India’s Defense Budget Shows Cautious Increase

 - February 4, 2020, 12:04 PM
Due to changes in CEMILAC’s approval process, large companies such as HAL (whose product portfolio includes the ALH helicopter) may now find themselves competing with small entities for defense business. (photo: Neelam Mathews)

India’s 2020 defense budget, which represents 1.58 percent of the GDP, has been crafted to keep the limitations of the slowdown in the economy under consideration. The increase of 6.2 percent over the previous year takes into account committed liabilities and outflows. This could likely lead to the signing of new defense projects and upgrade contracts in the financial year starting April 1, 2020.

In her budget breakdown finance minister Nirmala Sitharaman has ensured that $4 billion will go to aircraft and aero engines for the Indian Air Force to modernize and upgrade the force, including an order for 83 HAL Light Combat Aircraft Mk 1s. Also on the wishlist is the replacement of the Avro 748 transport aircraft by Airbus C295s, to be produced in partnership with Tata.

The Indian Navy, with $700 million, could make a downpayment on the purchase of 24 Sikorsky MH-60R helicopters, a project that has been plagued by delays. The Army’s allocation of more than $600 million will help jump-start the Kamov Ka-226T light utility helicopter program. It is likely that the contract will be signed and a 15 percent downpayment made this year, AIN has learned.

According to Rahul Gangal, partner with Roland Berger consultants, “With expenses on salaries, pensions, and welfare aside, it is not surprising [that outlay is low], as the focus of the government currently is towards sectors such as infrastructure and agriculture to alleviate major economic stress.“ Gangal said that large defense programs would not be affected much because they are multi-year programs. “My hope is that expenditure helps grow the private sector and is not just oriented around the public sector defense manufacturing capability.“

Meanwhile, in its keenness to encourage the Make in India program involving Indian industry, and in particular the small- and medium-sized industries, the Center for Military Airworthiness & Certification (CEMILAC) has issued a directive that has shocked both private and government design houses, including the largest: Hindustan Aeronautics Ltd (HAL). The directive states that CEMILAC will no longer issue fresh or renewal of Design House Approval (DHA) certification.

The DHA issued by CEMILAC to a firm is the recognition of a company’s particular work center for its technical competence to take up and execute design projects for military aviation, and is often used as a criterion for shortlisting vendors by defense laboratories for their procurement processes.

“This is not in line with the Government of India policy of encouraging the Medium- and Small-Sized Enterprises to contribute to Indian and global defense markets for supplying components, sub-assemblies and systems. From now [December 14] the issuance of Design House Approvals will be stopped and all earlier issued approvals shall not be renewed further,” explained APVS Prasad, CEO, Airworthiness, CEMILAC, in the directive that AIN has seen.

An agitated certified vendor commented, “The ramifications are severe. No pre-qualification is needed anymore. All approvals from CEMILAC will be made post-bidding after the win. So anyone can bid and no [minimum] standards are required to bid. This will definitely cause delays in projects.”  A project won by a vendor without previous experience will require certification and is unlikely to receive it given lack of experience. The bidding process will then have to be duplicated, wasting time.