Chinese defence budget and strategic aspects of the Chinese Threat

18 Mar 2010 8ak: The Chinese government’s decision to increase the annual defence budget by a meagre 7.5% to US$78.25 billion has surprised the world, as it is for the first time in nearly a decade that the defence expenditure has been received a single digit. 

The defence budgetary expenditure for China stood at US$60.1 billion in 2008, which was increased by 14.9% in 2009. The reduced figures have given rise to speculation on the Chinese transparency system, many analysts and foreign governments feel that the defence spending could be much higher than what has been projected. Earlier the Pentagon, in a report had stated that the unofficial Chinese spending on the military was in the region of US$140 billion. 

A Chinese observer told 8ak on the condition of anonymity that the Chinese may have reduced the official figures as most of the countries in the region like Japan, Vietnam and India had raised reservations over their increased military expansion. He adds that the low figures could be a step to project a soft power image of China, however, the defence budget figures is a farce as they would compensate it with internal unspecified spending and the budget figures, in all probability, did not include big ticket overseas acquisitions. Hence, the Chinese are clearly misleading the world. 

China's military spending is second only to that of the United States, which aims to spend $636.3 billion this year, and is more than double India’s budget of $32.1 billion, even as India is upgrading its armed forces. The wide disparity in the defence budget in comparison to China is surely to cause alarm bells in the Indian establishment, as it has an ongoing border dispute with China. China on its part is making rail links to Tibet and in the process of constructing 60 air-strips in the region to enhance troop mobility. 

In light of these threats we interviewed two retired armed force officers who have recently started their own publication 'Indian Military Review'. Maj Gen (retd) Bakshi spoke about the strategic aspects of the Chinese threat & their air power superiority and Maj Gen (retd) Arora spoke about Chinese Vs Indian defence manufacturing. Interestingly, Maj Gen Bakshi says that India should build up better relations with Vietnam "Why not give them the Prithvi missile if Russia does not want us to give them the Brahmos"?

Please read "Newsweek: "China is not 10 feet tall" and Foreign Policy: "Is the West turning on China? and on the continuing currency valuation & China's view on the Google dispute

Fearing Maoist backlash, government sounds alert in states

18 Mar 2010 8ak: Fearing a severe backlash from the Maoist after the security agencies arrested several left wing extremists’ last week and seizure of 2,800 kg of explosives, the union government has sounded a red alert in states.

The forces arrested two Maoists leaders from Bokaro, Jharkhand and two from Andhra Pradesh last week. The questioning of the duo held in Bokaro, including naxal leader Panju Manjhi, believed to be the area commander, led to seizure of 2,800 kg of explosives.  In a string of other breakthroughs, the Telegraph reports that Jharkhand police have arrested a key Maoist leader, Marshal Topno, an alleged associate of Maoist leader Kishan ji, yesterday. Another former freelance journalist, Niranjan Mahapatra, has been arrested by Surat police on Tuesday. In a major development, the Andhra Pradesh police have located the biggest-ever Maoists dump of grenades reports NDTV. 

The red alert is based on the previous experience of Maoist retaliation in the past when the extremists have retaliated to avenge the arrest of their leaders resorting to large scale violence. The government has extended an olive branch to the left wing extremists in February and invited them for talks but the efforts have failed so far. In fact, the Maoist attacked a joint patrol party of the West Bengal police and the CRPF in PS Lalgarh, district West Midnapore killing three people, barely few hours after the talk offer. 

To counter the growing naxal menace, a massive military offensive to eliminate Maoists was launched recently in the rebel strongholds of Chhattisgarh, Orissa, Jharkhand, Bihar and West Bengal. The operation involves nearly 20,000 specially trained personnel drawn from the paramilitary and state police forces. Nearly 35,000 troops are already deployed in the states to counter the rebels. Last year alone, Maoist violence accounted for over 1,100 deaths, the largest seen in recent years. The government has decided to re-assert authority of civil administration in these rebel strongholds.

Meanwhile, Union Home Secretary G.K. Pillai, has admitted that the Maoists aim to overthrow the Indian democratic system by 2050 in a lecture organised at IDAS. He also admitted that it will take at least 7-10 years before states affected by the leftwing insurgency are able to crush the entrenched rebels and re-assert their authority. 

