The South African outreach, which has defence ministry officials stressing how blacklisting will happen only in rare cases, comes in the run-up to the signing of the US defence pact.
New Delhi: The Modi government is dusting off India’s relationship with South African defence companies, a decade after the previous UPA government hastily blacklisted Denel SOC, the country’s largest state-owned aerospace and defence technology conglomerate.
Over the last three months, two different teams of defence ministry officials have visited Pretoria, specifically to pitch and spread awareness of the liberalised defence regime the Modi government has enacted over the last two years.
“The first delegation was sent a month before the prime minister visited South Africa in July and the second team went along with official delegation, when deeper defence ties were announced between both countries,” a defence ministry official, who declined to be identified, told The Wire.
The evangelisation of the ‘Make in India’ project – and especially indigenous defence production – in countries and defence markets across the world has become an urgent necessity. Despite a more liberalised foreign investment regime, the total amount of FDI inflows in the defence sector over the last one-and-a-half years stands at just a little over Rs 1 crore.
In countries like South Africa, which has had major companies such as Denel SOC blacklisted in India over allegations of kickbacks and corruption, defence ministry officials are scheduling meetings to walk company executives through new rules that allow firms to hire third-party agents to help secure contracts.
According to one defence analyst who was present at such a meeting in July, government officials specifically stress how blacklisting will be applied in the rarest of rare cases and how violations will be met with a graded penalty system instead.
“There are both pluses and minuses to this sort of outreach and sensitisation. On one hand, when you talk to many South African officials and sometimes companies, the elephant in the room is Denel. It was blacklisted in 2005 by the UPA government and the CBI spent eight to nine years in trying to prove the allegations of corruptions. The agency could not prove this, finally filed a closure report in late 2014 and Denel was taken off the blacklist by 2015,” said a senior defence analyst who accompanied a few defence ministry officials to South Africa.
Defence commentators have also noted in the past how the modernisation of India’s military has been delayed, in part, due to the blacklisting of several key companies. While this immediate type of blacklisting, analysts point out, is certainly warranted in some cases, in others it proves quite detrimental.
“For instance, Denel was confronted with allegations of bribery in securing its India contract and was accordingly blacklisted. But the contract for artillery guns, which Denel specialises in, was not replaced and has left the Indian military lacking to this date. And ultimately, the case against Denel could not be proved,” said defence analyst Pranab Chakroborty.
On the other hand, as experts The Wire spoke with pointed out, a more liberalised blacklisting policy shouldn’t result in less government vigilance. As the recent Embraer controversy shows us, not much is above the board in the world of defence purchases.
Investment from South Africa
Over the last decade, there have been a handful of South African investments, either directly or indirectly through technology partnerships with Indian companies. The most notable partnership happened in 2010, when Ashok Leyland and defence systems manufacturer Paramount Group decided to set up a joint manufacturing assembly plant that would build mine-protected, armoured vehicles for the Indian military and for export markets.
Last year, Hindustan Aeronautics Limited (HAL) and South Africa’s Saab Grintek (a joint venture between Sweden’s Saab and SA’s Freetel) signed a relatively small ($80 million) deal for “integrated self-protection systems” for India’s Dhruv Advanced Light Helicopter. These systems will however not be produced in India, but will be made out of Saab’s subsidiary in Johannesburg.
These small, made-outside-India deals are something the Modi government is hoping to change this week. According to people with direct knowledge of the matter, defence secretary Mohan Kumar is leading yet another delegation to South Africa this week to the Africa Aerospace and Defence Exhibition.
“At the exhibition, the Make-in-India pitch will be strong. It presents an opportunity to follow-up on some of the promises and ties forged during the prime minister’s visit in July,” a senior defence ministry official told The Wire.
Other officials and experts dismiss the Modi government’s South African outreach as genuine, and point more towards the upcoming BRICS summit as a possible reason for the repeated visits.
“It’s true that in the last year, there has been a pronounced tilt towards the US when it comes to defence ties and generally American companies,” said Chakroborty.
According to two defence experts The Wire spoke with, the last two years in general and the last six months in specific (when it comes to matters of defence) have seen a pronounced tilt towards the US and American defence companies. The bilateral LEMOA pact and companies such as Boeing and Lockheed Martin have dominated headlines over the last six months even though prickly issues of technology transfer cast a long shadow on the timeline of any proposed deal.
“If you look at the South African defence market, there’s not much there. There may be small sub- $100-million FDI deals or a few partnerships that could help Indian companies, but nothing that could only be gotten from South Africa. Denel’s guns and ammunition could have helped at one point, but that’s no longer there. So why so much fuss,” the head of a German defence think-tank, who declined to be identified, told The Wire.
Ahead of the BRICS summit in October, and in the run-up to the signing of the LEMOA pact, defence ministry officials have also reassured their Russian counterparts that the strategic defence partnership between both countries has not weakened or become any less significant. For instance, in the last month, the groundwork for a number of mega defence deals has been laid, the two most important of which are negotiations for a future fifth-generation fighter aircraft and a number of defence purchases including the Rs 40,000 crore acquisition of five S-400 Triumf advanced air defence missile systems.
“Many of the promises given to Russian officials are very forward-looking and are just simple reassurances. The fifth-generation fighter aircraft, for instance, is many years away and the Triumf missile acquisition still has hurdles. But this kind of posturing is important when you don’t want to disturb any defence partnerships, especially with the BRICS summit coming up. It could be possible that Modi’s South Africa venture is along similar lines,” said a senior defence analyst.