06 Mar 15. Indian Budget casts doubt on Rafale deal. India may not have the funds to seal the deal with Dassault Aviation to purchase $12bn Rafale fighter planes, according to an Air Force source. While India plans to boost hike defense spending by almost 8 percent, defense analysts and military officers say it falls short of expectations and isn’t enough to buy fresh weaponry. India will spend US $40.4bn on defense in the April 1 2015-March 31 2016 financial year, according to the Feb. 28 proposal to Parliament. That’s an increase of 7.74 percent over the previous year. The previous year’s budget went up 12.4 percent. Finance Minister Arun Jaitley gave no additional funds in the “Capital Account Head” of the budget proposals, which is earmarked to buy fresh weapons. The budget included the same amount as last year: $15.5bn.
“With the stagnation in capital expenditure, I believe there is very little left in the budget to cater to new contracts,” said Laxman Behera, research fellow at the Institute for Defence Studies and Analyses think tank in New Delhi.
Amit Cowshish, retired Defence Ministry finance adviser and defense analyst, said: “It is unlikely that the allocation [under Capital Account] would cater for only committed liabilities.”
Said an Air Force officer: “With no fresh money it is unlikely if we can contract the $12bn Rafale fighter deal with Dassault Aviation of France, nor buy additional aircraft in the next financial year.” The contract is to be paid in installments, with 15 percent due at the signing of the deal. At best, a $2.5bn deal finalized two years ago to purchase attack and heavy lift helicopters from Boeing could be inked as the US company has threatened to hike the price if the deal is delayed, the official added.
“The budget allocation may not be sufficient even for contracted projects as they are carry over from the 2014-15 budget on capital account,” said Rahul Bhonsle, retired Indian Army brigadier general and defense analyst.
The Bharatiya Janata Party (BJP) promised during that election to modernize defense and meet weapons requirements, said defense analyst Nitin Mehta. “The first full budget of the new government announced Feb. 28 is a let down on expectations,” he said.
“There are serious concerns over government’s commitment to fully budget India’s defense and security needs despite statements by Prime Minister Narendra Modi on modernization of the armed forces,” he said.
Said Mehta: “Sadly, the budget reflects continuation of the policies of the previous government. For structural changes there has to be greater synergy between the Ministry of Defence and Finance.” Behera said security needs to have support from both the government and lawmakers.
“However, such security needs are to be satisfied within the overall resource availability,” he said. “The defense budget 2015-16 has been subject to resource crunch arising out of slowdown in revenue mobilization and greater devolution of resources to the state government.” However, Cowshish said defense still constitutes around 13.88 percent of India’s total budget and as such is a major chunk of allocation. “Defense budget is the second largest single item of expenditure in the non-plan segment of the union budget. One has to keep these facts in view while forming an opinion on whether the allocation is in sync with the promise or not,” Cowshish said. With such a tight defense budget, it remains to be seen which of the ongoing programs will be inked. Nearly $20bn worth weapons purchase projects are in the mix, including:
• $12bn to purchase medium multirole fighter jets
• $1.2bn for six Airbus A330 tankers
• $1.1bn for 22 Boeing Apache attack helicopters
• $1bn for 197 light utility helicopters,
• $833m for 15 Boeing Chinook heavy lift helicopters,
• $600m for light howitzer guns from BAE Systems
• $200m for 98 Black Shark torpedoes from WASS
• $350m for 1,418 Israeli-made thermal imaging sights for T-72 tanks
• $250m for 262 Bar