When equipment is procured or leased, it is subordinate to the MoD’s overstretched budget due to shrinking outlays and large liability payments for previously acquired materiel. Hence, unbridled equipment leasing will pressure the services’ shrinking capital budgets and impact their revenue budgets which will have to bear the cost of maintaining the leased equipment

by Amit Cowshish and Rahul Bedi

Beset by a continuing financial crunch, India’s Ministry of Defence (MoD) and its armed forces have seized upon leasing an assortment of badly needed platforms and equipment from abroad to mitigate enduring operational gaps.

Hyped as an ‘innovative’ alterative, leasing was introduced as yet another procurement category in the Defence Acquisition Procedure 2020 (DAP-2020) launched last October.

The DAP-2020 claims that leasing military equipment was ‘advantageous’ as it enabled the armed forces to swiftly acquire assets without incurring large capital expenditure and other administrative costs, besides allaying obsolescence handicaps.

Consequently, all three services had initiated a flood of inquiries and negotiations to lease varied platforms like naval utility helicopters (NUHs), mid-air refuelers, basic training aircraft, minesweepers and unmanned aerial vehicles (UAVs), among other kit.

But in their keenness to haphazardly pursue this unexplored leasing option, the MoD, military, defence analysts and media appear to have disregarded that lease rent and other associated costs have to be disbursed from the existing stressed budget outlay. Besides lease rent payable to potential lessors over pre-determined intervals, the high cost of modifying platforms or equipment to meet the military’s operational requirements and insuring them too would have to be borne by the respective services from their annually shrinking outlays. As, of course, would the eventual cost of rendering the equipment, upon its lease expiry to its original state in keeping with the accepted standard international practice.

Maintaining the equipment to standards stipulated by the lessor too would be the respective services’ responsibility, unless otherwise specified. This cost could even be higher if the equipment were to be serviced and maintained by the lessor as such an eventuality would entail stationing an upkeep crew in India for extended periods.

Principally, however, whenever equipment is procured or leased, it is subordinate to the MoD’s already overstretched budget due to shrinking outlays and large committed liability payments for previously acquired materiel.

Hence, unbridled equipment leasing by the services will not only pressure their shrinking capital budgets but also impact their revenue budgets which will have to bear the expense of maintaining the leased equipment.

In short, the leasing of materiel sounds appealing, but indiscriminate renting, given the MoD’s penurious financial milieu, would be problematic. In the fiscal year 2020-21, for instance, the MoD was allocated Rs 1,24,203 crore towards capital expenditure for all three services against the Rs 2,01,286 crore which they had demanded. Even for operating revenue expenditure, the allocation was Rs 48,298 crore less than what was claimed. This, in turn, led to the Parliamentary Defence Committee cautioning the MoD against the embarrassing possibility of it defaulting on its committed liability payments, as it could reflect on India’s solvency in the global arms bazaar.

On a lighter note, one analyst remarked that the MoD’s prevailing adverse fiscal situation could end up mirroring the dilemma of an indigent, but indulgent, British aristocrat. In his unplanned and financially profligate existence, this worthy had once expansively declared that since he had no money to pay his tailor, he would simply order another suit. In all likelihood, such reasoning would find no takers in the cutthroat armament marketplace.

Meanwhile, the Indian Navy — presently operating INS Chakra, its second nuclear-powered attack submarine leased from Moscow and with a replacement boat similarly agreed upon — is the first of the three services to have fast-tracked leasing. Late last year, it had leased two non-weaponised Medium-Altitude Long-Endurance (MALE) MQ-9B Sea Guardian UAVs from the US to monitor for one year. These UAVs have been operating from INS Rajali in Tamil Nadu, but their leasing terms remain classified.

And, last month, the Navy had invited responses from overseas vendors by June 18 regarding its planned five-year lease of 24 NUHs and related support equipment to replace its fleet of legacy licence-built Chetak helicopters, inducted into service since the 1960s.

The Navy’s April 15 Request for Information to original equipment manufacturers, authorised leasing firms and government-sponsored export agencies stated that five-ton rotorcraft were needed to execute search and rescue and medical evacuation missions from ships at sea and to perform communication tasks and low-intensity maritime operations by day and night. The proposed helicopters — to be delivered to the IN within two years of the contract being signed — would need to have a residual service life of 15 years at the commencement of the lease. The lessor would also be responsible for training the rotorcraft’s air and technical crew in keeping with the delivery schedule.

The MoD is also in advanced negotiations with the French Government to lease one Airbus Defence and Space A330 multi-role tanker transport aircraft for the Indian Air Force (IAF) for training purposes. The proposed tanker that would be operated by the IAF, but maintained by the French Air Force, would in all likelihood be succeeded by leasing five more A330s to augment the reach and, hence, combat capability of the force’s combat aircraft.

The A330s have been under consideration after these tankers, operated by the French and UAE air forces, had refuelled 21 Dassault Rafale multi-role fighters to India from France since July 2020. The IAF’s remaining 15 Rafales will also be similarly refuelled by the A330s. The IAF is also considering leasing 20 basic trainer aircraft to make up for the existing shortages.

In January, the Indian Army (IA) leased four Israel Aerospace Industries MALE UAVs in response to the continuing face-off with China’s People’s Liberation Army that began last May. Proposals for additional equipment for the IA are anticipated.

In conclusion, while there is no argument regarding critical equipment voids in the military or about selectively filling them via leasing of equipment, opting indiscriminately for this conduit will adversely impact the MoD’s already pressured kitty. Fiscal and force planning remain critical.