Dar-es-Salaam, Tanzania
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
The Arithmetic of India-U.S. Relations and the Russian Factor
Aleksei Zakharov
September 17, 2018
India, on its way to become a global power, will likely have to follow a zigzag course, balancing between American demands, long-term friendship with Russia and its own strategic necessities in the neighbourhood and beyond.
The 2+2 dialogue is a relatively new phenomenon which provides states with an opportunity to combine the discussion on security matters with general issues of international and bilateral affairs. Such a format helps widen the agenda and yield more fruitful results. The ‘recent 2+2 talks involving James Mattis, Mike Pompeo, Nirmala Sitharaman and Sushma Swaraj is the most high profile official meeting in 2018 as Donald Trump and Narendra Modi have not had summits since the previous year.
The addition of the two plus two format turned out to be an uneasy arithmetic task for India and the U.S. as the meeting was postponed two times and was eventually held amidst some trade tensions. However, the outcomes of this inaugural high-level dialogue show that the officials of the two countries succeeded in ironing out differences and achieving the expected outcomes. Although the immediate results of the negotiations do not reveal the full picture of the future dynamics in India-U.S. cooperation, the joint statement on the ministerial dialogue provides enough evidence for making several assumptions.
For one, the centrepiece of the talks – the defence partnership – has proven to be successful. The signing of the long-awaited Communications Compatibility and Security Agreement (COMCASA) will elevate the bilateral defence partnership and give India access to advanced U.S. defence systems. The new declarations of commitments with regard to the Indo-Pacific vividly demonstrate that China is still regarded as a regional disruptor. China’s activity in the Indian Ocean provokes closer cooperation between India and America in the maritime domain. New Delhi and Washington reiterated their shared principles for the region and agreed to start exchanges between U.S. Naval Forces Central Command (NAVCENT) and the Indian Navy in order to deepen maritime cooperation in the western Indian Ocean.1 So, it is obviously in the interests of both countries to ensure a good level of interoperability between the military forces. The decision to conduct tri-services exercises should definitely serve this purpose.
Another successful deliverable for India is Washington’s solidarity on the issue of terrorism expressed during the talks. The two sides “called on Pakistan to ensure that the territory under its control is not used to launch terrorist attacks on other countries and ... bring to justice expeditiously the perpetrators of the Mumbai, Pathankot, Uri, and other cross-border terrorist attacks.”2 However, the changing contours of the Afghan crisis will probably make the U.S. reconsider its cooperation with Pakistan as well as the whole strategy towards South Asia declared by Donald Trump last year.
These days, it is also important to take into account the Russian factor in the evolving relationship between New Delhi and Washington. Moscow has always been an invisible part of the India-U.S. dialogue, their defence cooperation, in particular. But for the last year the Russia factor has increased considerably due to the CAATSA legislation and its direct influence on all Russia-India military deals. Whether India is to be granted a special waiver or not remains an open question. This issue neither figured in the joint statement after the 2+2 dialogue nor was commented in-depth by the U.S. or Indian officials. The short remarks by Defence Secretary Mattis and Secretary of State Pompeo indicate that there is an ‘understanding’ of Indian concerns in Washington while the sanctions are not intended ‘to adversely impact India.’3
The good news for Moscow is that India, which follows an independent foreign policy, is likely to retain its defence ties with Russia. Furthermore, according to media reports, New Delhi will probably continue negotiations with Russia on the S-400 deal.4 But, at the same time, Indian acquisitions of Russian origin military equipment are bound to shrink in size in the light of transaction difficulties and reorientation towards other suppliers. Even in the case of a green light from the American side, the smooth operational process of the Triumf systems purchase is not at all guaranteed. The payments on defence contracts have already become problematic as Indian banks are refusing to make remittances to Moscow for fear of potential penalties, forcing Russia and India to find alternate ways and accelerate their discussions on implementing rouble-rupee transfers.5 However, the problem is yet to be solved as Russian companies have not received the payments from their Indian counterparts since April.6
Some Russian media observers are sceptical with regard to India’s capability to maintain a balance between the U.S., China and Russia. According to them, India partnering with ‘confronting states’ would be possible only in an ideal world.7Opinions like this appear to be short-sighted, considering that, on several issues, the ‘confronting states’ are working productively together. An important thing to understand is that the view from Russia often comes through the prism of the U.S. Today the level of hostility in U.S.-Russia relations is so high that it, unfortunately, affects all the layers of the two societies, even ordinary people and their perception of the world affairs.
With the Moscow-Washington relationship in a downward spiral, Indian diplomacy will require a masterful approach in its interactions with the two. A closer engagement with the U.S. is a challenge for India, as this relationship is not likely to be a partnership of equals, for the foreseeable future. Washington is dominating the agenda of bilateral cooperation and even imposing pressure on New Delhi’s policies. The demands to cut off oil imports from Iran and halt the purchase of Russian military equipment are cases in point. On the other hand, the intensifying cooperation between Russia and China and the growing Moscow-Islamabad ties lead New Delhi to search for new sources of reliability.
India, on its way to become a global power, will likely have to follow a zigzag course, balancing between American demands, long-term friendship with Russia and its own strategic necessities in the neighbourhood and beyond. It will sign defence pacts and conduct military drills with both the U.S. and Russia (and other countries as well) in an attempt to seize maximum opportunities from its relations with global powers. Otherwise, putting all eggs in one basket might create overdependence on one partner and ultimately not serve Indian interests well.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
7. Dmitriy Kosyrev, “Indiyakhochetbyt’ partneromdlyavsehsrazu. Poluchitsya li” [“India wants to be partners with all at once. Will it be possible”], RIA Novosti, September 11, 2018, https://ria.ru/analytics/20180911/1528252472.html
An evaluation of the non-negotiable elements of the CISMOA Boilerplate agreement does not show any element that will have any unavoidable security risks for India.
Sufficient time has passed since the first India-US 2+2 meeting was held to make an objective assessment of the outcome. Before the meeting there was much speculation about the issues that will be discussed and the likely results. These issues ranged from India signing the Communications Compatibility and Security Agreement (COMCASA); the Indian purchase of the S-400 from Russia, the sanctions this action may attract under CAATSA, and whether the U.S. President will grant India a waiver; and whether India will get a waiver from another set of US sanctions if it does not reduce oil imports from Iran to Zero by November 4.
While COMCASA was signed during the meeting, there was no positive or definite commitment from the U.S. on any of the other issues. That was to be expected as, even before arriving in Delhi, Secretary of State Pompeo had, in answer to a question on these issues, said:
“They’re part of the conversation. They’re part of the relationship. They will certainly come up, but I don’t think they’ll be the primary focus of what it is we’re trying to accomplish here. There’s half a dozen things on the agenda that we’re really intent on making progress on. Those decisions are important, they’re important to the relationship for sure, but I don’t see us resolving those or having even – have intention to resolve those during this set of meetings of the Strategic Dialogue.”
There was also no movement on these other issues because no solution can be found for them yet because of the simple fact that no sanctions are currently in place because of either CAATSA or the Iran November 4 sanctions and, therefore, there can be no waivers now and one cannot expect the U.S. to give a blanket all time/all-purpose waiver to India at this point in time.
There were, of course, some symbolic gestures towards India in the joint statement issued at the end of the meeting, such as “full support for India’s immediate accession to the Nuclear Suppliers Group”, the call for “Pakistan to ensure that the territory under its control is not used to launch terrorist attacks on other countries”, and the call to “bring to justice expeditiously the perpetrators of the Mumbai, Pathankot, Uri, and other cross-border terrorist attacks.”
So, apart from whatever exchanges were made at the closed door meeting, the only public outcome that is significant and known is the COMCASA agreement, which has been a long standing request from the U.S.
COMCASA
At present, the most important point about COMCASA is that it is a classified document and there is no information about its content or purpose. However, from various public observations and documents, one can infer the following:
COMCASA is, in essence, the CISMOA (Communications Interoperability and Security Memorandum of Agreement) that had been suggested by the U.S. nearly a decade ago and resisted by India because of some concerns about its impact on Indian security. This can be inferred from constant U.S. official references to CISMOA between India and USA. As recently as December 2017, the US Congress had passed a legislation (NDAA 2018) which had required “The Secretary of Defense and Secretary of State to jointly take such actions as may be necessary to advance the Communications Interoperability and Security Memorandum of Agreement and The Basic Exchange and Cooperation Agreement for Geospatial Cooperation.” In addition, U.S. regulatory requirements mandate that all Communication Security releases to Foreign Nations be preceded by a CISMOA.
COMCASA is supposed to be a revised form of CISMOA, after taking into account India’s concerns. Since there is nothing in the public domain to indicate what India’s official objections (not to be confused with various op-eds written without knowledge of the basic documents) were and how these had been overcome in the negotiated COMCASA, all post the 2+2 meeting writings are also speculative and subject to the individual author’s politics and prejudices.
The U.S., for its part, has been extremely reticent about giving any details about CISMOA’s working. The official “Treaties in Force” published by the Department of State has a reference to only one CISMOA (with South Korea), although it is known from other sources that a number of CISMOAs are in force with non-NATO countries (Brazil, Morocco, UAE, South Korea etc.)
There are only two drafts of CISMOA in the public domain: (a) the South Korea-U.S. agreement; and, (b) a copy of the CISMOA Boilerplate. The Boilerplate agreement is the basic CISMOA document. It has a number of articles and paragraphs of which many, not all, have been designated as non-negotiable. Subject to these non-negotiable paragraphs and elements, the boilerplate language can be modified to accommodate particular aspects of a bilateral relationship. The South Korea CISMOA follows very closely the Boilerplate CISMOA, with some modifications in the elements that are negotiable.
An examination and evaluation of the non-negotiable elements of the Boilerplate agreement does not show any element which will have any unavoidable security risks for India. It is, therefore, reasonable to conclude that COMCASA is a negotiated CISMOA with changes in the negotiable elements of the Boilerplate agreement.
If that is indeed the case, and there are strong reasons to believe that it is so, why was it necessary to change the title of the agreement from CISMOA to COMCASA? Again, one can only conjecture the reasons in the absence of an official explanation. The only readily discernible reason seems to be the use of the term “interoperability” in CISMOA. Given the volatile domestic political scenario in India, where there is very little articulation or agreement on what the essential elements of national security are, it is very likely that any “interoperability” agreement between Indian and US defence forces would have raised a political storm. COMCASA would seem an acceptable term especially when the agreement is classified and cannot be compared to any other CISMOA document!
That brings up the question of the need for interoperability. Here, a strong case can be made for some interoperability between the Indian and U.S. defence forces. It is accepted by all studying India’s security concerns that India needs to have an as strong as possible situational awareness of/in the Indo-Pacific region, given the ever growing strength and presence of the Chinese Navy and especially its submarines in these waters. While India has some resources for such monitoring, with the induction of P-8is (which are the most potent resource for ocean monitoring and which cause great discomfort to the Chinese Navy), it is nowhere near the levels necessary and needed for the Indian Navy, and Indian security, to ensure a high degree of situational awareness in the Indo-Pacific region. The US too is interested in monitoring the Chinese Navy’s forays in international waters. It has brought to bear its immense resources to monitor such activities. This monitoring is done by various means such as satellite monitoring, P-8s, etc. It would be in the interest of both countries to share their Indo-Pacific environmental monitoring data. In addition, a number of other countries with close strategic relations with the U.S. (Australia and Singapore, for example) have P-8s and are monitoring the Indo-Pacific waters in their respective domains of interest. Unfortunately the U.S. gathers and stores such information through its COMSEC network. For India to be able to share this information it would have to field some compatible COMSEC equipment. Hence the need for a U.S. compatible and secure communication system. And hence the imperative for a CISMOA/COMCASA! There is no doubt or question that once implemented in the full spirit of the agreement, it will provide the Indian Navy, and India, with an extremely potent resource to safeguard its maritime interests and security.
