Why The BRICS Bank Refused To Take Off

The BRICS grouping’s grand plans for a development Bank to rival the West’s World Bank-IMF combine has managed to get mired in differences over the size of  corpus, which nation will pay how much equity and where the bank will be sited, holding up an announcement on the issue in Durban earlier this week. 

The BRICS Durban Summit 

Top North Block officials said the tussle over stakes and with it control of the new development bank which could rival IMF held up announcement of the start-up at the just concluded Durban summit.  Indian Finance Ministry economists together with Reserve Bank experts will now draw up a draft roadmap which could be informally discussed at the interim summit at St Petersburg in Russia this September and later fleshed out as a full scale plan before the next full BRICS Summit at Brazil in 2014. 

BRICS, an acronym for Brazil, Russia, India, China and South Africa owes its begining to a report in 2001 prepared by Goldman Sachs which coined the term BRIC. The poltico-economic grouping started in 2006 as a club for the four emerging economies to gather and firm up strategies on trade and ecnomy. With the 2008 economic crisis, the grouping which represents 40 per cent of the global population and 20-25 per cent of the world's GDP assumed importance and in 2010 it turned into BRICS with the inclusion of South Africa.

India had floated the idea of starting the bank with an initial capital of $ 50 billion, with each BRICS nation chipping in with $ 10 billion, sometime last year. However, China’s whose economy easily drawfs the rest of the BRICS nation, wanted the corpus jacked up to $ 100 billion, promising to make up for any shortfalls in contribution by members.  Other BRICS nations, who are hard pressed on finances, wanted the plan pared down to $ 10m billion with contributions of $ 2 billion each. 

Russia and India played shy of the bank proposal after it became clear that Brazil and South Africa would not be willing to pay up much of their share of the corpus, and China by default might get the largest equity share in a bank floated at the current juncture.

Indian officials also wanted a window for participation by non-BRICS nations which were keen to join the bank such as  developing world nations like Egypt and Indonesia  as well as developed world participants like Japan and the US. Though none of the member-countries said `No’ to the proposal, China’s offer to underwrite any unsubscribed capital, seems to have sidestepped that part of the deal.

Global economy share

The problem with accepting China’s generous offer was that the BRICS bank would in effect have become a `Chinese Bank’ with China holding a dominant stake. China has already emerged as one of the biggest `donors’ in the developing world, where it has been accused of leveraging its massive $ 3.5 trillion foreign exchange reserves to dole out cheap loans for infrastructure projects in return for generous mineral or oil and gas concessions.   

Officials said the `battle’ over the bank also extended on where to site it. China wants it in Beijing, where some fear it could manipulate staffing to suit itself, whereas South Africa wants it to be in Johannesburg, as Africa has the most underdeveloped nations which would be potential recipients of the bank’s lending. India is not against the bank being headquartered in Africa but would like ground rules cleared about staffing. 

The World Bank-IMF combine have in the past been accused of  being dominated by economic theories thrown up by Western nations’ and staff drawn from or trained in the West, besides being controlled at the board level by Western countries which put in most of the money required for the banks’ start-up. India, South Africa, Brazil and Russia consequently are cautious about how the new BRICS bank is set up and run. 

Sri Lanka's Tamil issue : Will History Come a Full Circle?

Few realise that the genesis of Sri Lanka’s Tamil problem with India lies buried in its decision to let Pakistan’s troop laden aircraft refuel and fly onto the killing fields of Bangladesh in 1971.

After Pakistan unleashed a brutal military campaign in early 1971, to stifle an uprising in its eastern wing by murdering millions of its civilian citizens, India banned Pakistani aircraft from overflying India.

Mrs Indira Gandhi

Pakistan’s President Yahya Khan believed his troops only had to “Kill three million of them (East Pakistan’s Bengali citizens) … and the rest will eat out of our hands.”^* To carry out this task he needed to reinforce his forces in the East.  The military ruler launched what was titled operation `Great Fly-In’ to transfer the 9^th and 16^th infantry divisions of the Pakistan Army to the East. Troops were to be flown out to Dhaka in February 1971, using Pakistan International Airlines’ fleet of Boeings and the Pakistan Air Force’s Hercules transport aircraft, bolstered by more aircraft lent by Turkey and Iran.

