Third Millennium: Beyond Virus

Covid-19 – the venomous Boa Constrictor, unleashed by one nation on entire mankind – unique occurrence, unprecedented in history has squeezed the soul out of human life; but has it stunted the human potential to qualitatively grow? The pernicious virus created in a laboratory perpetrated by evil minds posits the ‘dark face’ of the human race capable of unleashing enormous destruction on the living planet. The invisible strand of protein that binds with the human cell has infected the entire race killing millions and leaving many more sick. 

Is the world going to hell in a hand basket – locked for a year with millions dead many sick and others semi-dead? Humans deigned vipers waiting to sting with mutated venom – social distancing stigmatising trust between friends and family, hence family missing family time. Children denied the space to communicate in the playground – an essential platform to read one another – social skills as they move up in the value chain has hurt the society at large. The cracks caused by the disruption have left millions of uneducated educated lined up to challenge their destiny in the new busted social order dominated with egregious selfishness and scant sensitivity for the rest.

Is the new normal redefining the norms making life less liveable – further polarising the world based on a new class emerging out from a section of shamed early retiree workforce? Has humanity been devastated by a mutating virus created to wreak havoc or has the pandemic resulted in a new normal centred on the unexpected resulting in the ‘Power of You’ and less aversion to failures; hope replacing the idea of giving-up; minimalism making life more organic, and most importantly greater acceptance of today – a realisation that life is a mystery and thus more exciting and liveable?

I reckon that the strength of human resilience will shine on the dark side of the moon, and transform justified cynicism carved from the demonic present into hope for a better life in the future.

A century on the edge – the precipice of gloom inaugurated with the Y2K bug; quickly followed by a horrific terror attack on the soul of America and meltdown of dreams sold in a hurry resulting in the worst ever financial crisis. The two long decades of counter war on terror led to a million deaths with higher societal damage of immeasurable costs[1].

Through the decade of misery, humanity continued to live in ‘hope’ that the mystery of misery would soon be resolved. The world kept buggering on in the second decade until a different kind of bug was unleashed this time – not through a computer but thriving on the basic fabric of life – the core of humanity. 

Tempus Fugit – the trauma of 9/11 and the unimaginable suffering inflicted upon the common man post the 2008 recession caused by the deflation of the housing bubble leading to a financial crisis – and today, the misery caused by the invisible protein strand at the start of this decade too will pass, and all will be fine!. In Dec 2008, it was the Bazooka – capital injection by the US Treasury into the nine American financial institutions to infuse liquidity. Thirteen years hence, in 2021, the injection, a virus inserted into the human race to fight against an unfamiliar protein strand.

Wars and pandemics, both impact inflation – while wars spur inflationary trends through an increase in aggregate demand; pandemics dampen inflation for a period, but both events push the economy in a state of flux. The global economy is transiting through a phase of low growth and a high rate of unemployment, and trends suggest that growth in the coming decade could be stunted compared to the pre-pandemic decade – the slowest period of growth since the end of the ‘War’[2].

In the next phase, most governments will wean away from the stimulus and drive growth by minimising expenditure provided the pandemic dissipates into an endemic. It has been observed that pandemics leave behind deep scars adversely impacting the lives of many; more belonging to the lowest bracket who will also suffer the weight of being at the bottom of the pyramid. This time around recovery from the shock could take years with greater stress on unemployment and the government’s inability to stimulate demand in the economy[3].

The pandemic has forever altered the lifestyle of a large section of society, and will further impact the way of life and choices people will make in the coming years. The hysteresis effect will take control and drive the rate of unemployment. Altered habits due to stress and anxiety will shift consumer behaviour – a decrease in aggregate demand and trauma of early retirement will also transform spending habits in the post-pandemic era. Consumerism will be pushed aside for some time in favour of frugality, and the demand will be driven more by needs and less by wants in the years ahead[4].

Covid-19 has also exposed severe fault lines in the way education was being imparted to more than 300 million primary and secondary school students in India, crowding educated uneducated and inadequately skilled workforce into pipe dreams, when in reality, such a world had seized to exist.

The present education system lies squeezed out of new ideas and students overburdened with frivolous learning, leaving them with little or no time to ponder outside the outlined framework – thus stymieing the bud; never to blossom into a flower. Both, stress due to a result oriented curriculum causing anxiety in one stratum, and under-utilisation of available tools to educate the other section are killing the child inside a child thereby creating a generation of uncreative and passive minds. The online tools tested during the pandemic will help bridge this gap, find ways to empower the traditional model, and bring greater equity into the present education system.    

A visible divide between urban and rural; the haves and the have-nots; is becoming more prominent than ever before. In India, more than 10 million people were ejected out of the workforce – half of them walked back home hundreds of miles away after the announcement of a total lockdown in 2020[5]. The letter ‘K’ often used to indicate a type of economic recovery is becoming a metaphor for a divided society where the rich are getting richer, poor poorer, the entitled educated, and the less entitled further deprived, health available for those who can buy and others left to bet against the odds. A new life form is incubating in a whole new world, but the human race will keep buggering on despite the odds. A new normal will emerge through growth in the unexpected sectors replacing the more familiar and traditional sectors.

A new world order is emerging in the geopolitical environment where revisionist states will challenge the status-quo and give birth to new fault lines in Trans–Atlantic and Indo-Pacific region. Apart from the technology and infrastructure sectors; the arms industry is emerging as the new sunrise sector – overall sales of military arms by top 100 suppliers peaked during the pandemic years. China, the alleged perpetrator of the virus too witnessed growth in the export of arms. Defence is emerging as a key driver for growth with the potential to retain employment and push technology in the new sectors.

