The Diplomat, 6 June, 2015
What was once a robust defense trade has fallen away in recent years. Can it rebound?
As strategic relations go, few countries can match the enduring partnership that India and Russia have shared since the 1960s. For close to half a century Russia has been New Delhi’s foremost military supplier. In fact, defense trade became the raison d’être for strategic relations between the two nations – particularly in the post-Cold War era. Yet Russia’s share of military sales to India is now in steady decline. In consonance with India’s enhanced geopolitical status and strategic rapprochement with the U.S., New Delhi has found new partners in the West. And what was once the defining aspect of the bilateral relationship with Russia is threatening to become a heavy burden for both partners.
This shift has been a decade in the making and can be traced back to the 123 Agreement that India signed with the U.S. The pursuit of a “strategic partnership” with India is perhaps the most enduring foreign policy legacy of President George W. Bush. On the back of rising religious extremism in South Asia, the Bush administration was convinced that India could be a driving force for political stability in the region. Taking confidence from what Washington perceived as convergent geo-political interests, the U.S. initiated proceedings to elevate India to the status of a strategic ally. What followed was a reversal of a decades old non-proliferation policy that culminated in the signing of the Indo-U.S. civil nuclear agreement in 2005. America’s strategic rapprochement with New Delhi marked a watershed moment in India’s defense engagement with the world. Sanctions against many Indian defense entities were lifted and high technology export controls were slowly eased.
Foreign aerospace and defense majors were given expanded access to Indian markets and within the space of a decade Indo-Israel defense trade rose to $10 billion, while India’s defense trade with the U.S. has since topped $9 billion. All this has had an adverse impact on Indo-Russian defense trade. Despite robust numbers in absolute terms, Russia’s share of India’s defense pie will continue to fall, at least in the short term. In recent years, the Kremlin has lost out to other emerging export hubs for big-ticket Indian defense contracts. These include, amongst others, the 36 MMRCA contract worth $7 billion to France; 10 C-17 Globemaster-III strategic airlift aircraft worth $4.1 to the U.S.; and eight P-8I maritime patrol aircraft worth $2.1, again to the U.S.
At present, Russia’s defense industry is sustaining its considerable ties with India on the strength of the execution of contracts already in place. Barring the upcoming $11 billion contract for the joint design and development of the Fifth Generation Fighter Aircraft (FGFA) program with Russia, there are no specific plans to purchase new Russian arms. And although Russia is taking part in various Indian military tenders currently open to foreign firms, it is not a clear frontrunner in any. The EADS Airbus A330 MRTT has emerged as the preferred vendor over Russia’s Ilyushin Il-78 to supply six aerial tankers for the Indian Air Force in a $1 billion contract; Russian platforms have also fared poorly in the rotary-wing aircraft category, where Boeing’s AH-64 Apache and the Chinook CH-47F won the Indian attack and heavy-lift helicopter tenders respectively. Thus, with the fulfillment of contracts signed in previous years, there is a considerable risk that Russia will lose its decades long stranglehold on the Indian arms industry.
Already there is trouble brewing on the horizon; all signs point to Russia downgrading its military-technical relationship with India from that of an exclusive partner to a preferred partner. Such pragmatism should come as no surprise given that India has diversified its own military import portfolio and no longer considers Russia as its exclusive trading partner. Russian military export overtures towards Pakistan are now perceptible. In a noteworthy development, Russia recently decided to supply Mi-35 Hind attack helicopters to Pakistan. Prior to this, Moscow had refrained from supplying lethal military equipment to Pakistan on account of New Delhi’s strained relationship with Islamabad – the legacy of this Indo-Russian military exclusivity can be traced all the way back to the Indo-Soviet Treaty of Friendship, Cooperation and Peace of 1971. Consequently, the Pakistan deal caught many geo-political commentators by surprise; some, like Pavel Felgenhauer, have even gone so far as to call it an “important, key change in Russian policy in the region.” Conscious of Indian sensitivities, Russian diplomats have been quick – perhaps too quick – to point out that the negotiations are part of an “ongoing cooperation with Pakistan in the field of defense and counter-terrorism.” However, like a canary in a coal mine, Moscow’s recent repositioning on the matter could herald a revised Russian arms policy for the region.
This shift is significant, and is driven by what IDSA scholar, Jyotsna Bakshi, calls Moscow’s “compulsive” need to sell weapons. One of the most important issues following the dissolution of the Soviet Union was the distribution of its external state debt and assets among the fifteen successor states. Russia inherited a mammoth military-industrial complex (MIC) that comprised 1,600 defense enterprises staffing nearly two million people. Today, that number has grown to include between 2.5 and 3 million workers, representing 20 percent of all manufacturing jobs in Russia. However, Russia did not inherit an equally robust economy to support its expansive MIC. Average military expenditure as a percentage of GDP in the three years leading up to the break-up of the Soviet Union was 14.1 percent, compared with 3.8 percent for Russia between 1992 and 2013 was 3.8 percent. To make up for the deficit in military expenditure and maintain the economies of scale to sustain its resource hungry defense and R&D facilities Russia became increasingly reliant on military exports. As Bakshi points out, former Russian Deputy Prime Minister Ilya Klebanov once stated that arms exports were the “life buoy for our defense industries now that the defense budget is so small and military state orders are so few.” Thus, in addition to fostering strategic cooperation with other countries, the sale of Russian weapons to foreign nations is driven by the financial imperative of bankrolling its own domestic defense industries. In all likelihood, Russia’s decision to revive military exports to Pakistan and others is essentially motivated by the economic need to maintain a high level of military exports.
The recent upsurge in Sino-Russian military cooperation has also not gone unnoticed in India. By selling the advanced Su-35 fighter aircraft to China, Russia is potentially creating a conflict of interest for itself. With every sale of military equipment to China, Russian military hardware becomes less appealing in the Indian market; this is particularly true for the aerospace sector, where a major portion of the Indian Air Force fleet is made up of Russian imports. Some argue that the configuration of equipment supplied to India surpasses that which is supplied to China, but that claim is hard to conclusively verify given that the Chinese configuration does not go through technical evaluations or trials in India. The fact remains, New Delhi could be tempted to pursue military hardware from alternative sources, preferably from a manufacturer that could guarantee a competitive edge against Chinese imports.
The Chinese arms industry is known for reverse engineering foreign-origin military hardware and has already burned Russia in the past when it acquired a small number of Russian Su-27 Flanker jets and then reverse-engineered the J-11B aircraft. In comparison, Indo-Russian military transfers do not have such a checkered past. If China’s questionable reverse engineering practices and its already developed industrial base were factored into Russia’s decision-making calculus, India would emerge as a far superior long-term partner for the Russian arms trade. Going forward, a period of dissonance is to be expected, before India and Russia can adjust to the realpolitik of the present.
Jayant Singh is a Researcher at the Institute of South Asian Studies, National University of Singapore.