However, with Mrs Indira Gandhi banning Pakistani aircraft from using Indian airspace from January that year, these planes needed to fly a longer route which required refuelling facilities at Colombo.

Khan reached out to Sri Lanka’s President Srimavo Bandaranaike. Strangely, Bandarnaike allowed Pakistani troop carting aircraft, rights to refuel at Colombo even as the airport was guarded by Indian soldiers against left wing extremists who were trying to topple her regime!

Sri Lanka's Srimavo Bandaranaike

A furious Mrs Gandhi eventually put an end to this strange accord between the island nation and Pakistan, but not before Yahya Khan had managed to ship some 25,000 soldiers, complete with equipment to bolster his deputy Lt. General Tikka Khan’s murderous rule over East Pakistan.

Mrs Gandhi saw Bandaranaike’s action not only as anti-Indian perfidy but as betrayal of the good neighbourliness India had displayed in a 1964 pact where it had agreed to repatriate some 5,25,000 Tamils, ^** descendants of plantation labour brought to Lanka by the British in the 19^th century. In return, Sri Lanka was to have given citizenship to the remainder 3,00,000 `Indian’ Tamils, which it had denied to them since its independence in 1948.

Indian labour, often in the form of forced or bonded labour, and entrepreneurs had helped built the economies of many British ruled territories from Fiji and Guyana to Mauritius and Kenya. With the end of the colonial era, many people of Indian origin had sometimes to face a different kind of racial hostility in their new homelands but nowhere other than in Sri Lanka, Burma and Idi Amin’s Uganda were they denied basic rights to live in the country they were born in.

The 1964 pact hammered out by a docile Indian prime minister Lal Bahadur Shastri with the far more aggressive Bandarnaike,  was seen as a landmark pact where India bent over backwards before a neighbour to buy goodwill.

Shastri with Bandaranaike

Even before the ink on the pact had dried, Mrs Srimavo Bandaranaike dealt her first blow - `Indian’ Tamils given citizenship would form a separate electorate and could not vote with the rest of the Sri Lankans. The ruling Congress party had to deal with a stormy Indian Parliament which was not at all amused by either Shastri’s `largese’ or Bandarnaike’s bid to turn the remaining `Indian’ Tamils into second class citizens. Still it lived with this one sided pact and literally turned the other cheek to try work out better relations with a smaller neighbour.

Consequently, the 1971 attempt by the same lady to help India’s enemy, was like pouring hot oil on burning embers. The problem for Sri Lanka and Mrs Bandarnaike was that Mrs Gandhi was not a lady who easily forgot or forgave a slight.

Sri Lanka like most Asian nations always had deep ethnic fault-lines, but unlike India or Singapore, it did not try to resolve them by turning to nation-building. It instead relied on resurgent Sinhala nationalism to hold the island together.

Sri Lanka Demography

Sinhala, who claim descent from the followers of Prince Vijay Singha, a prince of a mythical kingdom in Bengal who according to legend was exiled to the island sometime around 543 B.C, form about 75 per cent of the population. However, Sri Lankan Tamils who pre-date Sinhalese on the island and speak a slightly different version of Tamil, from Indian Tamils, and live in the Eastern part of the island form about 12 per cent of the population. `Moors’ or descendants of Arab traders make up about 9 per cent of the population and `Indian’ Tamils who live in the central highlands where most of the tea and rubber plantations are, make up for the remaining 4 per cent of the population.

The attempts by successive Sinhala-controlled Sri Lankan governments to forcibly repatriate the impoverished  `Indian’ Tamil labourers had more to do with the tensions between the Sri Lankan Tamils and the Sinhalese than any real threat to Sinhala domination of the island by the `Indians.’ The underlying fear seems to have been that `Indian’ Tamils might make common cause with Sri Lankan Tamils and take on Sinhala control of the government.