The fundamental laws in physics apply to the essential philosophy of life – a body will remain at rest or keep moving unless acted upon by a force – metaphorically; life goes on despite odds until the ultimate force lays it to rest. Life has changed since the pandemic but like the famous Iranian adage translated into English, – this too shall pass and in the battle between the good and the evil – ‘change’, the only constant will persist and be etched in a new normal.

Vishal Nigam

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[1] Watson Institute International and Public Affairs Brown University, Human Cost of US Post- 9/11 Wars September 1, 2021 https://watson.brown.edu/costsofwar/files/cow/imce/papers/2021/Costs%20of%20War_Direct%20War%20Deaths_9.1.21.pdf

[2] Financial Times, Slower Growth and higher inflation are the hallmarks of a post-Covid world, February 14, 2022

[3] Creating Economic Recovery and Growth after Covid-19, PWC Report, https://www.pwc.com/gx/en/industries/government-public-services/six-challenges/economic-recovery-after-covid-19.html

[4] ibid

[5] Impact of Covid-19 and the Policy Response in India, Brookings, July 13, 2020 https://www.brookings.edu/blog/future-development/2020/07/13/the-impact-of-covid-19-and-the-policy-response-in-india/

Ukraine Conflict

csis-website-prod.s3.amazonaws.com/s3fs-public/publication/220218_Jones_RussiaLosingHand_Ukraine_1.pdf

Institutional Mechanism and Technology Partnership Underwrite Indo-US Relations

https://www.aviation-defence-universe.com/institutional-mechanism-and-technology-partnership-underwrite-indo-us-relations/#.YgD_WS82M_I.whatsapp

Aviation Defence Universe: Budget Analysis

https://www.aviation-defence-universe.com/ballpark-analysis-continuity-the-mantra-for-budget-fy23/

Ballpark Analysis – ‘Continuity’ the Mantra for Budget FY23

On 01 February 2022, Nirmala Sitharaman tabled her fourth budget in the Indian Parliament.  During a ninety minute crisp budget speech, she outlined the policy directive, vision statement and placed before the country the income statement for the Financial Year 2022-23 (FY23). Her effort to revive growth after a period of severe shock resulting in contraction due to the ongoing pandemic was a brave attempt in the two most difficult years for a finance minister in the new millennium.

According to the Economic Survey 2021-2022 – Gross Domestic output at constant prices (Base Year: 2011-12) are back to the pre-pandemic level following a deformed W-shaped recovery post a severe shock due to repeated COVID-19 waves, supply side disruptions and inflationary trends.

Despite the government falling short in its effort to absorb the shock on the demand side, the budget focused on the supply side intervention by increasing capital expenditure (Capex) to push infrastructure projects and hoping for a multiplier effect to revive demand.

The Minister increased spending on infrastructure with a hope to kick start private investment crowded in by public investment, and through the multiplier drive the demand side in the near medium term; notwithstanding marginal deviation from the fiscal deficit target in FY 22.

Nirmala Sitharaman announced an increase in Capex from INR 5.54 lakh crore ($74 billion)[1] in FY22 to INR 7.5 lakh crore ($103 billion) in FY23 to steer PM GatiShakti – the seven engines comprising of Road, Railways, Airports, Ports, Waterways, Mass Transport and Logistics Infrastructure – to boost the economy.

The major beneficiaries of the Capex are the Department of Telecommunication; Atomic Energy, Space, Road Transport and Highways, Housing and Urban Affairs, Home Affairs and Ministry of Defence with a budget allocation of INR 1.52 lakh ($20 billion), an increase from INR 1.39 lakh ($18 billion), revised estimates (RE) in FY22.

The budget is an income statement and not the White Paper on National Defence. In terms of defence outlay, it broadly indicates the share of defence as a percentage of total expenditure – INR 3,944,909 crore ($527 billion) for FY23.

Post budget analysis can at most underline the inadequacy in the share of rupee set aside for defence, but based on the defence outlay neither conclusion on the nation’s war fighting capability nor its intent to protect the country’s sovereignty can be drawn since funds up to INR 2000 crore ($300 million) can always be made available for accelerated sanction of capital acquisition proposals under the enhancement of financial powers.

The capital outlay is largely considered as funds for the modernisation of the armed forces required to develop across spectrum capabilities. Defence is the second largest beneficiary of Capex; however, objectively looking at the expenditure profile, the share of defence capital outlay as a percentage of total Capex has slid from 31% in FY21 to 20% in FY23.

Further discounting for transfers to other departments and heads – roughly  INR 1, 31,869 crore (17.6 billion) in FY23 is left available for modernisation including servicing committed liabilities of the previous years

• Ministry of Defence (Civil) will transfer INR 3,500 crore ($468 million) to Central Road and Infrastructure Fund under Demand Note 19
• INR 14,500 crore ($1.94 billion) will be offloaded for the cost of land and construction, expenditure towards National Cadet Corps (NCC), Ex-Servicemen Health Scheme (ECHS) etc under Demand Note 21
• Another INR 2,500 crore ($335 million) has been allocated as Emergency Authorisation for the newly created Defence Public Sector Undertakings (DPSUs) – presumably seed capital for the seven state owned corporate entities restructured from erstwhile Ordinance Factory Board (OFB)
• In addition, INR 1,300 crore ($174 million) for Joint Staff – an increase from INR 583 crore ($78 million) spent in FY21, is possibly an instalment earmarked to restructure the armed forces into five war fighting theatres.

The allocation of 8 paise in a rupee is the budgeted amount for defence and additional funds required for exigencies are always made available at short notice. The government is also looking at building a corpus of a non-lapsable fund.

The 15^th Finance Commission (2021-26) has recommended a dedicated non-lapsable fund called the Modernisation Fund for Defence and Internal Security (MFDIS) to bridge the gap between budgetary requirements and allocation of capital outlay with an estimated corpus of INR 2.4lakh crore ($32 billion) over the next five years (2021-26). On the approval of the scheme – INR 1.5 lakh crore ($20 billion) will be transferred to the Consolidated Funds of India while the balance will be generated from disinvestment of Public Sector Enterprises (PSEs) and monetisation of defence land.