There have been suggestions that CISMOA/COMCASA will enable India to access high technology. This needs to be clarified. An agreement of this sort has no technology transfer and high technology access provision. What it would enable India to do is procure high technology munitions items that have built-in COMSEC equipment such as the Sea Guardian drones.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
Caspian Sea Agreement and the International Energy Market
Shebonti Ray Dadwal, Chithra Purushothaman
September 12, 2018
The value of the Caspian energy reserve lies in its potential to add to global reserves of oil and gas, which, in turn, could bring down costs.
In an interview to Business Standard,1 Fatih Birol, executive director of the International Energy Agency (IEA), said that gas producers were betting big on the Indian market. This is indeed understandable given that the government has declared its intention of moving the economy towards a gas-based one. It is in this context that an event in the Eurasian heartland acquires significance. On August 12, 2018, leaders of the five Caspian Sea littoral – Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan – met in Aktau, Kazakhstan, to sign a Convention on the Legal Status of the Caspian Sea. This signalled an end to a two-decade long dispute over the Caspian’s legal status, i.e., whether it is a sea or a lake.
According to The Economist, the Convention arrived at a compromise. It chose to treat the Caspian’s surface as a sea and gave the littorals jurisdiction over waters extending up to 15 nautical miles (nm) from their coasts as well as fishing rights over an additional 10 nm. But the Convention did not reach a settlement on the precise formula for allocating the sea bed and its mineral deposits; these are to be decided by the littoral countries on a bilateral basis. Most significantly, the Convention permits the construction of pipelines, which only require the approval of the countries whose sea beds they transit, subject to environmental provisions, and forbids non-littorals from deploying military vessels in the waters of the Caspian.2 Thus, while the Convention has certainly succeeded in easing some of the contentious issues, other major concerns have been left to be addressed by the countries concerned on a bilateral basis, the most important in this regard being the division of the seabed.3
The Caspian Sea has been an area of contention and debate for nations bordering it since the break-up of the Soviet Union. While all these countries are richly endowed with natural resources, the sea bed of the Caspian contains rich reserves of hydrocarbon resources. According to the US Energy Information Administration (EIA), the region is estimated to contain 49 billion barrels of oil and 292 trillion cubic feet (8.3 million cubic metres) of natural gas in its sea-bed.4
Historically, the Caspian Sea was controlled by Iran, but it lost the northern part to the Soviet Union in the early 19th century.5 After the disintegration of the Soviet Union, the newly independent former Soviet republics in the region also demanded a share of the resources. Iran has been opposing a settlement based on the median line approach, since that would leave it with only about 11 per cent of the waters, the smallest share. Moreover, its portion of the Caspian Sea contains less hydrocarbon reserves than those of Kazakhstan and Turkmenistan. Hence, Tehran wanted the Caspian to be divided into five equal parts of 20 per cent each, or alternately, evolve a mechanism to jointly develop the resources, partly because the reserves in the southern Caspian are situated very deep and hence difficult to access,6 and partly to circumvent the legal obstructions imposed by the recent US sanctions regime.
As the region’s dominant player, Russia too saw the division of resources as a source of increasing competition for its gas exports to Europe. It has therefore used environmental issues to block underwater pipelines from being constructed, such as the Trans-Caspian Gas Pipeline from Turkmenistan to Azerbaijan and thence to Europe.
Another major concern for Russia and Iran was that if the Caspian were to be considered a sea, it would become governed by international maritime law, especially the United Nations Convention on the Law of the Sea (UNCLOS). That, in turn, would give outside powers access to these waters, which the littoral states want to share only amongst themselves. These concerns proved to be a major roadblock, leaving most of the disputed oil and gas fields undeveloped over the past two decades. But the imposition of US sanctions, coupled with the common concern of preventing external powers, namely, the US and NATO, from expanding their influence in the region, have prompted Iran and Russia to arrive at a common position on how to classify the water body.
Although the agreement has brought an interim solution to the discussions on dividing the resources, major differences on the division of the seabed, as well as conflicting strategic interests such as delineation of the sea bed, division of hydrocarbons in the sub-soil, and construction of trans-border oil and gas pipelines remain. If these issues had been included in the negotiations, it is unlikely that even the current interim agreement would have been reached.
Does the interim agreement on the Caspian have any relevance for India? While the possibility of transporting gas from the Caspian to the subcontinent has technically increased, the cost and technical viability of building a pipeline continue to be a consideration. Any pipeline would have to traverse a distance of at least 1500 km, although existing pipeline networks in Iran could be used to offset some of the cost. While it remains an option for the future, much will depend on the cost of the landed price of gas (Caspian oil is an unlikely import). Eventually, the value of the Caspian energy reserve lies in its potential to add to global reserves of oil and gas, as was the case with US shale resources, which, in turn, could bring down costs.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
6. Kamyar Mehdiyoun, “Ownership of Oil and Gas Resources in the Caspian Sea”, The American Journal of International Law, Vol. 94, No. 1 (January 2000), pp.182-83.
A Review of India-Japan Defence Technology Cooperation
Titli Basu
August 31, 2018
While broad agreement at the top leadership level has been easy to achieve, negotiations relating to defence equipment and technology cooperation have proved to be difficult, shaped as these are by a complex interplay of variables like cost-competitiveness, technology transfer and domestic politics.
Defence Minister Nirmala Sitharaman invited Japan to participate in the two defence industrial production corridors1 in Tamil Nadu and Uttar Pradesh during the Annual Defence Ministerial Dialogue held in August 2018. These corridors are aimed at boosting the defence ecosystem and reinforcing Prime Minister Narendra Modi’s signature Make in India initiative. The Make in India campaign intersects with the unfolding reorientation in Japan’s post-war security posture and its easing of the arms export policy exemplified by Prime Minister Shinzo Abe’s outlining of the Three Principles on Transfer of Defence Equipment and Technology2 in April 2014. Since then, India and Japan have engaged in complex deliberations on the prospects of sourcing Japanese defence technology, joint development and production of defence equipment.
Within the framework of India-Japan Vision 2025, the political leadership has designed an “action-oriented partnership”, which, among other things, urged defence technology cooperation including co-development and co-production. India’s objective is to benefit from Japan’s technological prowess in its pursuit of defence modernisation and diversifying its sources of acquisition. And Japan’s goal is to revive its waning defence industry as it comes out of the decades-old export ban by participating in international joint development and production projects. It is crucial for Japan to participate in international joint development projects, which is key to sustaining its own defence production and technology base as outlined in the June 2014 Strategy on Defence Production and Technological Bases. In this regard, the Strategy refers to fostering cooperation with India as well as with the US, European countries including UK and France, Australia and Southeast Asian nations.3
Accordingly, defence and security cooperation has been identified as the foremost out of five priority areas for conceiving “new signature projects”.4 Japan has been acknowledged as a “privileged partner”5 in the Make in India drive and the leadership of the two countries has professed defence technology cooperation as having the potential to “emerge as a key pillar of bilateral defence relations”.6 The Agreement Concerning Transfer of Defence Equipment and Technology Cooperation and the Agreement Concerning Security Measures for the Protection of Classified Military Information were signed in December 2015, redefining the latitude for defence cooperation and paving the way for joint research, development and/or production projects.
Defence and security cooperation constitutes a core component of the India-Japan Special Strategic Partnership. Since the 2008 Joint Declaration on Security Cooperation, bilateral cooperation has revolved around high level defence exchanges and the expanding scope and complexity of joint exercises including anti-submarine warfare, mine counter-measures, counter-terrorism, and so on. While robust maritime cooperation constitutes the mainstay of India-Japan security cooperation in bilateral, trilateral and multilateral frameworks, trade in defence equipment and technology by way of joint research, co-development and co-production is a relatively new area. With the aim of supporting equipment collaboration with defence and dual-use technologies between the governments and defence industries as well as between businesses, the India-Japan Defence Industry Forum was instituted in 2017,7 drawing upon the efforts of Japan’s Acquisition, Technology and Logistical Agency (ATLA) and India’s Department of Defence Production (DDP). Demonstrating bilateral commitment, India and Japan unveiled a new chapter in defence cooperation with their maiden project -- Cooperative Research in the Area of Unmanned Ground Vehicle (UGV)/Robotics -- agreed to by the two defence ministries in July 2018. Following the bilateral agreement on defence equipment and technology, technical discussion involving ATLA and the Defence Research and Development Organisation (DRDO) intensified and culminated in the first cooperative research project on the Visual Simultaneous Localization and Mapping (SLAM) Based Global Navigation Satellite System (GNSS) Augmentation Technology for UGV/robotics.8
In the run up to the Defence Ministerial Dialogue held earlier this month, the fourth Joint Working Group on Defence Equipment and Technology Cooperation (JWG-DETC) was hosted in July with the goal of identifying particular items and areas for cooperation in joint development and production. The JWG-DETC was instituted in February 2015, following the landmark shift in Japan’s arms export policy referred to earlier.9 Prime Minister Modi has encouraged Japan to participate in Project 75(I) which seeks to collaboratively build six diesel-electric submarines with air-independent propulsion (AIP) capability for the Indian Navy. The Navy issued a request-for-information (RFI) in July 2017 to Mitsubishi Heavy Industries and Kawasaki Heavy Industries, manufacturers of the ultra-quiet Soryu class submarine, as well as to other foreign manufacturers including ThyssenKrupp Marine Systems, Naval Group, Navantia, Saab and Rubin Design Bureau-Amur Shipyard. However, these two Japanese companies have refrained from responding to the RFI perhaps because of Japan’s experience with the long and difficult negotiations concerning the state-of-the-art Utility Seaplane Mark 2 (US-2) amphibian aircraft, manufactured by ShinMaywa Industries.
Thus, while broad agreement at the political leadership level has been easier to achieve, negotiations relating to defence equipment and technology cooperation have proved to be rather difficult, shaped as these are by a complex interplay of critical variables like cost-competitiveness, technology transfer and domestic politics. India’s quest of defence modernisation and diversifying its acquisition sources present opportunities for Japanese defence industry, which, prior to 2014, focused solely on the domestic market given the value of tsutsushimu,10 entailing restrictions on arms transfers which barred Japan from entering the international defence market and participating in joint development and production of arms. But navigating India’s opaque defence procurement11 and offset policies is a colossal challenge for Japan, which is relatively new to the fiercely competitive international defence market. Further, in cost-sensitive markets like India, policymakers are guided by variables such as cost-competitiveness, technology transfer, setting up of a manufacturing base in the country, and job creation. But these determinants are not unique to India. Japan’s attempt to sell its 4,000-ton Soryu-class diesel-electric attack stealth submarine to Australia, despite Abe’s determined diplomatic campaign, also failed because of some of these variables in addition to Canberra’s technical and military priorities. Even after Tony Abbott’s departure and his successor’s decision to open up the deal for bidding, Japan refused to compete because of its hesitation to share technology12 and aversion to build the submarines in Adelaide.13
India is indeed interested in sourcing the US-2 amphibian aircraft, which would be useful for patrolling the Andaman and Nicobar Islands and for conducting search and rescue operations in the Indian Ocean. But concluding the first defence equipment cooperation with Japan under the Make in India initiative through government to government route has proved difficult due to the complexities of pricing, offset clause and technology transfer. Thus, despite the MoU signed between Mahindra Defence and Shinmaywa Industries in April 2018, the press statement issued after the latest meeting between Defence Minister Sitharaman and her Japanese counterpart Itsunori Onodera refrained from updating the status of the imminent deal.