In 1948, the Sri Lankan Tamils who were part of the first ruling coalition through their own party had joined to frame a citizenship act which disenfranchised `Indian’ Tamils. But with growing Sinhalese chauvinism, eight years later they faced their first come-uppance. In 1956, the Ceylonese Parliament passed the `Sinhala Only Act’, which replaced English with Sinhalese as the sole official language in the island ignoring Tamil, a move which led to a spate of ethnic riots.

Attempts at state-sponsored colonisation of Sri Lankan Tamil areas led to more riots and bitterness. In 1973, a policy of educational standardisation was brought in, ostensibly to rectify regional disparities in University enrolment, but which in effect saw more Sinhala enrolment and fewer chances for Tamils to get University seats.

However, for Mrs Gandhi, the  last straw was the then Sri Lankan President J.R.Jayawardene’s bid in 1979 to bring in Americans to balance Indian power in the straits. Jayawardene strengthened Sri Lanka’s political and military engagement with the US and gave them rights to set up a Voice of America station on the island, which Indians saw as a camouflaged electronic `listening station’ directed against the mainland.

Mrs Gandhi who came back to power in 1980, must have vividly remembered the American attempt to frighten India with its deployment of the Seventh fleet at the height of the 1971 war with Pakistan, and seen the Sri Lanka-US friendship as against Indian interests.

Sri Lankan Tamil groups fighting for an `Eelam’ or homeland who had earlier relied on a distant and not too helpful Britain in their fight for rights, suddenly found a champion and refuge in India under Mrs Gandhi. 

Tamil rebels in action

Mrs Gandhi unleashed her `dogs of war’. In a thinly disguised move, Indian intelligence agencies started training several motely groups of Sri Lankan Tamil rebels, none of whom saw eye to eye in their aims or objectives.

However, the rebels made life difficult for Jayawardene and Sri Lanka. An inept and not too professional Sri Lankan army was hard put to handle the insurgency.

In time, the ding-dong battle between the Tamil groups and Sri Lankan forces, saw Tamil areas blockaded, forcing India to air-drop food and medical supplies in 1987. Eventually in the same year, India stepped in and sent peace-keeping troops into Sri Lanka and brokered an accord between the island government and Tamil Eelam fighters, among whom the Liberation Tigers of Tamil Eelam (LTTE) had emerged as the prime mover.

While most Tamil groups disarmed after the accord, LTTE refused to hand over arms. Indian peacekeepers were forced into a situation where they had to fight the very LTTE, they had come in to help out. Strange as it seems, intelligence sources aver, the Sri Lankan government whom India had bailed out with its deployment, entered into a secret deal with the LTTE in 1989, supplying them with arms and ammunition to fight Indian troops!

Indian Peacekeepers in Sri Lanka

As casualties mounted, calls for the return of Indian troops grew louder at home and in Sri Lanka. Mrs Gandhi’s son, Rajiv Gandhi who was India’s prime minister during this phase, refused. But after his government was replaced by V.P.Singh’s, India’s Lankan adventure was called to an end with the last troop ships crossing the Straits in mid-1990.  The 32-month presence of Indian peacekeepers in Sri Lanka resulted in the deaths of 1200 Indian soldiers and over 5000 Sri Lankans.

LTTE did not stop at fighting Indian soldiers. In 1991, suicide bombers sent by the group killed Rajiv Gandhi at an election rally. The Sri Lankan Tamil issue became `untouchable’ in Indian politics. Even the Tamil parties shied from associating with Sri Lankan Tamils.  

India probably silently encouraged the Sri Lankan government after the slaying of Rajiv Gandhi, to fight it out with the thuggish LTTE, which was ruling over the Tamil majority areas in a dictatorial manner,  and finish it off as a potent force for ever.

However, the brutal manner in which Sri Lankan forces ended their battle with the LTTE, killing thousands of civilians, corralling tens of thousands more into `camps’, has revived sympathy and support  for the Sri Lankan Tamils  once again in India.