While 8ak believes a strong response is required, killing the Maoists without tackling government corruption is like curing the symptom and ignoring the disease. The disease of government corruption and the inability of the common people to do anything has been demonstrated amply in the ongoing Mayawati garland issue. It is shameful that in one of the poorest & most lawless states of India, a known corrupt chief minister of a state can openly receive a garland of currency notes speculated to be worth anywhere between 8 and 22 crore (~US$2m to $5m). As long as corrupt politicians are not dealt with as severely as the Maoists, the Maoists will have no problem finding fresh recruits to take the place of their fallen comrades. 

An interesting 8ak article on the left wing extremism, "The Enemy Within" and also the Bihar MP who got a cash garland as well.   

Russia-India relationship on new high, U.S. continues to be important to both

16 March 2010 Akshay Kumar: The 22 hour visit by Russian Prime Minister (PM) Putin to India has helped the two countries resolve the differences that had cropped up due to various long standing unresolved issues, including the price rise of aircraft carrier Admiral Gorshkov. Other factors responsible for drifting the two cold war allies apart were Russia’s search for a new market to export its military hardware for which it tried to develop relations with China. And also India’s efforts to build bridges with the West and America, as India believed a strong diplomatic support from them could coax Pakistan into putting a halt to its anti-India rhetoric. 

The billion dollar contracts signed during the short visit is an indication that the two nations want to remain close and that Russia was keen to fill the vacuum that propelled Israel as a major partner in the Indian defence market in the past decade. The successful visit is being read by many as a signal to the world that the two nations remain each others prime partners and the brief period of stagnation had passed.   

The long list of deals signed between Indo-Russia during Putin’s visit is impressive:

1) US$1.5 billion deal for the supply of 29 additional MiG-29 Fulcrum D-based fighter aircraft. 

2) An agreement to sign a contract on the joint development of a new fifth-generation fighter. 

3) A revised price-deal of $2.3 billion on the upgraded Admiral Gorshkov aircraft carrier with a displacement capacity of 45,000 tons, a maximum speed of 32 knots (59 kilometers per hour) and a range of 13,500 nautical miles (25,000 kilometers) at a cruising speed of 18 knots 

4) Deals to establish a joint venture to produce navigation equipment for GPS (global positioning system) and its Russian equivalent Glonass, and the use of Glonass signal for military use by India. 

5) Several agreements for the construction of up to 16 nuclear power plants in India by 2017.   

The swift signing of deals indicates that both Russia and India are trying in their own ways to strike trade deals with each other as a countermeasure to Chinese overtures. While India is apprehensive of China’s new friendship with South Asian countries of Pakistan, Sri Lanka and Myanmar as a part of its ‘string of pearls’ strategy, Russia is insecure about the vulnerability of its eastern regions. The visit clearly exhibits that the two nations remain each other’s best bet in times of adversities. 

Bharat Verma of Indian Defence Review, told 8ak, “we may have given Russia, a tad too much, as they do not have the modern technology which India requires at the moment and the Russia is itself buying some of the technologies from France and other countries, to whom India has direct access, but the fact remains that no nation would fulfil the requirements of India like the Russians and no one would be willing to lease their submarines for a decade to India except Russia, thus Russia undoubtedly is of immense importance to us.”

Verma’s statement hold true as the much hyped 2008 civil Indo-US nuclear deal, which threatened the future of Manmohan Singh led UPA government has not been completely implemented by the Obama administration. This is primarily due to Obama’s reluctance to transfer "dual-use technology" to India, but it has provided the international non-proliferation framework Moscow needed to boost cooperation with Delhi on a range of sensitive areas such as reprocessing technology, joint thorium fuel cycle nuclear power projects and fast- neutron reactors. It is this reluctance that the Russians have exploited well during the visit, as it is evident from the agreements that have been signed on constructing 16 nuclear plants in India by Russians. 

The return of the warm ties has also been made possible because, both Russia and India, have been time and again let down by America. On the terrorism front, the Americans have not provided enough aid to the Indians in getting Pakistan to act against the perpetrators of 26/11 attack.  The American’s undoubtedly have failed to ensure that its military hardware, which it supplies to Pakistan to fight the Taliban and Al-Qaeda along its western borders, is not used against India by Pakistan. On the Russian front, it has been let down by the Americans due to constant interference in Central and Eastern Europe. The attempt of NATO to intervene in the Georgia-Russia-South Ossetia impasse in 2008 has not helped Russia-US relationship either. 