The Minister’s focus in the budget was on key sectors – defence has never been the underlying sector in a budget speech. However, this time the Minister indicated her intent to drive the defence economy by encouraging the private sector and start-ups to participate in the design and development of defence systems and platforms in collaboration with the Defence Research and Development Organisation (DRDO) through a Special Purpose Vehicle (SPV) model; announced a simplified custom tariff structure for parts and sub-part of identified platforms, and an increase in the share of capital procurement for the domestic industry.

At a time when the world is devastated by Covid-19 and India too is suffering from its impact – the focus of the Finance Minister was on ‘continuity’. She backed her instincts and allocated funds for the identified sectors which in her opinion would kick-start private investments and drive demand. Almost INR 11 lakh crore ($147 billion) Capex across central, state government and private sectors, largely MSMEs –is an indication of the Minister’s intent to accept a higher fiscal deficit to drive growth and create jobs in the coming years.

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[1] $1US – INR74.70 (04 February 2022)

Institutional Mechanism and Technology Partnership Underwrite Indo-US Relations

India-US relations have turned a new leaf, and the two countries are now closer than ever before. The relationship on both sides is backed by the weight and intensity of four US Presidents and three Indian Prime Ministers coming from across party lines. 

Reasons driving the partnership between the two greatest democracies are now becoming a strategic imperative in the fast changing regional landscape. 

New alignments are compelling democracies to rethink strategies and find ways to manoeuvre them. In the past, America was considered a ‘Pariah’ both in Indian polity as well as in discussions within the strategic and military community. Decades of uncanny obsession for pushing non-alignment, India shied away from leveraging advantage from a tech-hardened grand old democracy. Today relations enjoy bipartisan support from either side of the aisle in both countries.

While Indian Prime Minister Vajpayee termed India and America as natural allies; Manmohan Singh placed at stake his political capital to legitimise the Nuclear Suppliers Group (NSG) agreement aggressively pushed on the other side by Bush to ensure full civil nuclear cooperation. Continuity and seamless transition from Bush to Obama and Trump to Biden have favourably positioned both countries to script a new chapter redefining the security architecture in the region. 

US-India strategic convergence is based on the shared vision, commitment, and new alignment to guarantee a free and vibrant Indo-Pacific in pursuit of common interest towards guaranteeing a terror free society and a stable region. The above stated goals are the centrepiece for a longstanding partnership to charter a new path with the potential to decide the future of almost half of the world population. 

American leadership in the 1980s expanded the technological edge by developing across spectrum military capabilities. Three decades, later Modi’s reforms are redefining India’s security architecture. India is developing indigenous capability and cutting edge technology for its home-grown arsenal. This century belongs to the two great democracies where a blossoming India will be an important partner steering a new course and ensuring a free and open rules based order in the Indo-Pacific. 

In 2001, the US lifted all sanctions imposed on India – post the nuclear test at Pokhran in 1998. In 2002, India opened its defence economy and in the same year India and US set up a High Technology Trade Group. In 2005 both countries signed a ten year Defence framework agreement and drafted the landmark Civil Nuclear deal ratified in 2008, setting the stage for full civil nuclear cooperation between the two countries[1]. 

Never before had the two countries enjoyed greater clarity to deepen bilateral defence cooperation. In pursuance, a mechanism was initiated in 2012 under the aegis of the Obama administration to smoothen and strengthen the partnership. US-India Defence Technology and Trade Initiative (US-India DTTI) was created to institutionalise the framework, shrink timelines and provide a robust platform for collaborative technological exchanges between the two countries. 

A decade since then India-US relations is on an upward trajectory, and both democracies are appropriately positioned to drive future technological cooperation for sustainment and modernisation of their military forces. While America is the most technologically advanced country accounting for 54% of the top 100 global arms sales[2]; India has a string of creative defence centred Micro, Small and Medium Enterprises (MSMEs), emerging defence and aerospace industry supported by eclectic academia and spirited start-up ecosystem. 

In 2016, India became America’s Major Defence Partner (MDP) which further strengthened the resolve to facilitate defence trade and technology cooperation in comparison with its closest ally. US-India Cooperation Act 2018 elevated India to Strategic Trade Authorisation Tier 1 status, providing India access to a wide range of license free dual-use technology regulated by the Department of Commerce.

The institutional framework backed by the ‘Foundational Agreements’ resulted in increased trust, rise in bilateral defence trade, and foray of successful multilateral exercises are helping both countries develop seamless capabilities to participate in operations of mutual interest. 

Hypersonic Weapon System, Sensors, Early Warning, Enhancement in Automation, Smart Countermeasures, Artificial Intelligence, Nanotechnology, Data, Cloud Computing, Genomic, Microelectronics, Synthetic Biology and Material Science will become the technological catalyst driving future Indo-US defence technology cooperation. 

The global defence industry is undergoing a transformation where the spectrum of outsourcing and inclusiveness will largely depend on both the country and its strategy for the defence industry. The underlining idea will continue to remain globalisation where the industry will enjoy the freedom to collaborate with other countries on a large chunk of a platform not sensitive in terms of national security[3].  

India is an identified destination where a model pivoted on co-development and co-production aided by a vibrant and collaborative start-up ecosystem could drive a two-way flow of technology ultimately benefitting the end-user. Smart, nimble start-ups focused on niche technology will soon play a critical role in underwriting future technology in the defence industry. 