History, they say, is all about the story being repeated with different characters. One wonders where the latest events where the Sinhala majority refuses to give basic rights back to the Tamil minority will take Sri Lanka and India to. Hopefully not back to a full circle.

*Robert Payne, Massacre [1972], p. 50. 

** Indo-Sri Lankan pact of 1964 and the problem of statelessness – a critique : http://www.onlineresearchjournals.com/aajoss/art/82.pdf

India bets big on Africa

India's $ 1.9 tril Elephantine economy 

India’s elephantine economy is getting to be noticed across the Monsoon waters of the Indian Ocean in mineral rich-Africa, with investments touching $ 50 billion and two-way trade some $ 70 billion.

India Inc.’s very best is in a race with Chinese companies to be part of a growing market and resource supplier. Tatas, Mahindra, Bharti, Essar, Godrej, ONGC and Kirloskar are among the big names flocking to the continent. And Africa seems to want more of it. At a India-Africa Conclave in Delhi this week, the venue was thick with Prime Ministers, Vice Presidents and Economy Ministers from African nations. "Arguably, Cameroon is one of Africa's best destinations for investments from India", said Philemon Yang, prime minister of gas-rich Cameroon to a gathering of Indian business leaders.

The three-day Conclave saw some 30 African countries coming up with 475 project proposals worth $ 65 billion, for Indian companies to invest in, ranging from farming to consumer durables to infrastructure to energy, transport, mining, finance and telecom.

India has been trying to woo Africa

Tatas have already invested some $ 1.7 billion, in chemical and automobile plants, hotels, infotech centres among others. “The way Africa is growing … there can be no caps on potential future investments,” said Raman Dhawan, managing director of Tata Africa Holdings. Tatas will continue to set up new automobile plants and bid for projects to set up telecom networks but its future investment focus will be on resources – coal and iron ore to start with – which its plants world-wide require.

If China is workshop for the world and India its services centre, Africa is emerging as the miner for the global economy. Much of India’s investment into Africa is in oil acreages, coal and gold.

Oil accounts for roughly 60 per cent of the trade between the two. Surat gobbles up South Africa’s diamonds while jewellery parks in Calcutta and South India’ tonnes of gold from the continent, accounting for another 10 per cent of the trade. South Africa and Mozambique's coal fuels power stations. India has tied up for uranium from Malawi and Niger to run new nuclear power plants.

But where India differs from China is in the way it’s been doing business. “China’s investment is mostly locked onto resources and state driven … ours is enterpreneur-driven and diversified. Look at Tatas, we have invested in telecom and software … set up chemicals plants,” pointed out Dhawan. India’s biggest investment into Africa is Bharti Airtel’s buy-out of Zain at an estimated $ 9 billion not a gold mine or oil acreage purchase. Airtel’s African operations now cover some 19 countries.

India's Airtel in Africa

Indians also differ by investing in the host society. “We have invested heavily in training African colleagues,” adds P.K Ghosh, Chief Financial Officer of Tata Chemicals. Indians tend to hire a mix of African and Indians, with more Africans than Indians. The Chinese tend to do the opposite.
“What one can readily say is that India’s public relations with Africa is far better,” said veteran Ghanian journalist Francis Kokutse. “Both India and China need resources, we know that but there is a difference in the way the two have gone about.”

Chinese firms in Africa have been known to be less than sensitive about local culture and sensitivities. Sinopec, has explored for oil in a Gabonese national park, causing an uproar. Two years back, Chinese mine managers used shot-guns to disperse agitating workers in Zambia, creating a volatile situation.

India also tends to add value rather than just ship away minerals. Essar took a 80 per cent stake in a mineral venture in Zimbabwe and along with it took controlling stake in a steel plant in the Southern African nation for $ 750 million where it will process iron ore into steel, some two years back. It then followed it up earlier this month with announcement of a $ 275 million investment in a port to handle exports.

However, China still pygmies Indian business effort. Its trade with Africa is three times India’s. China’s diplomatic presence in Africa is far larger. Its staff better trained in the languages that Africa speaks, despite India’s centuries old links with the continent.