But in foreign policy matters nothing can be translated in to black and white. On the one hand, where we are jubilant about the most successful visit of Russian PM Putin in recent times, certain issues need to be sorted out. The priority should be the Rs 2,000 crore JV mooted almost three years ago to set up an  integrated chemical and metallurgical complex to produce titanium dioxide and other titanium products in Orissa, Business Standard reports that the project is in a limbo, as partners have parted ways last month after differences over land allotment. Another major project between Russia’s VSMPO-AVISMA Corporation, the world's largest producer of titanium, and the Kerala government for processing and smelting of titanium, has not taken off either. As per the contract, the company was supply aviation metal to Hindustan Aeronautics, with raw material titanium tetrachloride procured from Kerala Minerals and Mining Limited (KMML), which is owned by the state government.

But the deals do not mean that the U.S. is any less important to either country. It is no secret that the moment Putin returned to Moscow, the US President called his counter-part President Medvedev to discuss the "final stages of preparation" of the new Strategic Arms Reduction Treaty and they agreed that "it is now possible to talk about specific dates" for initialing the agreement. 

On India’s part, New Delhi has mooted a new legislation which would make it easier for US nuclear energy companies to secure multi-billion dollar contracts in the Indian market. Many security experts believe this deal was inked solely to create a new market for U.S. companies which were finding operations difficult due to the highly capital-intensive nature of the industry with long gestation periods, and not implementation of the complete deal. Thus, the developments in both the countries following the Russian PM's visit exhibits that both countries are looking for greater business proximity to the Americans.

Obama's proposal for key changes to high-tech export regulation

15 Mar 2010 8ak: In 2001, the then leaders of the U.S. and India, George W. Bush and Atal Bihari Vajpayee had the foresight to set up a council to promote high-tech trade between the two countries, India-US High Technology Cooperation Group (HTCG). As the American.com reports, since then "U.S.-India trade has nearly tripled from $13.5 billion in 2001 to $37.6 billion in 2009. Last year, high-tech products accounted for more than 13 percent of total bilateral trade and nearly 25 percent of all U.S. exports to India."

The potential is much higher especially in the context of defence manufacturing but both sides have legal and political issues to overcome. India says that U.S. laws are too restrictive and is scared of sanctions as in post-nuclear tests in Indian in 1999. America, on the other hand, wants India to acknowledge the benefits of its efforts to ensure that weapons don't fall in to the hands of the wrong groups/country's (U.S.'s non-insurgency-specific weapons sales to Pakistan continues to baffle us). In this light, the ongoing 2 day meeting of the group is significant with a focus on how the barriers can be broken to enhance more trade. In terms of export controls, American.com puts this in context, "In 1999, 24 percent of total U.S. exports to India required a “dual-use” license from BIS, today that number is less than 0.2 percent." 

Excerpts from Obama's speech on the issue - "We've conducted a broad review of the Export Control System, and Secretary Gates will outline our reform proposal within the next couple of weeks. But today, I'd like to announce two steps that we're prepared to take.

First, we're going to streamline the process certain companies need to go through to get their products to market -- products with encryption capabilities like cell phone and network storage devices. Right now, they endure a technical review that can take between 30 and 60 days, and that puts that company at a distinct disadvantage to foreign competitors who don't face those same delays. So a new one-time online process will shorten that review time from 30 days to 30 minutes, and that makes it quicker and easier for our businesses to compete while meeting our national security requirements.

And second, we're going to eliminate unnecessary obstacles for exporting products to companies with dual-national and third-country-national employees. Currently, our exporters and foreign consumers of these goods have to comply with two different, conflicting set of standards. They're running on two tracks, when they could be running just on one. So we're moving towards harmonizing those standards and making it easier for American and foreign companies to comply with our requirements without diminishing our security. And I look forward to consulting with Congress on these reforms, as well as broader export control reform efforts." Full speech

In parting American.com notes that "the Indian government has not yet signed the Communications Interoperability and Security Memorandum of Agreement (CISMOA), the Logistics Support Agreement (LSA), and the Basic Exchange and Cooperation Agreement for Geospatial Cooperation (AGC), which are crucial to providing mutual logistical support and enabling the exchange of sensitive communications and equipment. Full news