Meanwhile, the business lobbies in both countries have argued in favour of fostering high-technology cooperation. SIPRI data reflects that India has emerged as the largest importer of major arms between 2012 and 2016, accounting for 13 per cent of the global total. The India-Japan Business Leaders Forum has frequently underscored the need for robust engagement in “high-technology areas in the defence and security sectors”.14 And, the Japan Business Federation or Keidanren has prioritised India, besides the US, Europe and Southeast Asia, while enunciating the importance of promoting equipment and technology cooperation with foreign countries.15 Japanese defence enterprises visited India in August 2018 following up on the maiden India-Japan Defence Industry Forum hosted in Tokyo last September to pursue cooperation in high-technology items.
Japan has projected success stories for Make in India in other sectors with the Suzuki-Toshiba-Denso joint venture for automotive lithium-ion battery packs aimed at the domestic and global markets and Made-in-India Suzuki Baleno export to the international market. But in the defence sector foreign companies will have to be incentivised to set up defence manufacturing bases in India. India is doing business with the US, Russia, Israel and others for a while but Japan is a relatively new partner. Both sides need to invest more energy in developing a robust understanding about each other’s defence sector, and grasp the cultural differences and explore prospects for future cooperation. Cultural sensitivities are important while dealing with Japan. For Japan, defence equipment and technology cooperation is more than just arms trade. It is a very important component in Prime Minister Abe’s larger security conceptualization of Japan’s Proactive Contribution to Peace.
It is also important to note that a revised arms export policy in itself is not sufficient to promote defence cooperation. Despite a robust civilian manufacturing base and being a repository of dual-use technology, cost-competitiveness and relative inexperience in global arms market are a fundamental challenge confronting the Japanese defence industry. The issue of cost-competitiveness can be traced back to the structural constrains imposed on the Japanese defence industry owing to the prohibition of arms exports, making it very different from its US and European counterparts.16 To remain competitive, US and European companies have restructured with mergers and acquisitions as well as joint ventures aimed at achieving improved efficiency. In contrast, for the Japanese defence industry, the Self-Defence Forces were the sole consumer for decades. And since the quantum of the defence ministry’s procurement level is small, the cost of producing the equipment becomes high and translates into low profits for the contractors. Limitations on arms export have curtailed the prospects of achieving more favourable economies of scale.
The 2015 Agreement on Defence Equipment and Technology Cooperation elevated the strategic partnership to newer heights as India and Japan began technical discussions on the prospects of equipment and technology cooperation. Japan has reportedly reduced the price from US$ 133 million to 113 per US-2 following intense negotiations. Moving ahead cost-competitiveness will be key for Japan as it targets markets like Southeast Asia and India. The focus in the immediate term is likely to be on international joint development and production, and export of small items instead of big ticket items like submarines. In this regard, India should consider Japanese surveillance radars, communications, and electronic warfare technologies, etc. While India traverses the challenges linked with indigenous production, refining the investment setting, enabling defence manufacturers to absorb technology transfer through offsets, Japan faces the litmus test of making its defence industry competitive and globalised.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
1. “Joint Press Statement on the India-Japan Annual Defence Ministerial Dialogue”, Ministry of Defence, Government of India, August 20, 2018, at http://pib.nic.in/newsite/pmreleases.aspx?mincode=33 accessed August 29, 2018.
2. The 2014 Principles replaced the 1967 ‘Three Principles on Arms Exports’ designed under Prime Minister Eisaku Sato, which later was firmed up in 1976 by Prime Minister Takeo Miki enunciating that Japan shall not promote arms exports, regardless of the destinations.
3. “Strategy on Defense Production and Technological Bases: Toward strengthening the bases to support defense forces and Proactive Contribution to Peace”, Ministry of Defense, Japan, June 2014, at http://www.mod.go.jp/atla/en/policy/pdf/strategy_defense_technology.pdfaccessed August 28, 2018.
16. For more see, Kimura Soji and Matsuoka Hisao, “Prospects and Dilemma of the Defence Industry in Japan in the Post-War Era Accommodation to Globalization of Economy”, NIDS Security Reports, No. 2, March 2001, pp. 1-34; Sugio Takahashi, “Transformation of Japan’s Defence Industry? Assessing the Impact of the Revolution in Military Affairs”, Security Challenges, vol. 4, no. 4 (Summer 2008), pp. 101-15.
The 19th bilateral summit has left a mixed feeling about the current state of the Indo-Russian relationship and its future prospects.
The 19th bilateral summit between Prime Minister Narendra Modi and President Vladimir Putin left a mixed feeling about the current state of the Indo-Russian relationship and its future prospects. Though a major and also the most expected deal on the supply of the S-400 Triumf missile system was concluded and several other agreements aimed at further strengthening the economic engagement were signed, a number of questions pertaining to the future trajectory of bilateral ties still remain.
Sanctions as a common factor
A few days ahead of the bilateral summit, a Russian media outlet, Kommersant,reported that the two sides would sign a “political document” with a clause on unacceptability of imposition of sanctions not approved by the United Nations.1 However, the word “sanctions” did not even figure in the joint statement and was never once mentioned by the officials of the two countries. By contrast, the Saint Petersburg Declaration, issued after the previous bilateral summit held in June 2017, had clearly stated that the two countries “do not accept the unilateral use of political and economic sanctions as a means of exerting pressure.”2 At that time, the Countering America's Adversaries Through Sanctions Act (CAATSA) was yet to become a legislation. Surprisingly, now that CAATSA hangs like a Sword of Damocles over Indo-Russian defence cooperation, Moscow and New Delhi seem to have decided to downplay the issue of sanctions by omitting any mention of it in the current joint statement. The idea probably is not to further irritate Washington. New Delhi is still hopeful about getting an exemption from CAATSA and that would serve Russian interests as well. In a way, the issue of sanctions seems to be bringing Russia and India together.
Defence deals and other agreements
Another calculated decision was the low-key manner in which officials addressed the issue of taking defence cooperation forward. Interestingly, this track was barely mentioned during the summit. Reference to defence cooperation is very short and placed somewhere in the middle of the joint statement. The two leaders did not elaborate on the bilateral military partnership. Moreover, the deal on the S-400 was neither announced by the leaders nor mentioned in the list of agreements. Apparently, officials were seeking to demonstrate that bilateral ties do not revolve around defence alone and that it is not the sole sphere of cooperation.
Notwithstanding official intentions, the main deliverable of the summit was the contract on S-400 SAM supplies to India. As is seen, the conclusion of the deal is an important gain for the Indian Air Force, as well as a bold step in terms of India’s overall foreign policy. It is clear that ‘Triumf’ systems were necessary for Indian defence and signing the contract was not an issue of public debate. At the same time, it turned out to be the only important agreement between India and Russia.
Surprisingly, the widely discussed deals on Kamov helicopters and Krivak/Talwar class frigates were not concluded. As the Russian Ambassador to India Nikolay Kudashev explained in an interview, talks are still underway and “new sizeable deals involving Make in India programme” are expected by the end of this year or at the very beginning of the next one.3 These contracts are to be discussed at the Inter-Governmental Commission on Military-Technical Cooperation scheduled to take place in December 2018. There is a growing perception in Russia that India has been slowly drifting away and, as a consequence, imports of Russian arms is likely to shrink in size.4 For this reason, the finalisation of contracts, or the lack of it, on helicopters, frigates and license for the production of Kalashnikov rifles will be an important indicator of the trajectory of Indo-Russian defence cooperation.
Before President Putin’s visit to India, his aide Yuri Ushakov had announced that there were some 23 documents on the agenda, with some of them “still in the phase of coordination”.5 Agreements between India and Russia during the summit were low in number and substance as a majority of them were pro forma documents. Yet, the two sides managed to differ in the overall number of signed documents. According to the Indian Ministry of External Affairs, the two countries exchanged eight agreements, whereas the Kremlin indicated nine. The Programme for Cooperation Between the Governments of Moscow and Delhi was not mentioned by the Indian side but included as a deliverable by Moscow.6 The fact that an official agreement was forgotten and, as a result, omitted in the list of documents raises questions about the significance of such ‘protocols’ and ‘memorandums’.
Iran factor
Referring to third countries by name is not a customary practice in bilateral joint statements. Aside from Bangladesh – the first destination for Russia-India joint energy cooperation in a third country – these days Iran is an important and at the same time tricky partner for both India and Russia. Iran was mentioned several times in the joint statement: Firstly, in the context of the upcoming trilateral meeting on the side-lines of “Transport Week-2018” in Moscow and, secondly, in support of the Joint Comprehensive Plan of Action (JCPOA) on the Iranian nuclear programme.7
Amidst the American sanctions on Iran becoming a new reality, several projects that both New Delhi and Moscow are interested in are under threat of being shelved. Developing Chabahar Port is of high significance to India as it is regarded as a crucial transit point in the International North-South Transport Corridor (INSTC) and some other connectivity projects aimed at increasing Indian trade with Central Asia. A transport network connecting India and Russia could facilitate India-Iran bilateral trade as well. Hence, implementation of the 16-year old agreement on INSTC is of vital importance for both Moscow and New Delhi. During the summit, Russia and India called for the development of this initiative “…by finalizing pending issues …through bilateral discussions as well as discussions with other partner countries at the earliest”. They also agreed to “make efforts to convene the INSTC Ministerial and Coordination meeting on priority”.8
The INSTC is not the only project which will probably suffer from US sanctions on Iran. The Iran-Pakistan-India (IPI) offshore gas pipeline is another example of a long-standing project that may well remain on a waiting list due to America’s restrictive measures against Tehran. Beyond the issue of sanctions, negotiations among the participating countries on this project also remain at a nascent stage. The Russian and Pakistani energy ministries have signed a Memorandum of Understanding (MoU) on the pipeline project, whereas Russia-India talks on this matter are still underway. Moscow and New Delhi have pledged to continue consultations and move forward towards a “possible conclusion of Memorandum of Understanding”.
With Russia eagerly looking to expand cooperation with Iran, much will depend on the Indian approach towards the US demand to halt energy ties with Tehran. As of now, it seems that India will not reduce the import of Iranian oil and petrochemicals to nil. Although private Indian companies are forced to cease connections with Iran, state-owned firms have reportedly placed orders for crude oil delivery in November.9
The Indo-Pacific
Dialogue on regional dynamics and maritime cooperation has turned into an integral part of India’s engagement with the US, Japan, Australia, France and other regional players. However, Moscow and New Delhi are yet to begin consultations on regional issues. In his press statement, Prime Minister Modi underlined that “both countries have common interest in cooperating on terrorism, developments in Afghanistan and Indo-Pacific ….”10 Notably, in the Russian version of the Indian Prime Minister’s statement, the word “Indo-Pacific” was not included. Although translation issues often occur in official documents, this is not evidently a case involving such a difficulty. No wonder that the India-Russia joint statement refers to the Indo-Pacific as “the regions of Pacific and Indian Oceans”, thus dividing one integrated region into two sub-regions.
This is not the first time that the two sides have referred to the region in different terms. After the ‘informal talks’ held between President Putin and Prime Minister Modi earlier this year in Sochi, the Indian Ministry of External Affairs stated in its press release that the two leaders agreed “to intensify consultation and coordination with each other, including on the Indo-Pacific”. Meanwhile, in his comments on the meeting, Russian Foreign Affairs Minister Sergei Lavrov underlined the mutual conviction that “new security architecture in Asia-Pacific should be based on non-bloc principles, principles of open, equal and indivisible security”. Moscow is apparently wary of the emergence of the ‘Quad’ and equivalent groupings’, especially platforms for cooperation in the military domain. In contrast, New Delhi is concerned about China’s assertive policies in the region and stands for ‘respect for sovereignty, territorial integrity, rule of law, freedom of navigation and overflight’ in the Indian Ocean and beyond.
The Indo-Pacific concept is not endorsed by Russian officialdom for it has been actively promoted by the Donald Trump administration. For India, Washington’s increased focus on the Indo-Pacific is considered favourable as it demonstrates its centrality in the region. Thus, the usage of terms is an indicator of different prisms through which Moscow and New Delhi view regional processes. Their approaches towards the Indo-Pacific are thus not broadly congruent.