Tomorrow’s wars are more likely to be foggy and non-linear requiring a high degree of situational awareness along with the ability to react briskly to unexpected challenges. Complex threats will prompt smart military leaders to break away from the idea of single service military operations and make a paradigm towards integrated operations across multiple domains. Unexpected attacks like the recent one at Abu Dhabi National Oil Company (ADNOC) will be the wars of the future requiring highly enhanced situational awareness and quick action by multiple domains and not merely the military leave alone a single arm in the military. 

Exploiting across spectrum technology and not boots will dominate next generation wars against adversaries residing within and out of the state. The main challenge will be to identify perpetrators willing to wage war on their state or another state by non-state actors.

Much like the Semiconductor model; niche technology for military and commercial use may not necessarily be mutually exclusive in domains like Artificial intelligence, Nanotechnology, Data, Genomic, Synthetic biology and Microelectronics. Spin-ins from fierce start-ups to provide quick fix solutions to cannibalise military systems at short notice, make available critical functionalities will be the technology drivers to counter foggy adversaries[4].

The nature of warfare is in the churn where unconventional wars are taking centre stage and nations are expected to adapt to the changing ground realities. Deterrence by early detection leading to the joint decision and quick reaction supported by diverse and filtered inputs will provide the next kill while long and hardened defensive walls will not have the teeth to prevent ADNOC or Jammu type attacks which are fast becoming the new normal. The eyes, ears and senses to counter a singular or swarm drone lethal attack can at best be countered by another drone able to fly freely for a prolonged duration, detect and avoid the adversary using radars and transponders in the existing airspace. 

The drone activity on the western front has considerably increased since the middle of 2019 – dropping arms, ammunition, fake currencies and drugs have been observed by border patrols and a few countermeasures have been put in place to stop such attacks. However, technology driven counter capabilities like geo-fencing, electronic jammers and seamless eyes and ears in the sky will be the panacea for such non-linear infiltration while brick and mortar arsenal (manned combat aircraft, artillery, tanks etc) will have limited capabilities to deter attacks from unknown adversaries. By default, technologies originating from large tech-hardened companies and smart, nimble and fierce start-ups will possess greater capabilities to counter non-linear attacks. Brick and Mortar companies supported for technology by niche start-ups will be largely responsible for developing conventional arsenal to fight straight jacket conventional wars.

India resides in a critical fault line where future wars are more likely to be fought across domains with overlapping boundaries. Seamless defence architecture between the armed forces, paramilitary and dynamic policing will secure the perimeter of the sub-continent. India is in the process of restructuring and drafting new doctrine for multi-domain operations; developing and acquiring counter capabilities for non-linear attacks and refurbishing its conventional order of battle (ORBAT). Deliverable technology hardened platforms will provide security solutions against multiple threats across multiple domains.

Defence trade has been the green shoot and the major pillar in the Indo-US bilateral expanding strategic partnership since the dawn of the new millennium. America accounts for more than 40% of the top 100 global arms contractors[5]. Transactions between India and US through Foreign Military Sales (FMS) and Direct Commercial Sales (DCS) have increased from negligible to now over $22 billion and are expected to touch $25 billion by the first quarter of this century. Inking key Foundational Agreements like Logistics Exchange Memorandum of Agreement (LEMOA), Communication, Compatibility and Security Agreement (COMCASA), Basic Exchange and Cooperation Agreement (BECA) and Industrial Security Agreement (ISA) have provided momentum to the expanding defence trade, and both countries are better equipped to complement the other in operations to guarantee rules based order from the Gulf of Aden into the Indo-Pacific[6].

In the last decade and a half formidable deals involving dominant platforms have been scripted with American defence contractors. India has acquired niche platforms like Chinook helicopters; MH-60 Seahawk helicopters; C-17 heavy lift strategic transport aircraft; C-130 tactical transport aircraft; P8(India) anti-submarine warfare aircraft; Harpoon missiles; Torpedoes; M-777 guns and assault rifles. Major deals worth another US $5-8 billion are in the pipeline. The bilateral arms trade has been the fountainhead driving India-US relations. While diverse terrain across the sub-continent makes India a good testing ground for American platforms; the growing manufacturing and start-up ecosystem pushes India as the preferred outsourcing destination for the US defence industry.  

US-India Civil Nuclear agreement ratified in 2008 witnessed minimal traction where the deal failed to provide momentum towards increasing the share of installed nuclear capacity as a percentage of total power generation in India. At the Cop26 global climate summit in Glasgow, Modi pledged India’s resolve to achieve net-zero emissions by 2070 and increase non-fossil energy capacity to 500GW by 2030. India’s current installed nuclear capacity is around 6.8GW with the same amount in the pipeline and plans to install 23GW by the year 2031[7]. India has the potential to achieve an additional 100GW nuclear capacity where-in both countries could cooperate to build reactors and increase the share of installed nuclear capacity as a percentage of total power generation to twenty five percent by 2050. One of the aims of Next Step in Strategic Partnership (NSSP) is to increase cooperation of civil nuclear activity by sharing enrichment and processing technology, exploiting science and the atom to help India meet its clean green energy requirements.  

Bilateral relations between the two unique democracies, one largest and the other oldest, has witnessed a meteoric rise. Seventeen state visits to America by Indian Prime Ministers, five visits by American Presidents; Barrack Obama who visited  India twice, and also attended the Republic day festivities in 2015 after rescheduling the very critical State of the Union (SOTU) address have steadfastly pushed the partnership to another level. The ballet in the sky choreographed by seventy five mean machines (marking seventy five years of India’s Independence) during the 73^rd Republic day festivities is not only a testament to the changing nature of Indo-US relations but the transformational nature of ORBAT is a reflection of the outstanding quality of defence trade between the two countries.