Is it only us or after Putin's visit, it seems that India-U.S. are doing the talking and Russia is doing the deals? Analysis of Putin's visit coming up tomorrow. In the meantime, some unrelated news from SpaceDaily: U.S. government lifts sanctions against the Russian space organisation Glavkosmos  

Need to privatise - ports, telecom, airlines and of course defence

10 Mar 2010 8ak: Even in the late 80's it could take up to 4 years to get a landline connection, courtesy the monopoly given to BSNL. Not that long ago, you had to wait up to 8 years to get a scooter after paying the full amount upfront as deposit. Privatisation brought in competition and changed all that so that now India is a leading global auto manufacturer and our private sector telecom companies are looking at multi-billion dollar acquisitions overseas. 

But this is not enough for bureaucrats, politicians and unions, who will fight tooth over nail to protect inefficient public sector companies from the inevitable. A CAG report has said that ports, so critical to India's economic growth, had 54% obsolete equipment, going up to 94% in specific cases. Unions meanwhile are preventing mechanisation as even dry bulk goods are being manually handled. 

On the telecoms front, while private sector companies like Airtel posted a 14% increase in net profit, the government-owned BSNL lost ~US$1 billion. In terms of cancellation of its tender for 93million lines, a BSNL board member has gone on record saying that BSNL was fraudulently inflating subscriber numbers by ~28% to make itself look good. BSNL unions will continue to oppose any changes. 

Air India meanwhile continues its 2008-2009 loss making of Rs 5,548cr with a 2009-10 loss of ~5,400cr. In response to the above, instead of privatising company losing 14cr every day, the Government has instead planned to inject Rs1,200cr with no realistic survival plan. And the reason for these losses? Economic Times quotes a senior Air India official as saying this was due to the Indian Administrative Services (mafia) who did not allow discussion of important issues. 

The same story repeats itself in the Defence sector PSUs. And the losses go beyond just losing taxpayers money. It is the people who are made to suffer with inferior products & services, the nation that loses economic growth & international prestige, initiative & reform is strangled and the nation as a whole is in a weaker position to deal with external threats. 

The Congress had a golden opportunity with its huge majority to speed up privatisation and reduce red-tape but it is fast losing this as it continues to focus on populist policies and giving in to unions. The mantra that it requires to adopt is British PM, Margaret Thatcher's famous quote "Business is not the business of Government" as she moved quickly to break the backs of the unions in the UK and initiated reforms that re-invigorated their economy. 

The truth about Defexpo straight from Bharat Verma, Editor, Indian Defence Review

08 Mar 2010 8ak: Editor of Indian Defence Review, India's most respected defence publication, Bharat Verma, spoke to Manu Sood, on the Def Expo-2010 and the changes required in the MoD set up, besides spelling out reasons as to why the government should look beyond DRDO. (The video is in two parts.

Referring to the Def Expo, Bharat Verma said that even though the event was satisfactorily organised, the dilly dallying over who would actually organise the event, FICCI or CII, had caused a lot of inconvenience to the vendors, especially foreign vendors, who plan their arrival and course of action at least a year in advance. He said that this clearly exhibits the lack of decision making ability in executing an event that has been planned for a year in advance. Not sparing the MoD either, Verma said that a lot of fault lines existed within the ministry and the prevalent babu culture had not helped its case either. 

According to him, due to the non accountable attitude of the bureaucrats, the Indian armed forces, which are bracing to fight a war on a minimum of two fronts, had been left with military hardware that was 75% redundant. Another area where he took on the MoD was their obsession with indigenisation, on the issue he said that in offset programs, the government had prohibited imported technology, calling it a strange policy, Verma said that the need was to have technology whether imported or local, should not be a cause of concern. 

He advocated the cause of private sector and joint ventures saying that a new thrust should be given to encourage them by the government as the DRDO had failed India and the armed forces in a big way. Advocating the cause of increasing the FDI limit in defence, he said, that the fact was that no international company was willing to transfer what we call is key technology to India as 26% was not a lucrative enough figure to attract them. However, if the figure was to be increased to 49%, the international arms companies would willingly come with latest technology as a the hike would create a level playing field for them and the resulting situation would be a win-win one for both the parties. He also said that successful JVs will marginalise tough sanctioned regimes automatically over a period of time.