Enduring concerns
The geopolitical environment that India and Russia have been operating in since 2014 continues to shape their bilateral relationship. US-Russia relations are unlikely to improve in the near-term. India-China relations, notwithstanding economic cooperation, continue to suffer from trust deficit and remain at variance on various strategic matters. Meanwhile, Moscow and New Delhi seem to be adapting to the changing geopolitical realities but they have a long way to go in terms of addressing each other’s strategic concerns. Moscow’s growing strategic convergence and understanding with Beijing and New Delhi’s growing defence and security cooperation with Washington have gained momentum due to objective reasons. Neither India nor Russia, however, view these endeavours as potential disruptors to their bilateral cooperation.
The Indo-Russian bilateral summit also sends certain signals to both China and the US. From the Russian perspective a move to supply the S-400 is an indicator of its balanced policy in Asia, whereas for India it is a demonstration of its independent foreign policy even under the threat of US sanctions.
While adjusting and adapting to the geopolitical challenges, the two countries cannot afford to overlook bilateral issues that remain chronically unresolved. The India-Russia partnership, albeit showing some positive signals by way of increased interaction at the top most level, is still lagging behind in many spheres. Box-ticking agreements may ultimately end up as a partnership without real benefit.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India
To force all Rohingyas to return on the grounds of “threat to security” is against India’s humanitarian heritage. The government and its agencies are capable of sifting out Rohingya elements who might actually have links to terror organisations from the rest of the group.
On October 04, 2018, India handed over seven Rohingya immigrants to the Myanmar authorities at Moreh on the India-Myanmar border. The Supreme Court allowed their deportation on the ground that Myanmar had accepted them as citizens. Around 40,000 Rohingya refugees are believed to be in India, though only 18,000 have registered with the United Nations High Commissioner for Refugees (UNHCR). The Ministry of Home Affairs has asked state governments to start collecting the biometrics of Rohingyas who have illegally entered the country so that they can be deported to Myanmar. Rohingyas have been living in India since before the arrival of the recent wave of refugees in 2017.
It is noteworthy that Parsis, Jews, Armenians, Poles and many other communities had made India their home when they were persecuted in their countries of origin. In recent history, India has hosted the Dalai Lama and lakhs of his followers fleeing Chinese occupation and ethnic cleansing of Tibet, as well as millions of East Pakistani refugees fleeing genocide in 1970-71. Lakhs of Tamil refugees fleeing ethnic conflict in Sri Lanka were given refuge, as were Afghans and Somalians. In fact, the partition of India had resulted in the movement of millions of refugees, and many of those refugees became successful entrepreneurs and professionals, making significant contributions to the Indian economy, and indeed, its social and cultural environment.
The Rohingyas are one of the world’s “most persecuted” communities. Around 1.2 million live in Myanmar’s Rakhine state where they have co-habited for generations with others for over hundreds of years. They may have converted to Islam in the wake of trade contacts with the Arab world, as happened in Kerala and Maldives, but there are even today a sprinkling of Hindus amongst them. Today, in Buddhist majority Myanmar, the Rohingyas are, however, termed as ‘illegal immigrants’ after the adoption of the Citizenship Law of 1982 which does not recognise this community as one of the 135 legally recognised ethnic groups of Myanmar.
The violence – and the institutionalised discrimination against the Rohingyas – surprisingly also appears to have left Nobel Laureate and Myanmar’s State Counsellor Aung Sang Syu Ki unmoved, despite her own long record of struggle against an undemocratic regime. As a result of the violence, which reportedly includes killings, house burning and sexual violence, thousands of Rohingyas have been fleeing, mainly to Bangladesh; that number has now reached half a million. Among them are about 500 Hindus, showing that the campaign of violence in Rakhine is one of deadly majoritarianism, intolerant of any minority. Around 40,000 Rohingyas have found their way into India having illegally crossed the India-Bangladesh border to escape from a living hell in Myanmar.
The Rohingyas have lent themselves to be viewed with suspicion because reports claim that some of them are involved in drug trafficking in the Northeast and are conduits for terror activities. The Government of India had filed an affidavit in the Supreme Court stating that the Rohingyas are illegal immigrants and must be deported as they are a serious security threat. India thereafter repatriated the first batch of Rohingyas to Myanmar.
Most refugees dream of going home one day. This was true of the refugees during the Partition of India, many of whom still dream of visiting their homes someday. It is true of Syrian refugees who have seen their country crumble. It was true of the Bangladeshis and the Sri Lankans as well as the dream of every Tibetan. India has successfully repatriated several refugees in the recent past. But the situation back in Myanmar is so dire that the refugees cannot imagine of returning. Further, the core principle of the UN Refugee Convention requires that refugees cannot be returned to the country where they face serious threats to life or freedom. The principle of non-refoulement, or non-forcible return of refugees, considered a rule of customary international law, is binding on all states whether they have signed the Convention or not. India has also, rightly and consistently, endorsed the principle of non-refoulement at various international platforms including the UN General Assembly’s Third Committee which discusses human rights issues, the UN Human Rights Council and at the Executive Committee of UNHCR. At the 66th session of the UNHCR Executive Committee in 2015, the Indian delegation had affirmed:
“India’s assimilative civilizational heritage, inherent capabilities as a State with a good record of non-refoulement, hosting and assimilating refugees gives us a rounded perspective on dealing with matters pertaining to refugees and other persons of concern. India has a tradition of receiving refugees and migrants since millennia. We remain committed to these principles as these have been part of Indian ethos and civilization.”1
The government and its agencies are capable of sifting out those Rohingyas who might actually have links to terror organisations from the rest of the group. India’s security and intelligence apparatus also has the wherewithal to handle individual members of the Rohingya community in India on a case to case basis. The mere possibility or “threat” of violence by some members of the group does not warrant collective punishment of the entire group. During the exodus of Tamil refugees from Sri Lanka, those that were suspected to have links to the Liberation Tigers of Tamil Eelam (LTTE) did enter India, but Tamil refugees as a group were not turned away on the grounds of “national security”. To ultimately force all Rohingyas including women and children to return on the grounds of “threat to security” is not merely a violation of international law but is also against our humanitarian heritage and standards of morality. The strident calls for “deportation” are contrary to India’s long-held humanitarian principles, including our cherished belief in vasudhaiva kutumbakam.
The Rohingyas clearly face a threat to life and are not recognised as citizens in Myanmar. Deportation thus is a move that could endanger their lives and is also in violation of the international law of non-refoulement. One of the key conditions for repatriation is the grant of full citizenship — and not “residency” or “certificates of identity “as is being offered to the Rohingyas.
One might ask why India should be hospitable to a group of refugees whose own country has disowned them. The answer lies in our ancient culture and in India’s traditional humanitarian approach to refugees from times immemorial. The Mahabharata as well as Jataka recount the example of Chakravarti Shibi, a worthy descendant of Bharat and an ancestor of Lord Ram, who offers refuge to a dove from a hawk that wished to eat it. To honour his word to protect all those who seek refuge, the noble Chakravarti offered his own flesh in place of the dove when the hawk claimed that the bird was its food and was needed to nourish his own body and that of his family and that he too as a subject seeks justice from the noble king. The king, realising his obligation, offered his own life to uphold dharma. Today India faces a similar test where one must choose between what is righteous and in accordance with our dharma and Bharatiya Samskriti.
The answer also lies in India’s responsibility as a member of the international community, as a democracy, and as an aspiring global leader. It can also show the West that the ‘Responsibility to Protect’ is not something that is to be merely spoken of within the confines of ivory towers, but is about defending and protecting people’s right to life and dignity. India has always walked the talk in standing up for the weak and oppressed since times immemorial.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India
How different will the USAF look after the proposed restructuring with 74 additional squadrons? Will there be a trade-off between quality and quantity?
War is unforgiving. Threat matrices continuously undergo change. Geopolitics, economics and technology play critical roles in defining these. Therefore, armed forces across the world continuously attempt to reequip, reorganise, restructure and redefine in order to enhance their operational capabilities. The focus of these processes invariably is to build proficiency in the relevant domains for present and future conflict scenarios. With finite financial resources, there is a perpetual debate between quality and quantity. The United States Air Force is presently in this phase and is looking to expand capacity through quantity.
Intent and Plan
“The Air Force is too small for what the nation expects of us,” the United States Air Force (USAF) Secretary Heather Wilson reiterated at the annual Air, Space and Cyber Conference in National Harbor, Maryland, on September 17, 2018.1 She articulated her intentions last year for a bigger air force when assuming this appointment.2 But before making any long-term decisions on the force structure, she wanted to have a better idea of what threats the United States would face in coming years, stating, "I'm a believer that threat drives strategy, strategy drives force posture."3
The USAF expansion plan is to primarily counter growing military challenges from Russia and China.4 The broad plan unveiled after a long study for the expansion of the USAF seeks to add 74 more squadrons to the current strength of 312 squadrons.5 The exact details of the study are still awaited and about six more studies on force restructuring are likely to be submitted by March 2019 to refine the current assessment. Broadly, the expansion plan is based on the 2018 United States National Defense Strategy that calls on the USAF to defend the homeland, provide a safe and effective nuclear deterrent, meet a peer threat and deter a near-peer threat while maintaining campaign momentum against global extremism.6
On the human resource front, USAF active personnel strength reduced from 357,000 in 2006, hitting a low of 311,000 in 2014 before rebounding to roughly 322,800 now, with the intention of hitting 350,000 by about 2024.7 Nearly USD one billion per annum is reportedly being spent by USAF to retain personnel, including incentive pay and bonuses. As of mid-2017, the force was 3,000 personnel below strength in terms of aircraft-maintenance staff and around 1,200 short of tactical-combat-aircraft pilots.8 Making good the existing shortfall and then planning for future expansion will be a herculean human resource mobilisation task. It is estimated that the full implementation of the plan would need an additional 40,000 personnel.9
Inventory Analysis
Looking at the current inventory mix of the USAF, the emphasis on fighters and airlift capabilities are apparent (Figure 1). Fighter aircraft try to achieve airspace control so that other kinetic elements can operate freely. Additionally, these aircraft provide long range accurate delivery of kinetic weapons to achieve tactical and operational objectives. The transport fleet is required to achieve a high mobility quotient for the combat forces. With a global outlook for military operations and current deployment in almost all parts of the world, the necessity for very high airlift capability is essential. Aerial refuellers (Tankers) and Command and Control, Intelligence, Surveillance and Reconnaissance (C2ISR) assets are also in substantial strength. The tanker force helps in the deployment and employment of combat power, minimising en route halts. This compresses the deployment timeline and, additionally, helps in retaining an element of surprise by allowing combat aircraft to project force far away from their operating bases. In so far as C2ISR assets are concerned, their significance is related to the ability to enhance battlespace transparency for the accurate planning and controlling of missions for safe execution. Invariably, these, along with space resources, are the first assets to be employed to gain a picture of the battlespace.
Source: Based on USAF data10
The USAF expansion plan envisages an addition of 74 squadrons. An analysis of these additional squadrons brings to fore the changing character of likely combat engagements. The two most prominent verticals being planned for expansion are C2ISR platforms and aerial refuellers (tankers) (Figure 2). In addition, an additional seven squadrons for fighter combat aircraft and five squadrons for bombers are being planned. But no accretions are envisaged for the cyber and missile force; their capability enhancement would be through equipment upgradations only. And although Unmanned Aerial Vehicles (UAV) have expanded their operational role, no major expansion is planned in this field.
The prime reason for such a lopsided approach in favour of manned combat aircraft is the limitations of UAVs in a hostile air defence environment. Russia and China have developed and deployed advanced air defence systems. A number of countries are in the process of acquiring high technology air defence systems from Russia and China. The proliferation of such advanced air defence systems will limit the efficacy of UAV operations. That may be a possible reason for the limited expansion envisaged for the UAV fleet in the restructuring plan. With an increase in manned combat aircraft, an increase in resources for Combat Search and Rescue (CSAR) is an obvious fallout. Consequently, the plan envisages an additional nine squadrons for CSAR.