Institutional frameworks like the India-US 2+2 dialogue and the ongoing bilateral and multilateral military exercises are helping both countries to engage in conversation on regional and wide ranging multilateral issues. The fourth round of the India-US 2+2 meeting, long overdue is expected to be held in the coming weeks where the Indian Defence and External Affairs Ministers will be hosted by their counterparts in Washington to monitor the progress in defence, science & technology, clean energy and other issues listed under the bilateral agendas.[8]

India is an emerging global economic superpower strategically positioned in the Indo-Pacific. Partnership in bilateral defence trade has gained momentum, and both countries are on the cusp of signing yet another multibillion dollar defence deal. America is an established global technological superpower. Both countries have ratified the foundational agreements. Robust institutional mechanisms are steering high level ministerial meetings which are providing a platform for greater technology sharing driving cooperation across multiple other sectors.

The scope of security is getting more complex with threats from unknown adversaries becoming a challenge for countries like India. An inclusive Multilateral Export Control Regime (MECR) after years of unnecessary isolation has helped India move up in the value chain, and establish itself as a responsible source of high technology weapon systems. India has recently signed a large export order for a critical weapon with the Philippines for its marines and is expected to sign another for the Philippine Army. 

Today, India is a member of three out of four MECR mechanisms and with an NSG (Nuclear Suppliers Group) waiver – it is emerging as a responsible partner in future Indo-Pacific engagement. Mechanisms under MECR were scripted to face challenges in a different construct. Recalibrating MECR to address threats originating from foggy adversaries will help redefine the net security architecture. As part of the narrative, platforms considered lethal earlier are being re-categorised by loosening export restrictions. A paradigm shift to expand export of a certain class of platforms like the unmanned aerial systems will keep member states out of harm’s way from non-state actors armed by technology proliferating from non member states.

India is a unique but equal partner and an important player in the Indo-Pacific. Both India and America are on an unprecedented path of unhindered strategic convergence beneficial to their societies especially in the last two turbulent decades witnessed by mankind in a century. But India’s position on burning issues in Eastern Europe and new alignments will be decided by India based on its national interests and not by any other country or associated groupings. A former diplomat and an eclectic commentator recently mentioned that “India’s interest’s lies in navigating its own pathways…” – a correct depiction of how India sees itself as a responsible state in shaping the future world order. However, the uninterrupted flow of technology, trade and new ideas will further help both economies grow and enhance the quality of bilateral in the coming decades.

Vishal Nigam is a graduate in Economics (Honours), MBA in International Business Strategy from Indian Institute of Foreign Trade (IIFT) and accepted commission to serve in the Indian Air Force.

He understands the changing trends in the international business environment, published several papers and authored a book. With a focus on issues related to national security, defence, and defence industry, he has presented research papers at conferences in India and abroad. 

His book titled ‘Dragon in the Air Transformation of Aviation Industry and the Air Force’ was published in 2013.

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[1] http://www.mea.gov.in/Portal/ForeignRelation/India_US_brief.pdf

[2] SIPRI, Business as Usual? Arms sales of top 100 arms companies continue to grow amid pandemic 06 Dec 21

[3] SIPEC Stanford University, Defence Innovation and Technology, Dr Vivek Lall Chief Executive at General Atomics Global Corporation, 04 Sep 20

[4] East Asia, How Taiwan underwrites the US Defence Industrial Complex. Advanced semiconductors play an important role in the defence industry and Taiwan supplies the lion share of those chips, Eric Lee, 09 Nov 21

[5] SIPRI, Business as Usual? Arms sales of top 100 arms companies continue to grow amid pandemic 06 Dec 21

[6] https://crsreports.congress.gov/product/pdf/R/R46845

[7] Minister of State in the Department of Space and Department of Atomic Energy Dr Jitendra Singh responding to a question in the Rajya Sabha on 16 Dec 21

[8]India-US Bilateral Relations, Ministry of External Affairs, Government of India, 02 Sep 21

India’s Defence Economy

https://defence.capital/2021/03/05/opinion-processes-to-blame-for-slow-defence-capital-acquisition/

Processes Slowing Down Defence Capital Acquisition

Policy Iteration

India’s diversified culture seamlessly unfolds few hundred miles where uniformity lies in non-conformity. Similarly the Indian growth story is unique deep rooted in Indian characteristics that thrives in confusion. Gerrymandering policy to leverage power by the executive characterises protracted decision making adding to more confusion in the garb of providing fair competition.

Sedated decision making in defence procurement, a monopsony market where the buyer also sets the rules for business comes at a cost of building capabilities on previous generation and obsolete platform rather than on future generation platforms.

‘Borgen’, a political Danish TV show on Netflix defined ‘Policy’ as a combination of ‘Reality’; ‘Idealism’; and ‘Emerging Desire’. In India, the soul of Atmanirbhayata is rooted in false sense of idealism casting shadow on both reality and desire; hence, policy iteration is poetry re-written on undeliverable promises and unaccountable statements.

Despite contradictions India continues to grow, fight the pandemic like no other country and challenge the mightiest on the high grounds of eastern Ladakh. Nothing else can justify brilliant outcomes despite irrational behaviour in iterating policies other than being blessed by million gods and goddesses.

Across Spectrum Capability

India resides in a critical fault line surrounded with hostile adversaries and thus across spectrum capabilities should be built on reality and desire to arm India with present and future generation platforms.

While the eastern neighbour developed home-grown air, ground and naval platforms to counter America as its adversary, India until the first decade of this century was building capabilities to counter the western neighbour – Strategic Blunder.

However despite innumerable past blunders the Service Head Quarters (SHQs) continue to embrace blunders by wanting to build capability on unscientific concepts where suitability of products available to meet their operational requirements are apparently explored based on Request for Information (RFI); a rather time consuming vestigial process listed in Defence Acquisition Procedure 2020 (DAP 2020 Chapter II para 2).

