- Major industrial, acquisition and fiscal structural problems will continue to limit the potential of Indian military reform.
- The cost of salaries and pensions will constrain defense spending.
- The country's own arms industry will remain heavily reliant on foreign partners.
- India's struggle to replace aging aircraft and address issues such as ammunition shortfalls would pose a risk to the military on the battlefield.
India has taken a military leap forward over the past decade. In 2012, it tested its first intercontinental ballistic missile, the Agni-V, now thought to be operational, and in August 2016, it commissioned its first nuclear-powered ballistic missile submarine, the INS Arihant, making it the first country from outside the permanent members of the U.N. Security Council to operate such a vessel. Its shipbuilding industry has also taken considerable strides, launching the India-constructed Kolkata-class destroyer starting in 2006 and the country's first domestically designed and built aircraft carrier, the INS Vikrant, in 2013. But despite those impressive feats, a number of structural and systemic problems continues to hamper Indian military modernization and reform.
Budgetary and Bureaucratic Obstacles
The Indian defense budget is a consistent constraint on the military's modernization. Though overall defense spending has continued to quickly rise over the past few years, topping $50 billion for fiscal year 2017, much of the increase has been sunk into pensions and salary bumps or negated by inflation. The implementation of the One Rank One Pension reform initiative in 2016 — a longstanding request from service personnel and veterans — has already led to a significant jump in pension costs, with another 36 percent jump projected for 2017. Partially as a result, according to Defense News, the latest proposed budget sliced funding for naval equipment by 30 percent and air force equipment by 6 percent.
A notoriously slow acquisitions process has compounded the funding issues. Efforts to weed out the sort of corruption that tainted past equipment deals have led to numerous suspensions of deals pending investigation, the blacklisting of firms and significantly delayed procurement projects over the past 15 years. From 2002 to 2012 alone, more than $5 billion of allocated procurement money is believed to have gone unspent because of these delays.
The troubled acquisition process would be less of an issue if India could rely more on its own fledgling arms industry, but the country remains the world's largest weapons importer. As part of its Make in India initiative, New Delhi has sought to prioritize awarding a number of contracts to domestic companies, in some cases severely limiting participation from foreign vendors — as was the case with a program to upgrade the Pechora air defense system. Furthermore, India has actively targeted technology transfer and "offset" arrangements (where the seller reinvests part of the value of a contract into Indian research and development) as part of its arms import agreements as a bridging mechanism toward a maturing local defense industry. Over the past decade, India has secured approximately $5 billion in offset money, a third of which has been funneled into domestic defense manufacturers. The Indian government expects offset funds to grow to $1 billion annually in the coming years.
Still, India's effort to expand its domestic arms industry continues to face significant hurdles. For example, Bloomberg has outlined how 13 out of 25 contracts signed since 2008 have failed to meet their offset obligations. In many of these cases, local industries have been unable to meet production quotas because of inadequate technical or production capacity, stemming the allocation of offset money. Furthermore, offset money has disproportionately gravitated toward relatively rudimentary production tasks, with the bulk of the advanced manufacturing done abroad or by foreign companies. Given the limitations, some foreign vendors apparently would rather pay the contract penalty than meet their offset agreements.
The limitations of the Indian domestic arms industry are perhaps best highlighted by the effort to develop the Tejas light combat aircraft, a priority for an Indian military facing a significant shortfall in fighter aircraft. The aircraft, developed by Hindustan Aeronautics Ltd., is already decades behind schedule and still not fully developed. Moreover, despite a significant effort to maximize indigenous components on the fighter, the key combat systems of the aircraft remain of foreign origin. These include a U.S.-made engine, a Russian gun, an Israeli radar and a British ejection seat.
Implications for Indian Military Readiness
The combination of funding, acquisition and industrial problems are clouding what should be a bright defense outlook — with real-world consequences for the Indian military's force structure. For instance, the military has a standing requirement for 42 squadrons each comprising about 18 combat aircraft, but it currently has fewer than 33 such squadrons. This number is expected to shrink to 22 squadrons by 2032. The declining number of combat aircraft is being driven by two factors. The first is the age of the fleet, with a high number of combat aircraft, including the MiG-21 and MiG-27, due to be retired in upcoming years. The second stems from the laborious process of procuring replacement aircraft, which is greatly delaying force recapitalization. The 2001 tender for the Medium Multi-Role Combat Aircraft (MMRCA), for instance, was originally intended to purchase 126 fighter aircraft. By 2016, however, only 36 French Rafale jets had been ordered.
Procurement problems have extended to the availability of spare parts. India's premier combat aircraft, the Su-30MKI, continues to suffer low serviceability rate — the share of the fleet available at any particular time — largely because of shortages of spare parts. The Indian air force has only recently managed to boost Su-30MKI readiness from 46 percent to around 63 percent. The military hopes that a prospective agreement with Russia facilitating production of spares in India will enable it to reach its serviceability rate goal of 75 percent in the coming years.
Meanwhile, the Indian military is also experiencing a significant ammunition reserve shortfall. A May 2015 report by India's comptroller and auditor general highlighted how available ammunition reserves for 125 of 170 different army weapons were insufficient for even 20 days of war-fighting. This problem was likewise blamed on limited production capacity and an excessively slow acquisitions process. A year later, the situation had not changed much, with shortages even affecting internal security forces under the Ministry of Home Affairs, which identified a 75 percent shortfall in 9 mm ammunition. This reportedly has forced paramilitary units to ration ammunition supplies in combat operations against Maoist insurgents and other militants.
Overall, the Indian military is still in a period of growth and transition. Advances in the maritime and aerial spheres over the past 10 years have been particularly significant. Nevertheless, major obstacles related to acquisition and budgetary issues remain, clouding the future of Indian military modernization.