Source: Based on USAF data11
Proposed Force Structure
Once the proposed accretions fructify, the USAF force structure will, for the first time, have an equal numbers of squadrons for C2ISR and fighter aircraft (Figure 3). In the heavy aircraft category also, parity will be achieved between tankers and airlift aircraft for the first time. Special operations squadrons and space units will increase their share from current levels.
Source: Based on USAF data12
A close examination of force accretion planned over and above the existing inventory given in Figure 4 indicates that the current USAF dispensation feels an acute shortage of bombers, C2ISR and space assets for likely missions in the coming decade. The expansion plan increases their quantity by over 55 per cent. A major increase in C2ISR and space assets is indicative of an increased requirement to monitor a larger area for a longer duration and with multiple sensors. This kind of surveillance and reconnaissance has become a necessity owing to the changing character of war. Unlike during the Cold War when the focus was on major military manoeuvres with large formations as the key threats, now small teams can operate to achieve critical objectives with strategic implications. This calls for greater monitoring of the area of interest. Hence an increase in C2ISR and Space assets is an obvious assessment.
An added implication of this changing character of war is on special operations. Gradually, their relevance in kinetic operations has increased and these operations are becoming the first option for planners. In certain situations, special operations help achieve the objectives without large-scale force-on-force engagement. With hybridisation of war, the salience of special operations will only increase. It is probably this assessment that has led the USAF to project a 35 per cent increase in the number of special operations squadrons. As the majority of aerial platforms of the USAF are capable of aerial refuelling, an increase in receivers would entail a corresponding increase in tankers. To retain the existing Tanker-Receiver ratio, the tanker force is to enjoy a 35 per cent accretion in numbers.
Source: Based on USAF data13
Against the Historic Tide
For one of the largest air forces in the world to ambitiously expand by nearly 25 per cent seems contrary to the long-term trend. Notwithstanding a number of new facets like cyber, space and missiles added to the arsenal of the USAF, its number of aircraft has been declining steadily for decades since the peak strength of 26,104 aircraft in 1956 (Figure 5). The USAF aircraft inventory has shrunk by over 80 per cent during the last 60 years.
Source: Based on data in the Mitchell Institute Study, 201014
To fulfil the requirements of the expansion plan, an addition of over 400 aircraft will have to take place during the next decade. This will be over and above the replacement of ageing aircraft like the F16 with the F35. It is likely that other arms of the US military organisation will have a similar wish list to expand capabilities, citing the 2018 United States National Defense Strategy. The additional demand for aviation assets from the US Army, US Navy, US Marine Corps and US Coast Guard is likely to be a matter of time. A similar 25 per cent increase by all entities over the next decade will have major implications on force levels and finances. That will be a major dampener. If the plan were to be sanctioned, it will indeed be a bonanza for the aviation industry.
What may happen?
Once all the restructuring studies are submitted and a comprehensive USAF restructuring plan made, the project costing will be done. Based on types of aircraft and equipment planned for induction and the associated increase in manpower, the overall financial outlay for the USAF may have to increase by at least 25 per cent from current levels assuming that no quality compromises are made. That will mean an increase in the USAF’s share in the defence budget.
Another factor that will play a major role in redefining the USAF’s restructuring plan is the creation of the Space Force. The new organisation will probably hive off space assets of the USAF for consolidation under one agency. Furthermore, this entity will probably have a priority for budgetary allocations and further compress the resources that could be made available to the USAF. Before treading on a restructuring path, taking the US Congress along and pacifying other contenders for the annual defence allocation will be the key battles that the USAF will have to fight and win. The outcome of these battles will define the course of the force’s restructuring. Going by the history of such ambitious expansion plans across the globe, it is safe to assume that the restructuring plan will have to be scaled down qualitatively or quantitatively.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
It is important to pay greater attention to the system of costing followed by the MoD given that costing errors could result in the sanctioning of an unaffordable procurement programme, contract being awarded at a higher price, cost and time overruns, and default on contractual commitments.
Costing is one of the foremost weakest links in the defence procurement process. The Defence Procurement Procedure (DPP), which applies to all capital acquisitions for the armed forces, requires cost estimates to be prepared at two stages: first, when a procurement proposal is sponsored by the user Service Headquarters (SHQ), and subsequently before the opening of the commercial offers. The purpose of working out the cost estimates at each of these two stages is different, but the challenges faced by the costing community across the SHQs and the Ministry of Defence (MoD) are the same. MoD has responded to this challenge by increasing the number of cost accountants drawn from the Indian Cost Accounts Service (ICoAS). They are top class professionals, but they cannot be expected to operate in a policy vacuum and deliver the intended results. It is a matter of some concern that this vital aspect has not received as much attention as it deserves.
What is the purpose of costing and is it unavoidable?
The purpose of the first stage of costing is to examine the affordability of an acquisition proposal. Ideally, this should entail assessing the financial implications of various options. It is, however, doubtful if that is done. Typically, the user SHQ sponsoring a proposal works out the financial implication of only one chosen option to acquire the requisite capability. As per the prescribed procedure, SHQs are required to prepare a statement of case (SoC) indicating the one-time as well as the recurring cost of acquisition, the basis of costing, and the base year with reference to which such costs are estimated. The sponsoring service is also required to confirm that funds will be available to make contractual payments over the entire delivery period which usually spreads over several years. This is to ensure that the government does not assume a financial obligation that it cannot meet. The need for the first-stage cost estimation is, therefore, unquestionable. The proposal moves through various committees in HQ Integrated Defence Staff and MoD based on this SoC.
The cost of acquisition is estimated again just before the opening of the commercial offers. This estimate could be higher or lower than the initial cost estimate, depending on the movement of prices since the time the proposal was approved in principle (in MoD parlance, this is referred to as Acceptance of Necessity, or AoN). The estimate worked out at this stage serves as a benchmark with reference to which the reasonableness of the commercial offers is assessed by the contract negotiation committee. It should not be necessary to set a benchmark in multi-vendor cases because in a competitive environment vendors would normally quote their best price. The DPP, however, requires a benchmark to be established in all cases, probably because the competition is generally very limited. Considering this fact, the need for benchmarking, as a means of ensuring the reasonableness of the commercial offers, cannot be viewed as unnecessary.
Challenges in costing
The biggest challenge faced at both of these stages is the virtual absence of a laid down methodology for costing. There is very little, if anything, in the DPP to guide the personnel in the SHQs working out the first-stage cost estimates. There are no standard guidelines to ensure uniformity in costing across various SHQs. This lack of attention to detail in the DPP is partly because of the ubiquitous tolerance for the disconnect between the first stage cost estimation and the actual costs incurred subsequently for acquisition, operation and maintenance of the equipment.
It is arguable, but experience shows, that not much importance is attached to the initial cost estimates. To the best of one’s knowledge, no formally sponsored proposal is ever turned down on the grounds that the basis of cost-estimation is faulty or that it is financially unviable. From the financial point of view, the determining factor is an indication in the SoC that funds are or will be available. This certification is more of a formality than a means of assessing the affordability of the acquisition proposal in the long run. This is evident from the fact that the DPP requires the sponsoring SHQ merely to confirm that funds are available to make any payment that may become due in the current year and that the requirement for future years has been included in the five-year plan. This is inherently problematic as the yearly outlays never match the requirement projected in the five-year plans.
There is another challenge associated with the first stage costing. In some cases, the initial cost estimate indicated in the SoC becomes outdated by the time the AoN is accorded to start the tendering process. Ideally, in such cases, the initial cost estimate should be revised to make sure that the AoN is given based on the estimate that is current and, therefore, more realistic. But this is not a standard practice followed in all the cases, probably because the DPP does not contain a specific provision for mandatory revision of the initial cost estimate in such cases.
These snags in the system are glossed over in the hope that the problem will take care of itself when the second-stage cost estimation is carried out before the opening of the commercial bids for benchmarking the reasonableness of the commercial offers. This is somewhat delusionary because those responsible for determining the benchmark face similar challenges as the ones faced at the initial costing stage. The DPP does not contain the methodology of costing/benchmarking in any manner of detail. While the Defence Procurement Manual (DPM) of 2009 does contain some details, these too fall short of a clearly defined costing methodology and, in any case, leave many loose ends untied. This drawback has slipped into the DPP and the DPM, as indeed in procurement manuals of the Defence Research and Development Organisation (DRDO) and the Ordnance Factory Board (OFB), primarily because the General Financial Rules (GFR) on which all these manuals are based also do not contain any detailed guidelines on costing methodology.
All the aforesaid procurement manuals merely suggest that the cost estimates may be prepared using the Budgetary Quote (BQ) obtained from the prospective vendors, Maximum Retail Price (MRP) shown in the brochures, Last Purchase Price (LPP) of the same or similar product purchased in the past, or by carrying out a Professional Officers’ Valuation (POV). The Manual for Procurement of Goods, 2017 issued by the Ministry of Finance (MoF) permits the procuring agencies to rope in internal and external costing agencies or, as a last resort, make a rough assessment based on the opportunity cost of not using that item at all. These two methods are, however, not followed in defence. There is a certain amount of tentativeness about all the aforesaid approaches to costing as none is backed by a clearly articulated methodology.
This makes the task difficult for the costing community and the cost estimates prone to being questioned. To illustrate, let us assume that in a given case it is decided to adopt the POV method which entails analysis based on costs of various components, such as the raw material, labour and overheads. This would require component-wise data which the private sector companies, both Indian and foreign, may not be prepared to part with. Even if this data were to be available, the costing community will need to decide the margin of profit to be considered while estimating the product’s cost. Unlike the practice followed in some other countries, there is nothing in defence contracts that binds companies to provide access to their costing data. There are also no guidelines, much less a law, that could be invoked to decide what kind of profit margin could reasonably be taken into account for the purpose of costing. It is indeed surprising that despite these constraints this approach is often adopted in some cases for working out cost estimates.
Let us consider another situation where LPP is to be adopted as the basis for costing. In this case too, the costing community will have to deal with several questions: How should the LPP be escalated to make a realistic assessment of what the equipment is likely to cost now? What escalation factor should be adopted? If the country from where the equipment is to be imported uses multiple inflation indices, such as the Wholesale and Consumer Price Indices used in India, which inflation index should be used? Most defence manufacturing companies source components and assemblies from other countries. The question of which index to use would become more complex in such a situation. There may be a situation where the prices are believed to have come down since the previous purchase. In such situations, the costing community will have to grapple with questions such as by what factor to deflate the LPP so as to arrive at a realistic current price. These issues assume greater significance where the last purchase was made several years earlier.
Ramifications of costing
Costing is not a science but a method whose efficacy depends on the application of well-developed accounting techniques, access to relevant data and information, standardised guidelines to be followed by the costing community and, in some cases, legislative backing that binds the vendors to provide access to their books of account/costing data and regulates the margin of profit that vendors could rightfully build into their costs. Costing errors could result in an unaffordable procurement programme being sanctioned, contract being awarded at a price higher than what would be reasonable, cost and time overruns, and default on contractual commitments. It is, therefore, important to pay greater attention to the system of costing followed by the MoD.
Are costing issues unique to defence procurement in India?