Vestigial process

RFIs do not have the wherewithal to create a capability matrix. This function should be outsourced to the more efficient consulting services which have the bandwidth to examine types of equipments available in the market and then build a capability matrix. These inputs are accurate, reliable and provide dependable information for formulation of Services Qualitative Requirements (SQRs). But to expect SHQs or Ministry of Defence (MoD) to collate thousand or more RFIs floated each year in silos and, then utilise these paper documents to formulate Integrated Capability Development Plan (ICDP) is rather far-fetched and, hence should be deleted from the acquisition process listed in Ch II of DAP 2020.

In a recent seminar organised by Confederation of Indian Industries (CII) the Defence Minister was upbeat about policy guiding India’s defence economy. He however expressed his desire to hasten capital acquisition and reduce the average time taken for procurement from (according to him) current four years to two years. His brave narrative that current policy outlined in Budget for Financial Year (FY22) was forward looking with a healthy mix of promise, potential and progress was good poetry.

However if Rajnath Singh is serious about turbo charging defence acquisition process, he must direct his Defence Secretary to delete Para1 (a) of Ch II in DAP 2020. By doing so, he would have partially fulfilled his desire and accelerated the process by a year. (Refer Table 1)

Table 1 (Reference DAP 2020 Ch II)

PROCEDURE	COMMENTS	TIME LINE	PROCESS	ACTION
RFI	Internal comments	6 weeks  (Para 6)	Vestigial & Unaccounted	Delete & Outsource
RFI uploaded	Vendor Interaction and response	Min 8 weeks plus extensions (Para7)	Vestigial & Unaccounted	Outsource
SQRs fielded for approval of SEPC	After Vendor response	Min 24 weeks (Para 18)	Protracted & Unaccounted	Business Process Reengineering (BPR)
AON based on SQR/JSQR	Approval by SEPC/ISEPC	54 weeks (Para 21)	Protracted & Unaccounted	BPR

Click to access DAP2030new.pdf

RFIs are not commitment for procurement but just open source information on the basis of which SHQs are expected to create a capability matrix to formulate SQRs. The timeline for procurement actually should start from the moment a thought germinates in SHQ. However, time from RFI to the minutes of the meeting of DAC for grant of AON is unaccounted and could take in excess of two years in the 118 week acquisition process listed in the proposed timeline for procurement (Appendix L to Ch II of DAP 2020).

Are we asking the right questions?

Discussing India’s defence economy has become a cottage industry and living room conversation for all. It’s cliché to talk about inadequate resources, budgetary allocations and role of private sector in building capability for the armed forces. While these could have been challenges at the turn of the century when India opened its defence economy; however, none are real challenges today. So, what are the right questions?

Why was RFI included in the acquisition process; a question which should be thrown to all stakeholders. Can a country with critical fault lines afford gerrymandering to build critical capabilities for its armed forces?

Are we scarce on resources? Well yes, resources will forever be scarce to buy commodities in any economy. But, is scarcity of resources the reason for building less than across spectrum capabilities for the armed forces?

Indian armed forces spend on an average $10 billion a year on capital procurement against a larger budgetary allocation, most of which is utilised for committed liabilities. In essence allocation under Demand Note 20 is an amount to service committed liabilities for capabilities which were built in the previous Financial Years (FY).

The 15^th Finance Commission (2021-26) is recommending a dedicated non-lapsable corpus of INR 2.4lakh crore ($34 billion) over five years (2021-26) called the Modernisation Fund for Defence and Internal Security (MFDIS), largely to bridge the gap between budgetary requirements and allocation of capital outlay.

While resources have been scarce, the government must be applauded for making efforts to find alternate solutions. Allocations under Demand Note 20 though not a healthy mix of promise, potential and progress but cannot be the sole criteria to assess government’s intentions.

So what’s ailing India’s defence capital procurement? Why has private sector not been able to assert itself despite several announcements on procurements favouring domestic contractors? These are real issues which must be addressed; however, are conveniently ignored.

Core Issues

The private contractors have built significant capabilities by investing in high cost of capital to build infrastructure and create capacity without orders. The Defence Public Sector Units (DPSUs) on the other hand have enjoyed the luxury of being funded and supported by the government. Under these conditions how can a reasonable process expect private contractors to compete with DPSUs on same terms which result in unreasonable price points?

Delayed contracts and retracted Request for Proposals (RFPs) also add to the cost of executing programs which are not compensated.

At the same time all isn’t also well with the private contractors. An assessment shows that large contractors with robust leadership in the defence vertical have excelled while others despite strong leadership at the group level having created capabilities ahead of demand have suffered because of weak leadership at the strategic business unit.

MSMEs, robust in technology and dependant on the DPSUs are prospering and contractors who have de-risked business on exports have been able to sustain the protracted procurement process. But mom & pop shops with unhealthy balance sheets and business models not pivoted have felt the burden of the sector.

The government hasn’t been able to galvanise the defence economy with efficient and scientific processes where technology becomes elixir. It isn’t availability of resources but poor decision making and lack of a coherent strategic vision that’s slowing down the entire process. An honest assessment indicates that private contractors will never be able to compete with the DPSUs funded by the government and, over a period of time be reduced to Tier 2 and Tier 3 contractors rather than transforming into Original Equipment Manufacturers (OEMs).

Finally it’s not about who builds capability but how across spectrum capabilities are created over a period of time utilising resources available with all possible stakeholders. False sense of idealism rooted in Atmanirbhayata will fail to drive the sector. And, finally a message for all contractors who passionately participate in this process that getting orders in this business is no longer a function of finding access into the corridors of defence bureaucracy but a function of strong leadership, technology and capacity to build capabilities.