Chinese colours on Africa!

It throws largesse by underwriting large railway, roadways and civil construction projects in African nations. No wonder bids by Chinese state-run firms knock out Indian competition when bidding for oil, coal or other mineral resources concessions.

However, Indian business practices may still win more friends and in the process more business in the long run. Said Guy Scott, Zambia’s vice president “African countries can learn from India’s promotion of family business, long term investments and innovation which have proved to be sustainable … and we believe that partnership with Indian investors is a prime means to get there.”

The Case of the Missing Millionaires

The Case of The Missing Millionaires

The government's decision to slap a super-rich surcharge on people earning Rs 1 crore, or a little less than $200,000, was seen by many as an answer to Warren Buffett's repeated calls for the world's rich to pay more in these times of crisis.

However, when the figures were called for, stumped taxmen realised that India's $1.9 trillion economy had just 42,800 people who admit they earn more than Rs 1 crore!

Obviously something was wrong somewhere. A top revenue official in North Block admitted that even Lutyen's New Delhi should have more than this number of people earning the magic Rs 1-crore-a-year figure.

A Credit Suisse report on Global Wealth for 2012 estimates that there are at least 1.58 lakh dollar millionaires in the country.

A KPMG report places that figure at 1.25 lakh Indians with an investible financial wealth of more than a $1 million (Rs 5.4 crore). Anecdotal evidence shows that even these wealth researchers could be under-estimating the numbers.

Car makers Mercedes, BMW and Audi reported a combined sales of nearly 26,500 cars in India in 2012. Their cheapest cars sell for Rs 27 lakh. Not hard to surmise, a person who buys a car that costs that much would be earning at least three to four times that figure.

Some 5,000 luxury flats in Indian metros were sold at prices ranging between Rs 3 crore and Rs 10 crore, according to realty researchers.

The National Institute of Public Finance, the government's think-tank, has recently submitted a report to the North Block on the amount of "missing millions" or black money which rotates in the Indian economy. It estimates black money at about 20 per cent of the Indian GDP, which would place it at $380 billion.

Where did the millionaires disappear?

Millionaires Club

Earlier this week a news portal did a sting operation on several leading banks and accused them of laundering un-taxed income. The banks, which included some of India's top lenders, rebutted the claims, but did suspend a number of managers for violating norms.

The biggest generator and recipient of black money is the realty sector, say taxmen. Most housing projects are sold at at least double the reported price. Construction costs are rated down by 25-30 per cent.

A second sector is gold. Though not much black money is generated in the bullion business, the amount of unaccounted income invested in gold is estimated to be high, aggravating India's natural appetite for the yellow metal. The World Gold Council estimates that Indian households have some 20,000 tonnes of gold worth $1.16 trillion ' more than double the gold reserves maintained by the US Federal Reserve.

Another segment that taxmen track are exporters, including India's much touted software exporters. Over-invoicing and under-invoicing of sales abroad generate money, which is routed through paper transactions in tax havens such as Mauritius back into Indian markets.

Similarly, studies into investment in stock markets show that Mauritius-based Foreign Institutional Investorss and sub-accounts' outstanding investment in Indian stocks stood at a whopping $56 billion as on April 30, 2012 ' the highest inflow from any single country into India.

Taxmen reckon that some of it is genuine investment from third countries routed through Mauritius to take advantage of zero taxes on the island nation and its double taxation avoidance treaty, but also believe a large portion of it is Indian money coming back into India.

Where to Invest the Untaxed Millions

"India is the country that these people understand best and it also offers high returns on investment. The BSE Sensex itself gave a return of 25.7 per cent in 2012, one of the highest anywhere, so it's but natural they would like to bring back unaccounted income back home for investment," revenue officials said.

Revenue officials have been asked to look into some 1.2 million transactions made by people who do not file tax returns but have spent huge amounts on credit cards, purchased property worth more than Rs 30 lakh, parked more than Rs 1 lakh in savings accounts or bought high value mutual funds or bonds.