It may be reassuring that the issues highlighted above are not unique to India, but that should not reinforce complacency. Some countries like the UK have made earnest efforts to improve costing efficiencies in defence procurement. The effort is led by the Cost Assurance and Analysis Service (CAAS), which estimates the “cost of a product or service in advance of the activity being undertaken when contracts are to be placed non-competitively’ by investigating ‘the company tender detailing the quoted direct and indirect costs together with estimating allowances, risk and profit.” This function is performed with the full realisation that “Estimating uncertainty, allowances and risks are a key consideration when estimating the cost and agreeing (to) a fair and reasonable price for a contract”, and that ‘The main uncertainty is contained within the basic estimate and is linked to issues such as escalation, breaks in production, tail-off cost, design growth, loading or capacity, warranty or guarantee, over provisioning and insurance excess.”1
These are the kinds of issues that bedevil the costing of defence acquisitions in India. It would be a good idea to link up with CASS and see if the methodology (including tools, techniques, models, principles, etc.) developed by it could be used in India with or without our culture-specific customisation. Somewhat similar functions are probably also performed by the Director of Cost Assessment and Program Evaluation (CAPE) in the office of the US Secretary of Defense. It would be worthwhile to also study the system followed by CAPE and pick up elements from its system that may be of help in improving the system of costing in India.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
While 11 of the 12 prescribed sanctions will have little or no effect on India-Russia defence relations, the twelfth, unless waived, has the potential to completely derail the India-US Defence and Strategic Partnership.
Ever since the Countering American Adversaries Through Sanctions Act (CAATSA) was enacted on August 2, 2017, there had been much speculation in India about its potential impact on India-Russia defence relations especially in the context of India’s possible purchase of the S-400 missile system. That was because CAATSA was enacted to punish Russia by sanctioning persons engaging in business transactions with the Russian defence sector. It was felt that CAATSA sanctions would make difficult payments in US Dollars to Rosoboronexport for the S-400 purchase. Although CAATSA, meant to discourage exports of Russian defence equipment, was enacted more than a year ago, there were no CAATSA related sanctions until last week even though Rosoboronexport, the export arm of the Russian defence industry, had already concluded contracts worth more than USD eight billion this year.
All this changed on September 20, when the US imposed CAATSA sanctions on a Chinese entity, the Equipment Development Department (EDD) of China’s Central Military Commission (CMC), and on its Director. The sanctions were in response to China’s purchase of Su-35 aircraft and the S-400 system. CAATSA had not specified any specific sanctions, only that five or more sanctions from a list of 12 had to be imposed on the person whom “the President determines, knowingly engaged in a significant transaction” with a person who is a part of Russia’s defence sector, in this case Rosoboronexport.
What conclusions can be drawn from this episode in the event India decides to buy the S-400 from Russia? The conclusions are stark. 11 of the 12 prescribed sanctions will have little or no effect on India’s current dealings with Rosoboronexport, and hence on India-Russia defence relations. However, the twelfth sanction has the potential to completely derail the India-US Defence and Strategic Partnership unless the sanction were to be waived. This needs some elaboration and explanation.
CAATSA
CAATSA is a specifically enacted legislation. Its “ultimate goal”, in the words of a senior State Department official, “is to prevent revenue from flowing to the Russian Government.” Towards that aim, the sanctions were meant to deter “significant transactions,” a term that the legislation had left undefined. However, in announcing the sanctions on EDD, the US Government classified the purchase of the S-400 system as a “significant transaction.”
Therefore, India’s purchase of the S-400 system from Russia would also be regarded as a significant transaction and invite mandatory sanctions.
Indian analysts, and reportedly the Indian Government as well, had hoped for a waiver from such an application of sanctions. While it is true that CAATSA had provided for the waiver of the ‘initial application’1 of the sanctions, it would have been difficult for any President to issue a certification, to be submitted to the US Congress for such a waiver, that “the Government of the Russian Federation has made significant efforts to reduce the number and intensity of cyber intrusions conducted by that Government.”
Therefore, there would be no waiver of the initial application of the sanctions as desired by India.
The sanctions, as stated, are to be imposed on the person “who knowingly engaged in a significant transaction.” In the case of China, it was the EDD which is responsible for managing procurements of the Chinese military.
Who in India would be determined as the person who “knowingly entered into the transaction” for the S-400?
It could either be (i) The Defence Acquisition Council (DAC) headed by the Defence Minister, or (ii) The Defence Procurement Board (DPB) headed by the Defence Secretary. The choice of person to be sanctioned would be made by the US President or the Secretary of State or the Secretary of Treasury who have been delegated these powers.
What sanctions will be imposed?
Section 231 of CAATSA does not specifically identify any particular sanction. It merely requires the President to “impose five or more of the sanctions described in section 235 (of CAATSA)”. That section lists 12 types of sanctions. Of these, 10 will have very little, or no, impact on India’s current relations with either Russia or the US. Some of these are:
None of these is of any material consequence. There are only two sanctions that may impact either India-Russia relations or India-US relations.
The first of these, which is likely to have an impact on India-Russia relations, is the “Prohibition of Banking transactions” [Sec. 235(a)(8) of CAATSA]. Under this, the Secretary of the Treasury would prohibit the opening, and prohibit or impose strict conditions on maintaining, in the United States of correspondent accounts or payable-through accounts of Financial Institutions engaged in transfer of funds from the sanctioned person to the Russian defence sector. This would mean difficulties for India in making payments in US Dollars to Rosoboronexport for the purchase of the S-400 systems.
The second sanction will have far greater consequences, not for India-Russia relations, but for India-US relations. And that is the “Export sanction” [Sec. 235(a)(2)], which has the potential to completely derail the India-US Strategic and Defence partnership, as it will deny the license for, and export of, any items controlled by the US to the sanctioned person under
Since neither the Defence Acquisition Council nor the Defence Procurement Board would apply for any license controlled by either the EAA or AEA, the denial of such licenses will have no impact. However, the denial of licenses under the other two heads will stop all commercial or FMS sales of major military equipment and systems to India. Therefore, if either the DAC or DPB, and it is a big if, were to be sanctioned under Sec. 235(a)(2), it will effectively bar India from buying any major defence equipment from the US. That will effectively put a stop to any Defence and Strategic Partnership between India and the US. The MDP (Major Defence Partner) designation would lose its relevance in that context.
This will not, however, bar India from obtaining spares and replacements for the items already in the Indian inventory.
It may therefore become necessary for the US to either not include these two types of sanctions on the DAC/DPB or give India a waiver from these sanctions.
However, even if the President were to exercise the waiver authority, it would not in any manner whatsoever relieve any of India’s problems on payments to Rosoboronexport. That is because Rosoboronexport faces exactly identical multiple sanctions under various other legislative Acts and Executive Orders. These are:
Therefore, even if the President were to exercise the waiver authority granted by the National Defense Authorisation Act (NDAA) 2019 and CAATSA, the problems faced by India in transferring payments to Rosoboronexport will still persist under E.O. 13582.
However, including the “Export sanction” in the menu of sanctions imposed on the DAC/DPB will compulsorily require a waiver of the CAATSA sanction if the India-US strategic partnership is to survive.
We thus have a paradoxical situation. For 11 of the 12 sanctions mentioned in Sec. 235 (a), it makes no difference whether or not a waiver is issued. For the twelfth (namely Export Sanctions), a waiver is absolutely essential to maintain the momentum of India-US relations.
CAATSA has provided the President two mechanisms through which a waiver can be issued. Sec. 236(b) of CAATSA (“Waiver of Sanctions that are Imposed”) or Sec. 231(d) (“Modified Waiver Authority for Certain Sanctionable Transactions under Section 231 of CAATSA”). It is not clear why the US Congress chose to add Sec. 231(d) to CAATSA (through the National Defence Authorisation Act 2019), since waiver through that section has the potential to cause some heartache in India as it requires the President to certify that the government (of India) with primary jurisdiction over the person (in this case the DAC/DPB) —
‘‘(i) is taking or will take steps to reduce its inventory of major defense equipment and advanced conventional weapons produced by the defense sector of the Russian Federation as a share of its total inventory of major defense equipment and advanced conventional weapons over a specified period; or
‘‘(ii) is cooperating with the United States Government on other security matters that are critical to United States strategic interests.”
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
China may or may not succeed in transforming Africa into a substitute market. If it does, the bilateral trade relationship is likely to become more unbalanced and tilted in its own favour leading to greater exploitation of Africa.
China recently organized the Forum on China-Africa Cooperation (FOCAC) summit in Beijing from 3-4 September 2018. The main objective of the summit was to intensify China’s economic relationship with Africa. This summit was held at a time when China is facing a trade war with the United States. Donald Trump has made his intention clear that he wants to rejuvenate the American economy. He thinks that one way of doing it is by imposing tariffs on Chinese goods which are able to come into America by “manipulation of currency” and are hurting American economy. Trump has also adopted similar measures towards his European and NAFTA partners. He has been quite successful in reviving the American economy but his restrictive policies have also increased concerns of his trading partners including China.
As the US remains China’s largest trading partner, any restrictive trade policy the former adopts is going to adversely affect the Chinese economy. China, which has the ambition of becoming the largest economy of the world at the earliest possible time, has to find a way to meet this new challenge. It appears that it is looking towards Africa as a possible alternative market.
China-Africa trade has grown from a mere USD 765 million in 1978 to 220 billion in 2014. However, it reduced thereafter, reaching USD 170 billion in 2017. Bilateral trade has now once again started picking up and in the first five months of 2018 it gained 17.7 per cent year on year to nearly USD 82 billion.
Nearly 30,000 Chinese companies are active in Africa out of which 300 are major corporations. Chinese companies are involved in a big way in infrastructure building in the continent, which suffers from a major deficit in this sector. China wants to capitalize on this opportunity. It appears that at present only China has either the appetite or capacity to carry out infrastructure building in the continent on a large scale.
Xi Jinping has called this a win-win partnership wherein Chinese companies get lucrative contracts and Africa gets the required infrastructure. There are, however, concerns about this growing Chinese engagement with Africa. Critics suggest that China is thereby engaging in ‘debt-trap diplomacy.’ It is also encouraging corruption and degrading the environment in the continent. But China refutes this allegation and says that this is a US attempt to constrain China by vilifying it.
The Chinese argue that their investments come with ‘no political strings attached.’ But this is also the reason why China is able to sell all kinds of projects at exorbitant prices to Africa. The costs of Chinese projects are under the scanner. It is believed that the Chinese are charging three times the cost of what a project actually costs. Moreover, while the Chinese may not be attaching political strings, they do attach economic strings.
To refute the allegation that it is following debt trap policy, China says that it is not a major creditor to Africa. The continent’s total debt burden is about USD 6 trillion. Most of this is owed to organizations such as the World Bank, the IMF and the Paris Club dominated by Western nations. Chinese loans are a small portion of the total loans disbursed throughout Africa. But it is also true that Chinese loans have been increasing in recent times. China plans to invest nearly a trillion dollars in the next twelve years in Africa.
To be sure, the way China Africa cooperation has played out has raised concerns about debt, corruption and environmental degradation. The problem of debt is acute in Zambia, Djibouti and the Democratic Republic of Congo (DRC). Often this debt situation is ambiguous and countries like DRC don’t even know how much money they owe to China. The president of DRC actually visited China just to know the amount of debt his country has to repay. Yet, a strong defence of Chinese economic engagement in Africa came from some top African leaders during the recent FOCAC summit.
Africa has a vast untapped economic potential which China wants to capitalize on. However, it will not be easy for China to grow its business and trade in Africa given the widespread political instability prevalent in some parts of the continent. At the same time, some African economies are doing very well and growing at the rate of six to seven per cent per annum. China is now trying to give more attention to the better managed economies like South Africa, Nigeria and East Africa.
China is quite concerned about its trade prospects with the United States given the economic policies of Trump. In August 2018, Wei Jianguo, former vice minister of commerce of China and current vice president of the China Center for International Economic Exchange, disclosed that in the next five years, China plans to increase the value of its exports to Africa to USD 500 billion annually, and thus use Africa to replace the United States as China’s largest export market. Similar intentions were also expressed by some Chinese officials during the latest FOCAC summit. In this way, China hopes to nullify the impact of Trump’s economic measures.
