By Avascent Analytics team
A quick look at the biggest stories of the week
India • Bulgaria • Croatia • Canada
Avascent Analytics introduced a segment to the Weekly Wire called “Beyond the Headlines.” Each week, we will provide an in-depth look on various defense topics, ranging from country-specific defense news to emerging technologies impacting defense.
India’s Upcoming Election and its Impact on Defense Spending
Shane Mason, Senior Market Analyst
India will hold national elections in April or May 2019. Polling suggests that the current government, led by the Bhartiya Janata Party (BJP) and PM Narendra Modi, will probably be strong enough to secure re-election if its core supporters turn out to vote. Seemingly untouchable after a landslide victory in 2014, the government has been losing support in recent months to the opposition Congress party, led by Rahul Gandhi—the son, grandson, and great-grandson of previous Indian prime ministers. Congress won important state elections in December with a platform focused on the economy and anti-corruption, while the BJP appealed to populist themes within its base of Hindu nationalist supporters.
Although official forecasts of seven percent economic growth in 2019 cements India’s reputation as one of the most exciting emerging markets in the world, that topline growth has not been felt evenly throughout the country, causing problems for the government. Rural farmers, angered by soaring agriculture costs and shrinking profit margins, led a series of protests in New Delhi in 2018 demanding a government response to their crisis. The government’s 2016 demonetization initiative—the de-circulation of over 90 percent of the country’s currency notes ostensibly to combat corruption—led to rupee shortages which devastated those whose wealth was tied up in cash, like rural workers.
Defense procurement has been an important part of the Congress party platform. Rahul Gandhi has conducted a relentless campaign accusing the government of corruption over the procurement of 36 Rafale fighter aircraft in 2016. Even though India’s supreme court last month gave the government a clean-chit on the Rafale procurement, the accusation seems to have struck a chord with voters, who often experience corruption in their daily lives and resent perceived greed among the political class. In an irony of history, it was a corruption scandal related to the procurement of artillery built by Sweden’s Bofors AB in the 1980s and 1990s that ultimately brought down the government of PM Rajiv Gandhi, Rahul’s father. The case was still being investigated when Gandhi was assassinated by a member of the Tamil Tigers in 1991.
A consensus among political analysts in Delhi seems to be that this will be a bruising election. Narendra Modi’s government will probably maintain power but will likely be diminished and forced to form a coalition to maintain a parliamentary majority. The Congress party returning to power as part of a large coalition is now considered a possibility, albeit a remote one. If Congress defies expectations and were to form a government, it would generate uncertainty about the Rafale order and India’s defense procurement outlook moving forward.
On December 31, the Indian Ministry of Defense submitted a 2018 Year in Review publication to parliament outlining ministry accomplishments and key acquisitions. The document emphasizes government efforts to build the country’s defense industrial base, citing the creation of two Defense Production Corridors in the states of Uttar Pradesh and Tamil Nadu, with an emphasis on creating incentives for private firms to enter the defense sector. It also highlights changes made to defense budgeting in 2018, when the ministry created a rule delegating the Vice Chiefs of the three services the power to spend up to $70 million for emergency acquisitions.
The document also notes the Army’s role in Kashmir, arguing that the security situation there has been “brought under control.” This statement belies evidence to the contrary, as 2018 was the deadliest year in Kashmir in a decade, with over 324 militants and security forces killed. Should security deteriorate further, more resources may be devoted to the Army and its posture in the country’s only Muslim-majority state.
Bulgaria is considering acquiring eight F-16V Block 70 fighters to replace its fleet of MiG-29s in a deal that could be worth $1.1 billion. The Bulgarian government is moving forward with setting up talks with the US on potentially acquiring the aircraft, however, there has been some criticism surrounding the potential acquisition stemming from government officials and competitors. Sweden offered its Gripen as a potential candidate, stating that its offer was under budget for the acquisition and would offer a long-term payment option where as critics of the F-16 acquisition have pointed out that the US would require payment upfront and remain skeptical the first F-16 delivery would take place within two years. In addition to the Gripen, Italy was offering secondhand Eurofighters. Top government officials President Rumen Radev and Prime Minister Boyko Borissov are at odds over the fighter jets, with the former in favor of the Gripen. The Gripen had been favored by the previous Bulgarian government but under Prime Minister Borissov’s administration the tender was re-launched.
A potential $500 million Israeli sale of 12 used F-16s to Croatia has been blocked by the US State Department, throwing a wrench into Croatian plans to replace its old MiG-21s. The US State Department said that Israel must remove all upgrades and related components from the F-16s before Israel can transfer the aircraft to Croatia. The US has become increasingly sensitive with regards to the leaking of proprietary technology, and it’s possible that US officials do not have enough confidence in Croatia’s ability to keep certain US technologies and intellectual property secure. The block could also be seen from a business perspective, where the US had argued that Israel would be profiting from a program that was part of an aid package. If Croatia does eventually receive stripped-down ex-Israeli F-16s, it would likely renegotiate the terms of the agreement, especially how much Croatia will pay for the stripped-down fighters. However, this also raises concerns in Croatia that such a deal would make it harder for Croatia to meet NATO’s goals to have all members spend 2% of GDP on defense.
Canada is expected to receive the first two secondhand F/A-18s from Australia this spring after finalizing a deal to acquire a total of 25 secondhand fighters. The 18 aircraft plus an additional seven which will be used as spare parts, are part of an interim solution for the Royal Canadian Air Force as it awaits the acquisition of new fighters to replace its aging CF-18s. The acquisition of the secondhand fighters cost CAD 90 million (USD $67.7 million), but the total cost which includes lifetime and logistical costs is estimated to be CAD 500 million (USD $376 million). Canada is looking to replace its fleet of CF-18s with 88 new fighters in a competition worth a total of $12.2 billion. A contract is anticipated in 2021-2022. Current competitors include the F-35, Eurofighter Typhoon, Gripen, and F/A-18 Super Hornet. Dassault Aviation was offering its Rafale fighter but withdrew from the competition in November 2018 after deciding that it would not be able to fulfill Canada’s interoperability and intelligence sharing requirements.
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