Some 1 lakh tax queries have been sent out since the year began. More would be on their way. Not all of it will yield results, but then someone has to find India's missing millionaires.

India’s Defence Budget: The Chinese Challenge

Ask the dragon why she’s crawling with eight legs,

And she says, donno, I’m just doing it.

…

Ask a girl why she’s dancing in the wind,
And this is what she says:

Ask an elephant why he’s raising his trunk,
And he says, donno, I’m just doing it.

…

–      from the lyrics `Ask The Dragon’  by Yoko Ono

Just days after India announced a $ 37.4 billion defence budget for the year 2013-2014, China came out with its own official defence budget figures – at $ 119 billion, some three times its southern neighbour’s.

As late as 2000, India's budget for its armed forces at $15.9 billion more or less matched China’s officially given out figures. However, in reality even then the actual Chinese spending was estimated at three times India’s.

Today, the real Chinese defence budget is believed by many, to be nearer 4-5 times India’s. India’s defence budget rose by just 5 per cent, a sign of the difficult economic times the world and India is going through. India’s $ 1.9 trillion economy grew at its decadal low of 5 per cent, its inflation rate rose worryingly and its current account deficit or the difference between the foreign exchange earned by a country and spent by it, breached self-set limits.

However, the real difference is not just in the money figures which the two Asian rivals have put out, but in the way India and China will be spending that money.

India will continue to spend most of its money on its Army with 99,708 crore or 49 per cent of the defence budget, earmarked for the 1.2 million strong land force. Air force will get the next big chunk of money at Rs 57,503 crore. Navy the smallest service will receive Rs 36,343 crore, while the Defence Research and Development Organisation will get a paltry Rs 10,610  crore and India’s Ordinance Factories complex a tiny Rs 509 crore.

Despite a scandal brewing over purchase of VIP helicopters, the Air Force has become the most favoured wing of the defence ministry – with its share of the defence budget going up from 24.9 per cent to 28.2 per cent. Not only that, its allocation for modernisation has gone up by a whopping 30 per cent from Rs 28,504 crore for 2011-2012 to Rs 37049 crore for 2012-2013.

The Air force of course will be going to town with a huge shopping list and needs that money. Among other things, it needs to sign a contract to buy 126 French Rafale fighters, sometime later this calendar year. It also plans to sign deals to buy heavy lift CH-47F Chinook heavy lift helicopters, Boeing Apache longbow attack helicopters and Airbus tanker transporters.

The favour to the air force has meant the Navy and Army’s modernisation plans have received cuts by 2.8 per cent and 3.5 per cent respectively. Last year, some 31 per cent of the Rs 79,198 crore capital budget for the defence forces had been earmarked for Indian Navy, hitherto the most neglected of India’s armed forces as part of a strategy to build up India’s outreach to partly protect sea lanes used by its merchantmen, especially energy tankers which feed India’s growing appetite for crude oil and partly to counter China’s growing naval presence.

However, the real problem with Indian defence spending is that relies heavily on foreign weapon purchases – compared to the Chinese who depend more on domestic manufacture. This means India gets a) fewer aircraft or tanks or weapons for the money both countries spend. b) Their spares have to be continuously bought and c) there is always a fear of disruption of supplies because of the vagaries of foreign relations.

While India has been busy buying the C 130J Hercules heavy lift aircraft, China has been busy producing its Y-20 heavy lift aircraft, with a maximum payload of 66 tonnes and capable of flying 4,400 km. The aircraft is based on Russia’s workhorse – the Ilyushin series and still uses old Russian engines and is certainly not as sophisticated as the US built  Hercules. However, nevertheless, its functional – does the same job and costs a fraction of Hercules’s price and is paid for in China’s own currency.

C 130 J Hercules being inducted in the IAF

Similarly, while India hankers for Chinook helicopters, the Chinese have come out with the 13.8-ton AC313 heavy lift helicopter. Unveiled last year, this aircraft is a larger and modified version of the 7-ton Zhi-8 medium transport helicopter that is a close copy of the French SA 321 Super Frelon. China had bought 13 of the French helicopters in the 1970s and at least one was reportedly disassembled for study and reverse-engineering.