China may or may not succeed in transforming Africa into a substitute market. If it does, the bilateral trade relationship is likely to become more unbalanced and tilted in its own favour leading to greater exploitation of Africa. What is interesting is Africa has been persuaded to move down this path.
Dr. Anand Kumar is visiting professor and chair (India Studies) in the Department of Political Science and Public Administration in the University of Dar-es-Salaam, Tanzania
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
India, on its way to become a global power, will likely have to follow a zigzag course, balancing between American demands, long-term friendship with Russia and its own strategic necessities in the neighbourhood and beyond.
The 2+2 dialogue is a relatively new phenomenon which provides states with an opportunity to combine the discussion on security matters with general issues of international and bilateral affairs. Such a format helps widen the agenda and yield more fruitful results. The ‘recent 2+2 talks involving James Mattis, Mike Pompeo, Nirmala Sitharaman and Sushma Swaraj is the most high profile official meeting in 2018 as Donald Trump and Narendra Modi have not had summits since the previous year.
The addition of the two plus two format turned out to be an uneasy arithmetic task for India and the U.S. as the meeting was postponed two times and was eventually held amidst some trade tensions. However, the outcomes of this inaugural high-level dialogue show that the officials of the two countries succeeded in ironing out differences and achieving the expected outcomes. Although the immediate results of the negotiations do not reveal the full picture of the future dynamics in India-U.S. cooperation, the joint statement on the ministerial dialogue provides enough evidence for making several assumptions.
For one, the centrepiece of the talks – the defence partnership – has proven to be successful. The signing of the long-awaited Communications Compatibility and Security Agreement (COMCASA) will elevate the bilateral defence partnership and give India access to advanced U.S. defence systems. The new declarations of commitments with regard to the Indo-Pacific vividly demonstrate that China is still regarded as a regional disruptor. China’s activity in the Indian Ocean provokes closer cooperation between India and America in the maritime domain. New Delhi and Washington reiterated their shared principles for the region and agreed to start exchanges between U.S. Naval Forces Central Command (NAVCENT) and the Indian Navy in order to deepen maritime cooperation in the western Indian Ocean.1 So, it is obviously in the interests of both countries to ensure a good level of interoperability between the military forces. The decision to conduct tri-services exercises should definitely serve this purpose.
Another successful deliverable for India is Washington’s solidarity on the issue of terrorism expressed during the talks. The two sides “called on Pakistan to ensure that the territory under its control is not used to launch terrorist attacks on other countries and ... bring to justice expeditiously the perpetrators of the Mumbai, Pathankot, Uri, and other cross-border terrorist attacks.”2 However, the changing contours of the Afghan crisis will probably make the U.S. reconsider its cooperation with Pakistan as well as the whole strategy towards South Asia declared by Donald Trump last year.
These days, it is also important to take into account the Russian factor in the evolving relationship between New Delhi and Washington. Moscow has always been an invisible part of the India-U.S. dialogue, their defence cooperation, in particular. But for the last year the Russia factor has increased considerably due to the CAATSA legislation and its direct influence on all Russia-India military deals. Whether India is to be granted a special waiver or not remains an open question. This issue neither figured in the joint statement after the 2+2 dialogue nor was commented in-depth by the U.S. or Indian officials. The short remarks by Defence Secretary Mattis and Secretary of State Pompeo indicate that there is an ‘understanding’ of Indian concerns in Washington while the sanctions are not intended ‘to adversely impact India.’3
The good news for Moscow is that India, which follows an independent foreign policy, is likely to retain its defence ties with Russia. Furthermore, according to media reports, New Delhi will probably continue negotiations with Russia on the S-400 deal.4 But, at the same time, Indian acquisitions of Russian origin military equipment are bound to shrink in size in the light of transaction difficulties and reorientation towards other suppliers. Even in the case of a green light from the American side, the smooth operational process of the Triumf systems purchase is not at all guaranteed. The payments on defence contracts have already become problematic as Indian banks are refusing to make remittances to Moscow for fear of potential penalties, forcing Russia and India to find alternate ways and accelerate their discussions on implementing rouble-rupee transfers.5 However, the problem is yet to be solved as Russian companies have not received the payments from their Indian counterparts since April.6
Some Russian media observers are sceptical with regard to India’s capability to maintain a balance between the U.S., China and Russia. According to them, India partnering with ‘confronting states’ would be possible only in an ideal world.7Opinions like this appear to be short-sighted, considering that, on several issues, the ‘confronting states’ are working productively together. An important thing to understand is that the view from Russia often comes through the prism of the U.S. Today the level of hostility in U.S.-Russia relations is so high that it, unfortunately, affects all the layers of the two societies, even ordinary people and their perception of the world affairs.
With the Moscow-Washington relationship in a downward spiral, Indian diplomacy will require a masterful approach in its interactions with the two. A closer engagement with the U.S. is a challenge for India, as this relationship is not likely to be a partnership of equals, for the foreseeable future. Washington is dominating the agenda of bilateral cooperation and even imposing pressure on New Delhi’s policies. The demands to cut off oil imports from Iran and halt the purchase of Russian military equipment are cases in point. On the other hand, the intensifying cooperation between Russia and China and the growing Moscow-Islamabad ties lead New Delhi to search for new sources of reliability.
India, on its way to become a global power, will likely have to follow a zigzag course, balancing between American demands, long-term friendship with Russia and its own strategic necessities in the neighbourhood and beyond. It will sign defence pacts and conduct military drills with both the U.S. and Russia (and other countries as well) in an attempt to seize maximum opportunities from its relations with global powers. Otherwise, putting all eggs in one basket might create overdependence on one partner and ultimately not serve Indian interests well.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
An evaluation of the non-negotiable elements of the CISMOA Boilerplate agreement does not show any element that will have any unavoidable security risks for India.
Sufficient time has passed since the first India-US 2+2 meeting was held to make an objective assessment of the outcome. Before the meeting there was much speculation about the issues that will be discussed and the likely results. These issues ranged from India signing the Communications Compatibility and Security Agreement (COMCASA); the Indian purchase of the S-400 from Russia, the sanctions this action may attract under CAATSA, and whether the U.S. President will grant India a waiver; and whether India will get a waiver from another set of US sanctions if it does not reduce oil imports from Iran to Zero by November 4.
While COMCASA was signed during the meeting, there was no positive or definite commitment from the U.S. on any of the other issues. That was to be expected as, even before arriving in Delhi, Secretary of State Pompeo had, in answer to a question on these issues, said:
“They’re part of the conversation. They’re part of the relationship. They will certainly come up, but I don’t think they’ll be the primary focus of what it is we’re trying to accomplish here. There’s half a dozen things on the agenda that we’re really intent on making progress on. Those decisions are important, they’re important to the relationship for sure, but I don’t see us resolving those or having even – have intention to resolve those during this set of meetings of the Strategic Dialogue.”
There was also no movement on these other issues because no solution can be found for them yet because of the simple fact that no sanctions are currently in place because of either CAATSA or the Iran November 4 sanctions and, therefore, there can be no waivers now and one cannot expect the U.S. to give a blanket all time/all-purpose waiver to India at this point in time.
There were, of course, some symbolic gestures towards India in the joint statement issued at the end of the meeting, such as “full support for India’s immediate accession to the Nuclear Suppliers Group”, the call for “Pakistan to ensure that the territory under its control is not used to launch terrorist attacks on other countries”, and the call to “bring to justice expeditiously the perpetrators of the Mumbai, Pathankot, Uri, and other cross-border terrorist attacks.”
So, apart from whatever exchanges were made at the closed door meeting, the only public outcome that is significant and known is the COMCASA agreement, which has been a long standing request from the U.S.
COMCASA
At present, the most important point about COMCASA is that it is a classified document and there is no information about its content or purpose. However, from various public observations and documents, one can infer the following:
If that is indeed the case, and there are strong reasons to believe that it is so, why was it necessary to change the title of the agreement from CISMOA to COMCASA? Again, one can only conjecture the reasons in the absence of an official explanation. The only readily discernible reason seems to be the use of the term “interoperability” in CISMOA. Given the volatile domestic political scenario in India, where there is very little articulation or agreement on what the essential elements of national security are, it is very likely that any “interoperability” agreement between Indian and US defence forces would have raised a political storm. COMCASA would seem an acceptable term especially when the agreement is classified and cannot be compared to any other CISMOA document!
That brings up the question of the need for interoperability. Here, a strong case can be made for some interoperability between the Indian and U.S. defence forces. It is accepted by all studying India’s security concerns that India needs to have an as strong as possible situational awareness of/in the Indo-Pacific region, given the ever growing strength and presence of the Chinese Navy and especially its submarines in these waters. While India has some resources for such monitoring, with the induction of P-8is (which are the most potent resource for ocean monitoring and which cause great discomfort to the Chinese Navy), it is nowhere near the levels necessary and needed for the Indian Navy, and Indian security, to ensure a high degree of situational awareness in the Indo-Pacific region. The US too is interested in monitoring the Chinese Navy’s forays in international waters. It has brought to bear its immense resources to monitor such activities. This monitoring is done by various means such as satellite monitoring, P-8s, etc. It would be in the interest of both countries to share their Indo-Pacific environmental monitoring data. In addition, a number of other countries with close strategic relations with the U.S. (Australia and Singapore, for example) have P-8s and are monitoring the Indo-Pacific waters in their respective domains of interest. Unfortunately the U.S. gathers and stores such information through its COMSEC network. For India to be able to share this information it would have to field some compatible COMSEC equipment. Hence the need for a U.S. compatible and secure communication system. And hence the imperative for a CISMOA/COMCASA! There is no doubt or question that once implemented in the full spirit of the agreement, it will provide the Indian Navy, and India, with an extremely potent resource to safeguard its maritime interests and security.
There have been suggestions that CISMOA/COMCASA will enable India to access high technology. This needs to be clarified. An agreement of this sort has no technology transfer and high technology access provision. What it would enable India to do is procure high technology munitions items that have built-in COMSEC equipment such as the Sea Guardian drones.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
The value of the Caspian energy reserve lies in its potential to add to global reserves of oil and gas, which, in turn, could bring down costs.
In an interview to Business Standard,1 Fatih Birol, executive director of the International Energy Agency (IEA), said that gas producers were betting big on the Indian market. This is indeed understandable given that the government has declared its intention of moving the economy towards a gas-based one. It is in this context that an event in the Eurasian heartland acquires significance. On August 12, 2018, leaders of the five Caspian Sea littoral – Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan – met in Aktau, Kazakhstan, to sign a Convention on the Legal Status of the Caspian Sea. This signalled an end to a two-decade long dispute over the Caspian’s legal status, i.e., whether it is a sea or a lake.
According to The Economist, the Convention arrived at a compromise. It chose to treat the Caspian’s surface as a sea and gave the littorals jurisdiction over waters extending up to 15 nautical miles (nm) from their coasts as well as fishing rights over an additional 10 nm. But the Convention did not reach a settlement on the precise formula for allocating the sea bed and its mineral deposits; these are to be decided by the littoral countries on a bilateral basis. Most significantly, the Convention permits the construction of pipelines, which only require the approval of the countries whose sea beds they transit, subject to environmental provisions, and forbids non-littorals from deploying military vessels in the waters of the Caspian.2 Thus, while the Convention has certainly succeeded in easing some of the contentious issues, other major concerns have been left to be addressed by the countries concerned on a bilateral basis, the most important in this regard being the division of the seabed.3
The Caspian Sea has been an area of contention and debate for nations bordering it since the break-up of the Soviet Union. While all these countries are richly endowed with natural resources, the sea bed of the Caspian contains rich reserves of hydrocarbon resources. According to the US Energy Information Administration (EIA), the region is estimated to contain 49 billion barrels of oil and 292 trillion cubic feet (8.3 million cubic metres) of natural gas in its sea-bed.4
Historically, the Caspian Sea was controlled by Iran, but it lost the northern part to the Soviet Union in the early 19th century.5 After the disintegration of the Soviet Union, the newly independent former Soviet republics in the region also demanded a share of the resources. Iran has been opposing a settlement based on the median line approach, since that would leave it with only about 11 per cent of the waters, the smallest share. Moreover, its portion of the Caspian Sea contains less hydrocarbon reserves than those of Kazakhstan and Turkmenistan. Hence, Tehran wanted the Caspian to be divided into five equal parts of 20 per cent each, or alternately, evolve a mechanism to jointly develop the resources, partly because the reserves in the southern Caspian are situated very deep and hence difficult to access,6 and partly to circumvent the legal obstructions imposed by the recent US sanctions regime.