Vishal Nigam    Author    Dragon in the Air Transformation of Aviation Industry and the Airforce   

Email vishalnigam@hotmail.com +917428239955

Request For Information an Irrelevant Concept in 2020

Budget 2021-22

Budget speeches are constrained by time and hence sectors missed out from the speech do not necessarily imply that they are less important. At a time when the world is devastated by Covid, the Finance Minister had clarity in highlighting relevant sectors. On Feb, 01 2021 defence economy was skipped from the speech and many pundits concluded that defence wasn’t her focus area despite having steered the ministry prior to being appointed as the Finance Minister.

The year 2020 has been unprecedented in many ways. While Covid impacted both the demand and supply side of the economy resulting in contraction like never seen before, the aggressive posture adopted by the Chinese across the Line of Actual Control (LAC) created high levels of uncertainty. Nirmala had an arduous task of balancing the criticality caused by the spread of pandemic with the criticality of the fault lines in which the Indian state resides.

She decided to direct her budget speech on health and infrastructure sectors to send a pointed message that her government was committed to both reducing the death trajectory caused by the pandemic and generate employment by building infrastructure and future assets. At the same time aware of the complexities in India’s defence capital acquisition procedure, she committed in her many post budget interactions that funds will be made available to the armed forces as and when required.

Capital Acquisition

On an average the armed forces spend $10 billion every year on capital acquisition. Taking a clue from the average spend, she allocated approximately $19 billion for FY22, benchmarked with RE for FY21; knowing very well that a large percentage of the allocation under Demand Number 20 will go towards meeting committed liabilities of previous years and not towards acquisition for FY22.

DEMAND NO 20

FY20 (Actuals)	FY21(BE)	FY21 (RE)	FY22 (BE)
INR 111092 Cr	INR113734 Cr	INR134510 Cr	INR135060 Cr

However during the year funds up to INR 2000 crores (almost $300 million) can be made available under the enhancement of financial powers for sanction of capital acquisition proposals, which came into effect in 2017. The 15^th Finance Commission (2021-26) has also recommended a dedicated non-lapsable fund called the Modernisation Fund for Defence and Internal Security (MFDIS) to bridge the gap between budgetary requirements and allocation of capital outlay with an estimated corpus of INR 2.4lakh crore ($34 billion) over the period of five years (2021-26). While INR 1.5lakh crores ($20 billion) will be transferred to the Consolidated Funds of India, the rest will be generated from measures such as disinvestment of Public Sector Enterprises (PSEs) and monetisation of defence land.

Problem Area

If the recommendation of the 15^th Finance Commission (2021-26) is agreed to, then the problem area for capital acquisition will not be as much availability of funds but the unscientific and protracted procedure laid down in Chapter II of Defence Acquisition Procedure (DAP 2020). While Chapter II of DAP 2020 is considered the soul of capital procurement, it has become its Achilles’ heel; year on year adversely impacting speed of acquisition resulting in armed forces acquiring older generation platforms.

Chapter II of DAP 2020 is flawed from Para 1 sub para (a), by committing the cardinal  sin of giving license to line directorates of Service Head Quarters (SHQs) to seek Request for Information (RFI) from vendors to explore suitability of products available to meet their operational requirements.

It is incomprehensible that SHQs have to depend on the vendors to provide them data for acquisition to build across spectrum capability, a process extremely time consuming when the same information is freely available in ether.

RFIs aren’t a commitment for procurement and, timeline to process is neither indicated in Appendix L to Chapter II of DAP 2020. The entire process from sub para (a) to (c) is unaccounted and, the time from generating Statement of Case (SOC) to grant of Acceptance of Necessity (AON) could take as long as two years if not more. However, the proposed timeline for procurement which is 74 weeks to 106 weeks commences from the date of issue of the minutes of the meeting of Defence Acquisition Council (DAC) for issuance of AON and not from the time of floating the RFI.

Hence on a good day, the time line for capital procurement could at the very least be four years, which rarely happens and, by then the equipment being bid for has already become a few generations older.

Flags:

1. What is the efficacy of RFI when information is available on fingertips and SHQs have the liberty of subscribing to data bases as well as utilising consulting services?
2. How can SHQs justify the requirement of RFI to formulate ICDP, Request for Proposal (RFP) and Services Qualitative Requirements (SQRs)?
3. Database and benchmarking price should be the responsibility of the directorates under IDS and SHQs and, relying on RFIs to benchmark pricing cannot be a valid justification.

Build capability on future generation platforms

Can any country trying to build across spectrum capability for its armed forces justify the protracted and unaccounted timelines to process RFIs? Certainly developing capability is not a function of whether the Finance Minister highlighted defence outlay in her budget speech but it is a function of resources available, efficient procedures and spends on Research and Development (R&D); all of which are critical areas today. While the 15^th Finance Commission has recommended MFDIS, which to some extent will offset the issue of resources, spend on R&D by both government and the private sector remains a weak area. India’s Gross Expenditure on Research and Development (GERD) remains a paltry 0.7% of GDP and, spend on defence R&D is only a small fraction of GERD. Unless both the private and public sectors step-up spending on R&D and, Chapter II of DAP 2020 is amended to add efficiency in acquisition procedure, India would continue to build capability on older generation platforms rather than acquiring future generation platforms, which should be the stated aim of an emerging power.

Vishal Nigam   Author    ‘Dragon in the Air Transformation of Aviation Industry and the Airforce‘      

Email: vishalnigam@hotmail.com +91742823995

Requirement of RFI in Defence Capital Acquisition Procedure

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What’s the efficacy of RFI when information of equipments and systems are available on fingertips. SHQs have the liberty of subscribing to data bases as well as utilising consulting services.

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DPP 2020 doesn’t specify timeline between RFI to issue of AON, which at times can be infinite resulting in protracted acquisition process and hence procurement of older generation platforms. Is it then justified to depend on RFI merely to formulate the SQR required to obtain AON? The timeline for acquisition process starts from issue of AON and not from the time RFI is published on MOD web page. (Appx L to Ch II)

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Can objective of RFI be formulation of Integrated Capability Development Plan (ICDP)? Ch II para 2

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Can the objective of RFI be formulation of SQRs in the 21st century?

