The defence ministry is gifting away Rs 900 crore in the Sukhoi deal to the Russians.
- It wants to bypass the Defence Procurement Procedure (DPP) 2006 which makes it mandatory for 30 per cent of all defence contracts above Rs 300 crore to be given to Indian companies/suppliers.
- The ministry claims the Sukhoi deal was inked in 1997 and so the DPP is not applicable. But the Russians have got a new price which is higher than in the old contract.
- The MoD says it is not in any position to bargain since the Indian air force urgently needs combat aircraft.
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- The contract is an extension of the 1997 contract and hence the DPP 2006 does not become applicable.
- The Sukhoi deal is technically between Hindustan Aeronautics Limited (HAL), a PSU, and the Russian government. Therefore, the Indian air force (IAF) is actually "buying" the aircraft from HAL and not Russia.
- Russia can only sell fighter planes if there is a presidential decree. By "extending" the old contract, India is saving time by not going through the process of getting the decree.
- The IAF is already down to 30 combat squadrons, far below the projected requirement of 45. It desperately needs fighter aircraft to maintain a credible superiority over traditional rivals such as the Pakistan air force. Any fresh negotiations will delay procurement.
All this number-crunching is relevant: it's clear that while the MoD and HAL talk of honouring the old contract, the costs have gone up. Which is why there is one view in the MoD that "foregoing the 30 per cent makes little sense when the Russians are not making any concessions".
Why did the MoD opt to take the 30 per cent hit? Clearly, the Russians are capitalising on the fact that India needs the aircraft urgently. The IAF's desperation is thanks to the cumbersome acquisition processes that MoD bureaucrats have been following in the last decade. Despite repeated SOS calls from IAF that its fleet strength was depleting, the MoD procrastinated. The IAF was first kept on hold with the promise of the indigenous Light Combat Aircraft. But that's another five years away.
As a result the IAF's fleet strength has dipped alarmingly. This was put on record by MoS, defence, Pallam Raju, who recently admitted the IAF was down to 32 squadrons and would slip further to just 30 by this month-end. Air chief marshal S.P. Tyagi too is worried at his fleet strength shrinking to 28 squadrons by year-end—a fear he'd communicated to ex-defence minister Pranab Mukherjee.
While the IAF is understandably desperate to get back to the ideal of 45 operational squadrons, defence ministry sources say the Russians are equally under pressure to bag fresh orders for its Sukhois. "This fact could have been exploited to our advantage and we could have saved the Rs 900 crore," a defence ministry source familiar with the negotiations told Outlook. According to him, while India is the biggest buyer of the Sukhois, the Chinese air force is the other major buyer while Malaysia is still considering acquiring SU-30s from the Russians. The lack of a healthy order book, he says, could have been exploited by the Indians. "What is interesting is that the defence ministry completely ignored the DPP which could have been used to bolster the argument for the 30 per cent offsets clause," says the official.
Initially, the IAF, a principal player in the negotiations, chose to offer no comments to two detailed questionnaires sent by Outlook. Ditto the MoD. Finally, the IAF's official spokesperson, Wing Commander Mahesh Upasni, had only a few terse phrases to offer: "The details of the acquisition are still under deliberation." He said while air HQ has some "information", it has not "obtained" the "overall picture".
Defence minister A.K. Antony has a reputation of playing by the rule-book. But in the Sukhoi deal he seems to have lowered the guard at the cost of compromising on a procurement policy that is only eight months old. Some in the MoD would want him to strike a hard bargain. But is it already too late?