As the region’s dominant player, Russia too saw the division of resources as a source of increasing competition for its gas exports to Europe. It has therefore used environmental issues to block underwater pipelines from being constructed, such as the Trans-Caspian Gas Pipeline from Turkmenistan to Azerbaijan and thence to Europe.
Another major concern for Russia and Iran was that if the Caspian were to be considered a sea, it would become governed by international maritime law, especially the United Nations Convention on the Law of the Sea (UNCLOS). That, in turn, would give outside powers access to these waters, which the littoral states want to share only amongst themselves. These concerns proved to be a major roadblock, leaving most of the disputed oil and gas fields undeveloped over the past two decades. But the imposition of US sanctions, coupled with the common concern of preventing external powers, namely, the US and NATO, from expanding their influence in the region, have prompted Iran and Russia to arrive at a common position on how to classify the water body.
Although the agreement has brought an interim solution to the discussions on dividing the resources, major differences on the division of the seabed, as well as conflicting strategic interests such as delineation of the sea bed, division of hydrocarbons in the sub-soil, and construction of trans-border oil and gas pipelines remain. If these issues had been included in the negotiations, it is unlikely that even the current interim agreement would have been reached.
Does the interim agreement on the Caspian have any relevance for India? While the possibility of transporting gas from the Caspian to the subcontinent has technically increased, the cost and technical viability of building a pipeline continue to be a consideration. Any pipeline would have to traverse a distance of at least 1500 km, although existing pipeline networks in Iran could be used to offset some of the cost. While it remains an option for the future, much will depend on the cost of the landed price of gas (Caspian oil is an unlikely import). Eventually, the value of the Caspian energy reserve lies in its potential to add to global reserves of oil and gas, as was the case with US shale resources, which, in turn, could bring down costs.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
While broad agreement at the top leadership level has been easy to achieve, negotiations relating to defence equipment and technology cooperation have proved to be difficult, shaped as these are by a complex interplay of variables like cost-competitiveness, technology transfer and domestic politics.
Defence Minister Nirmala Sitharaman invited Japan to participate in the two defence industrial production corridors1 in Tamil Nadu and Uttar Pradesh during the Annual Defence Ministerial Dialogue held in August 2018. These corridors are aimed at boosting the defence ecosystem and reinforcing Prime Minister Narendra Modi’s signature Make in India initiative. The Make in India campaign intersects with the unfolding reorientation in Japan’s post-war security posture and its easing of the arms export policy exemplified by Prime Minister Shinzo Abe’s outlining of the Three Principles on Transfer of Defence Equipment and Technology2 in April 2014. Since then, India and Japan have engaged in complex deliberations on the prospects of sourcing Japanese defence technology, joint development and production of defence equipment.
Within the framework of India-Japan Vision 2025, the political leadership has designed an “action-oriented partnership”, which, among other things, urged defence technology cooperation including co-development and co-production. India’s objective is to benefit from Japan’s technological prowess in its pursuit of defence modernisation and diversifying its sources of acquisition. And Japan’s goal is to revive its waning defence industry as it comes out of the decades-old export ban by participating in international joint development and production projects. It is crucial for Japan to participate in international joint development projects, which is key to sustaining its own defence production and technology base as outlined in the June 2014 Strategy on Defence Production and Technological Bases. In this regard, the Strategy refers to fostering cooperation with India as well as with the US, European countries including UK and France, Australia and Southeast Asian nations.3
Accordingly, defence and security cooperation has been identified as the foremost out of five priority areas for conceiving “new signature projects”.4 Japan has been acknowledged as a “privileged partner”5 in the Make in India drive and the leadership of the two countries has professed defence technology cooperation as having the potential to “emerge as a key pillar of bilateral defence relations”.6 The Agreement Concerning Transfer of Defence Equipment and Technology Cooperation and the Agreement Concerning Security Measures for the Protection of Classified Military Information were signed in December 2015, redefining the latitude for defence cooperation and paving the way for joint research, development and/or production projects.
Defence and security cooperation constitutes a core component of the India-Japan Special Strategic Partnership. Since the 2008 Joint Declaration on Security Cooperation, bilateral cooperation has revolved around high level defence exchanges and the expanding scope and complexity of joint exercises including anti-submarine warfare, mine counter-measures, counter-terrorism, and so on. While robust maritime cooperation constitutes the mainstay of India-Japan security cooperation in bilateral, trilateral and multilateral frameworks, trade in defence equipment and technology by way of joint research, co-development and co-production is a relatively new area. With the aim of supporting equipment collaboration with defence and dual-use technologies between the governments and defence industries as well as between businesses, the India-Japan Defence Industry Forum was instituted in 2017,7 drawing upon the efforts of Japan’s Acquisition, Technology and Logistical Agency (ATLA) and India’s Department of Defence Production (DDP). Demonstrating bilateral commitment, India and Japan unveiled a new chapter in defence cooperation with their maiden project -- Cooperative Research in the Area of Unmanned Ground Vehicle (UGV)/Robotics -- agreed to by the two defence ministries in July 2018. Following the bilateral agreement on defence equipment and technology, technical discussion involving ATLA and the Defence Research and Development Organisation (DRDO) intensified and culminated in the first cooperative research project on the Visual Simultaneous Localization and Mapping (SLAM) Based Global Navigation Satellite System (GNSS) Augmentation Technology for UGV/robotics.8
In the run up to the Defence Ministerial Dialogue held earlier this month, the fourth Joint Working Group on Defence Equipment and Technology Cooperation (JWG-DETC) was hosted in July with the goal of identifying particular items and areas for cooperation in joint development and production. The JWG-DETC was instituted in February 2015, following the landmark shift in Japan’s arms export policy referred to earlier.9 Prime Minister Modi has encouraged Japan to participate in Project 75(I) which seeks to collaboratively build six diesel-electric submarines with air-independent propulsion (AIP) capability for the Indian Navy. The Navy issued a request-for-information (RFI) in July 2017 to Mitsubishi Heavy Industries and Kawasaki Heavy Industries, manufacturers of the ultra-quiet Soryu class submarine, as well as to other foreign manufacturers including ThyssenKrupp Marine Systems, Naval Group, Navantia, Saab and Rubin Design Bureau-Amur Shipyard. However, these two Japanese companies have refrained from responding to the RFI perhaps because of Japan’s experience with the long and difficult negotiations concerning the state-of-the-art Utility Seaplane Mark 2 (US-2) amphibian aircraft, manufactured by ShinMaywa Industries.
Thus, while broad agreement at the political leadership level has been easier to achieve, negotiations relating to defence equipment and technology cooperation have proved to be rather difficult, shaped as these are by a complex interplay of critical variables like cost-competitiveness, technology transfer and domestic politics. India’s quest of defence modernisation and diversifying its acquisition sources present opportunities for Japanese defence industry, which, prior to 2014, focused solely on the domestic market given the value of tsutsushimu,10 entailing restrictions on arms transfers which barred Japan from entering the international defence market and participating in joint development and production of arms. But navigating India’s opaque defence procurement11 and offset policies is a colossal challenge for Japan, which is relatively new to the fiercely competitive international defence market. Further, in cost-sensitive markets like India, policymakers are guided by variables such as cost-competitiveness, technology transfer, setting up of a manufacturing base in the country, and job creation. But these determinants are not unique to India. Japan’s attempt to sell its 4,000-ton Soryu-class diesel-electric attack stealth submarine to Australia, despite Abe’s determined diplomatic campaign, also failed because of some of these variables in addition to Canberra’s technical and military priorities. Even after Tony Abbott’s departure and his successor’s decision to open up the deal for bidding, Japan refused to compete because of its hesitation to share technology12 and aversion to build the submarines in Adelaide.13
India is indeed interested in sourcing the US-2 amphibian aircraft, which would be useful for patrolling the Andaman and Nicobar Islands and for conducting search and rescue operations in the Indian Ocean. But concluding the first defence equipment cooperation with Japan under the Make in India initiative through government to government route has proved difficult due to the complexities of pricing, offset clause and technology transfer. Thus, despite the MoU signed between Mahindra Defence and Shinmaywa Industries in April 2018, the press statement issued after the latest meeting between Defence Minister Sitharaman and her Japanese counterpart Itsunori Onodera refrained from updating the status of the imminent deal.
Meanwhile, the business lobbies in both countries have argued in favour of fostering high-technology cooperation. SIPRI data reflects that India has emerged as the largest importer of major arms between 2012 and 2016, accounting for 13 per cent of the global total. The India-Japan Business Leaders Forum has frequently underscored the need for robust engagement in “high-technology areas in the defence and security sectors”.14 And, the Japan Business Federation or Keidanren has prioritised India, besides the US, Europe and Southeast Asia, while enunciating the importance of promoting equipment and technology cooperation with foreign countries.15 Japanese defence enterprises visited India in August 2018 following up on the maiden India-Japan Defence Industry Forum hosted in Tokyo last September to pursue cooperation in high-technology items.
Japan has projected success stories for Make in India in other sectors with the Suzuki-Toshiba-Denso joint venture for automotive lithium-ion battery packs aimed at the domestic and global markets and Made-in-India Suzuki Baleno export to the international market. But in the defence sector foreign companies will have to be incentivised to set up defence manufacturing bases in India. India is doing business with the US, Russia, Israel and others for a while but Japan is a relatively new partner. Both sides need to invest more energy in developing a robust understanding about each other’s defence sector, and grasp the cultural differences and explore prospects for future cooperation. Cultural sensitivities are important while dealing with Japan. For Japan, defence equipment and technology cooperation is more than just arms trade. It is a very important component in Prime Minister Abe’s larger security conceptualization of Japan’s Proactive Contribution to Peace.
It is also important to note that a revised arms export policy in itself is not sufficient to promote defence cooperation. Despite a robust civilian manufacturing base and being a repository of dual-use technology, cost-competitiveness and relative inexperience in global arms market are a fundamental challenge confronting the Japanese defence industry. The issue of cost-competitiveness can be traced back to the structural constrains imposed on the Japanese defence industry owing to the prohibition of arms exports, making it very different from its US and European counterparts.16 To remain competitive, US and European companies have restructured with mergers and acquisitions as well as joint ventures aimed at achieving improved efficiency. In contrast, for the Japanese defence industry, the Self-Defence Forces were the sole consumer for decades. And since the quantum of the defence ministry’s procurement level is small, the cost of producing the equipment becomes high and translates into low profits for the contractors. Limitations on arms export have curtailed the prospects of achieving more favourable economies of scale.
The 2015 Agreement on Defence Equipment and Technology Cooperation elevated the strategic partnership to newer heights as India and Japan began technical discussions on the prospects of equipment and technology cooperation. Japan has reportedly reduced the price from US$ 133 million to 113 per US-2 following intense negotiations. Moving ahead cost-competitiveness will be key for Japan as it targets markets like Southeast Asia and India. The focus in the immediate term is likely to be on international joint development and production, and export of small items instead of big ticket items like submarines. In this regard, India should consider Japanese surveillance radars, communications, and electronic warfare technologies, etc. While India traverses the challenges linked with indigenous production, refining the investment setting, enabling defence manufacturers to absorb technology transfer through offsets, Japan faces the litmus test of making its defence industry competitive and globalised.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
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