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And can the objective of RFI be to decide the acquisition category or for that matter structuring the RFP as mentioned in the DPP 2020?

Database and benchmarking price should be the responsibility of directorates under IDS, SHQ and MoD. Data must be continuously collated and made available rather than depending on RFIs which at times results in many months at times years before formulating SQRs required for AON.

Can India afford such protracted timelines for capital acquisitions and are RFIs justified as part of the acquisition process mentioned in Ch II para 1 of DPP 2020.

#defence

#defence procurement process

#defence economy

#defence acquisition

2020 LITMUS TEST FOR MSMEs

In a country as diverse as India, contribution of Micro, Small and Medium Enterprises (MSMEs) to domestic production is unique. MSMEs enjoy inbuilt operational flexibility, low investments with sufficient capacity to develop and manage indigenous technology. MSMEs are turbochargers not only to large industries but to the economy as a whole which contribute approximately 30% to India’s Gross Domestic Product (GDP), 45% to manufacturing output and exports. With under 65 million units located across length and breadth; MSMEs generate employment to approximately 60 million thus providing livelihood for many more millions.

India is the third largest economy in the world (in PPP terms), second largest in Asia accounting for a third of Asia’s potential workforce and one fifth of GDP. The impact of Covid-19 on Indian industries has been as much as it has in the global arena. Hence budget priorities, policies and strategy focus of India’s MSMEs would require a shift.

In May 2020; government reclassified MSMEs under ‘Atmanirbhar Bharat Abhiyan’ and made provision for collateral-free automatic loans, now extended until March 2021 to augment additional working capital. MSMEs were reclassified with effect from 01 July 2020 based on plant, machinery investment and turnover. Micro enterprises with plant and machinery investment of less than one crore rupees and five crore rupees turnover; small capped at five crore rupees and turnover up to fifty crore rupees and medium at fifty crore rupees with turnover at two hundred and fifty crore rupees.

At a global scale 95% of total companies are MSMEs. Like elsewhere in India too MSMEs are the real engine for growth where 80% of commerce is carried out between themselves generating over a million jobs. Hence, MSMEs remaining viable during the current onslaught of the pandemic will have a direct impact on economic growth. 

The long tail of MSMEs are the micro entrepreneurs which broadly operate in both sub-optimal space and scale. These mom & pop shops follow antiquated methods with three quarters of value created from partnership. However, these micro entrepreneurs are facing strain in resource mobility due to fractured trade relations and liquidity challenges.

MSMEs also play a major role in Make in India – the flagship program of the current government. While the establishment has taken several steps to ensure MSMEs remain afloat however, it is beyond the bandwidth of any government to guarantee successful navigation of the sector during the pandemic. Therefore, in their own interest, MSMEs must look outward to diversify supply chain risks; occupy space vacated by competitors by moving further up in the value chain and hence convert present challenges into opportunities.

While the pandemic has caused disruption creating situation of uncertainty across the entire spectrum of economic activity but worst affected are the best innovators, life, and root of the supply chain – the MSMEs with unhealthy balance sheets and business models not pivoted. For MSMEs in high technology and Aerospace and Defence (A&D) sector, natural pivot are R&D, Innovation, De-risking and Diversification.

At the policy level, Defence Acquisition Procedure 2020 (DAP-2020) and ‘Atma Nirbhar’ Bharat – economic stimulus package focused on MSMEs could mitigate some devastating social and economic impact and, vision to make India the ‘Global Nerve Centre’ of global multinational supply chain in post Covid-19 world might inspire MSMEs.

Resilient Indian MSMEs which have in the past developed capabilities will be able to position as alternate to China in the global supply chain when major Foreign Original Equipment Manufacturers (FOEMs) and large companies exit China post-Covid. Large number of US companies could diversify manufacturing away from China and, Japan has already incentivised its manufacturing to position in Asia.

To assist MSMEs pivot business models in A&D sector, Government of India must re-think and transform protracted processes by taking advantage of capabilities like Business Process Reengineering. This would assist MSMEs in Ease of Doing Business with the government. Faster decision-making using technology and clearing payments will increase cash flows thus working capital which in turn could be utilized by the cash starved MSMES in A&D sector to work on R&D, innovation and gradually move up in the value chain.

Business volumes in defence sector between India and US have witnessed exponential rise from $100 million at the turn of the century to approximately $20 billion today. However, space exists for both governments to create far greater enabling environment to energise business and successfully sail through the pandemic.

Beyond doubt humans are far too resilient to be deeply impacted however, the current pandemic has laid down a new normal for both individuals as well as people involved in business. Like households have started pivoting income the micro enterprises in the MSME sector too would have to fight survival anxiety by embracing efficiency and moving away from the antiquated methods of doing business. Almost three quarter of the value created in MSMEs comes from partnerships deeply impacted by both demand and supply side constraints; hence MSMEs which had diversified and restructured business models before pandemic continue to register positive EBITDA margins.

MSME sector is in pain inflicted by the pandemic. Demand and supply side and liquidity constraints along with labour migration have adversely impacted performance in the sector. Livelihood of millions depend squarely on the performance of the MSMEs which holds huge strategic importance in the overall industrialization and employment generation.

While the government on the one hand needs to think out of the box to create enabling eco-system for MSMEs; on the other hand, MSMEs through their natural ingenuity can convert current challenges into opportunities by diversifying, de-risking and re-modelling business plans.

https://defence.capital/

https://www.aviation-defence-universe.com/

https://defence.capital/2020/12/03/india-msmes-in-aerospace-defence-sector-need-more-than-stimulus-reclassification/

https://www.aviation-defence-universe.com/india-of-2020-a-litmus-test-for-msmes/