 India, despite its head-start in aircraft manufacturing, having started making aircraft in the 1940s and jet engines in the 1950s, has proved itself incapable of even reverse engineering the many makes of aircraft it has bought and makes under license.

The story with tanks is no different. Despite grand announcements, the Arjun main battle tank has proven to be a flop story. Just under 50 of them have been built and no regiment equipped with these home-made tanks. India still depends on old Russian T-72s and the slightly `newer’ T-90s.

Despite having bought the 155 mm  Bofors howitzer guns in the late 1980s along with the technology, domestic politics, saw projects to build them locally shelved for decades. This year, at long last the Indian army has placed orders with Ordinance Factory Board to build 114 of them with slight modifications.

Bofors Gun in action at Kargil

Contrast this with the Chinese model. Besides, the heavy lift aircraft, Beijing has succesfully reverse engineered Russia’s Sukhoi aircraft and America’s stealth technology. Its J-20 and J-31 aircraft may be doubted by western analysts, but like most Chinese take-aways these advanced fighter jets are likely to be value for money products, though not as advanced as their western counterparts.

Just one and half decade back, China like India, was a major importer of weapons. However, in the last decade and a half, it very consciously worked to `catch up’. It reverse engineered British missiles, worked on Soviet era fighter jet platforms to work in improvements. It used students and scientists sent abroad on exchange programmes to spy on rival systems, a few of which were openly available, some commercially buyable.  It hired out-of-work Soviet weapons scientists and specialists and restructured its own defence research and production labyrinths. 
The Middle Kingdom has also strategised by coming up with innovative ideas to take on its arch rival – the US – whose military size, strength and spending - dwarfs everyone else. Beijing is believed experimenting with `bugs’ in telecom and power equipment which could cause power and communication systems in client countries to collapse. It has again reportedly trained armies of hackers who can play havoc with computer based command and control systems in a wide range of areas and is perfecting satellite warfare capabilities to take out the communication lines of the enemy. It has also reportedly strategised on using low cost, small yet very fast strike craft to disable enemy fleets including aircraft carrier groups.

China's J-31 stealth fighter

Despite this defence-industrial complex model next door, India’s focus on indigenisation is more than missing in its annual budget. It has yet to fully realise the potential for indigenous manufacture of high tech weapons or for innovating new attack systems which could be cheap or involve less high tech inputs.  Unlike the west, the private sector is hardly involved in manufacturing weapon systems in India. India had allotted just under Rs 90 crore in 2012-2013 for projects under which Indian companies can design and make advanced defence equipment. In the year 2013-14, that amount has been cut down to a measarable Rs 1 crore, possibly because the amount set aside for 2013 has been returned unused!

The private sector too has proved itself as yet, incapable of meeting the challenges required to make quality platforms needed by the armed forces. The Mahindra& Mahindra manufactured `Axe’ jeep touted as India’s answer for a Future Infantry Combat Vehicle failed its test and army officers still swear the best vehicle they have used is the old, fuel-guzzling 1960s Jonga. 

However, this could well change. Indian private industry as lethargic as India’s public sector in doing meaningful research or development, has started using its new found cash reserves to buy up foreign firms in technology areas where India needs to catch up. India’s Tata group whose cars such as Indica and Nano weren’t perceived to be among the best technologically, has in the last decade bought Jaguar-LandRover, giving it access to world class technology. Mahindras have similarly bought Korean car-maker Ssangyong. Its cars are not considered great in terms of design but are grudgingly accepted as value for money, robust vehicles. 

A joint venture Memorandum of understanding inked earlier this year, between France’s Dassault Aviation and Reliance Industries Ltd will build components and eventually assemble Falcon business jets in India. These are signs of what may come about. If India can use this new found confidence in its private sector and builds up on the momentum by getting universities to work in tandem with ordinance factories and the private sector, its defence budget can literally earn more bang for the rupee in the years ahead.