Disclaimer-This editorial may not be important from MAINS point of view, however can come in handy in case of interview.(If the panel asks for opinion on this matter). Although the editorial mentions the names of politician etc, it is more diplomatic and prudent to refer the government than naming a person in particular.
On 23 September, the Rafale fighter jet deal was signed by French Defence Minister Jean-Yves Le Drian and Indian Defence Minister Manohar Parrikar. Over half a month later, on 15 October, India and Russia signed an inter-governmental agreement for the supply of the S-400 missile system. The two deals are significant for the Indian Air Force (IAF), which is struggling with insufficient squadron numbers. While the IAF has a sanctioned strength of 45 fighter squadrons, it is currently operating at a low 35 squadrons and facing an alarming shortage in the near future when many MiG-21 and MiG-27 squadrons will be retired.
The long-winded acquisition of Rafale aircraft
When Dassault Aviation was declared the L1 winner of the Medium Multi-Role Combat Aircraft (MMRCA) contract for acquisition of 126 fighter planes on 31 January 2012, the decade-long quest of the IAF for a multi-role combat aircraft finally seemed to be hitting the right stride. However, progress on negotiations over the next two years were beset with several problems. The overall cost of acquisition inflated substantially from $12 billion to a purported $25 billion as the details of maintenance, transfer of technology (ToT) and spares support were negotiated as per Indian specifications. There were other impediments, as Dassault Aviation and Hindustan Aeronautics Limited (HAL) could not reach an agreement on the terms of guarantee for HAL-produced airframes. Even as the negotiations proceeded at a slow pace with ever-increasing complications, the sword of corruption charges hung over the whole deal. The charges were spearheaded by Subramanian Swamy on the basis of a “Carla Bruni-Sonia Gandhi bribery axis”.
French Rafale fighter jets
The basis of all the confusion with respect to negotiations, as well as the scope for corruption charges, stems from the mishandling by then-Defence Minister A K Antony. At least three senior officials in the Finance Ministry have made a file noting that the formula used for L1 bid estimation by Dassault Aviation was different from that used by the other shortlisted vendor EADS, resulting in an unfair advantage to the eventual winner, Dassault Aviation. The right course of action would have been to evaluate bids by both competitors on exactly the same terms. However, either due to the IAF’s preference for the Rafale or due to extraneous factors, Antony sanctioned further cost negotiations with a non-compliant L1 bid.
Complicating matters more, to minimise risk to his image, he instructed the negotiation committee to report to him if the computation for the L1 bid had to be handled differently. This meant that if the negotiation committee indeed found Dassault Aviation’s L1 bid non-compliant, the two years of time spent on the negotiation was wasted. It was a ludicrous decision that made no sense at all. Such gross mishandling led to not only complicated contract negotiations with major impediments but also left the door open for the deal to be a target for corruption charges.
In this backdrop of inflating cost, non-agreement on guarantee terms and cost for HAL-produced airframes and impending corruption charges, Prime Minister Narendra Modi took decisive action in scrapping the MMRCA deal and announcing an inter-governmental agreement with the French government for direct delivery of 36 Rafale fighter jets on 10 April 2015.
Inter-governmental agreement for the S-400 missile system
The inter-governmental agreement signed for the S-400 missile system on the sidelines of the BRICS summit at Goa made no detailed references to cost or induction timelines. However, it has been reported that the contractual negotiations are likely to be completed in next six to nine months with a targeted signing of the deal by April 2017. The contract is likely to result in the delivery of at least five units of the S-400 missile system.
Besides Intermediate Range Ballistic Missiles (IRBM), the S-400 system is also capable of shooting down subsonic cruise missiles, which Pakistan is likely to use for the delivery of tactical nukes. The S-400 system would be able to target an F16/JF-17-sized fighter at a range exceeding 300km, making it a highly potent addition to the IAF.
Analysis of IAF’s squadron strength
The IAF has a sanctioned strength of 45 fighter squadrons. However, the IAF is currently operating only 35 squadrons, which includes 11 squadrons of legacy aircraft like MiG-21 M/Bis/Bison and MiG-27. These 11 squadrons are due for retirement between 2018 and 2022. In the same period, the IAF is projected to add only six to seven squadrons, resulting in a major shortage in squadron strength.
Over the next few years, the IAF will add two more squadrons of Su-30MKI (2016-2019) from the current production line while two squadrons of Rafale will be delivered between 2019 and 2022. The IAF has also contracted 40 Tejas Mk1 & 80 Tejas Mk1A aircraft, of which three squadrons will be delivered by 2022.
In the first week of October this year, the IAF has sent out a request for information for a single-engine fighter to be manufactured in India under full ToT. The likely contenders are the F-16 Block 70 (purported Indian configuration) and the Gripen E. It is imperative that the Modi government moves quickly on this front so that the deliveries of the single-engine fighter could start by 2022-2024.
Currently, planned production of 14 squadrons of Su-30MKI (272 aircraft), two squadrons of Rafale, 120 Tejas Mk1/1A and a projected six squadrons (120 aircraft) of a single-engine fighter under ToT will constitute “nominal induction plan” for the IAF, representing the bare minimum modernisation path.
The IAF has publicly said that it would like to induct more Rafale fighter jets. Simultaneously, the Russian side is informally pushing the Indian government to extend the Su-30MKI production line by another 40 aircraft. Considering the falling squadron strength, it would be prudent to order two more squadrons of either Rafale or Su-30MKI. It should also be a straightforward decision to extend the production lines of Tejas Mk1A and a single-engine fighter under ToT to add two more squadrons between them. This represents an “optimistic induction plan” for the IAF, which is fairly straightforward and extremely feasible without any complications. This is easily doable with some coordination between the IAF and the Defence Ministry.
Clearly, even in the most optimistic scenario, the IAF will not realise its sanctioned squadron strength (45 squadrons) in the next 20 years. If the induction of fighter jets follows the nominal induction path, except for four years between 2016 and 2020, the IAF will operate below existing squadron levels for the major part of the next 17 years. Therefore, it is imperative that the IAF & Defence Ministry coordinate well to chase the “optimistic induction path”. Only such proactive planning will ensure a suitable squadron strength for the IAF in the longer term. Nevertheless, the bad news is that the IAF will have to operate at a low 32-33 squadrons during 2019-2024.
Rafale & S-400 as force multipliers
In this backdrop, the signing of the Rafale deal and the inter-governmental agreement on the S-400 missile system are crucial developments, as both systems can act as huge force multipliers in their own way for the IAF.
The Rafale jet is an excellent 4.5 generation fighter jet that comes equipped with potent armaments in the form of Storm Shadow stand-off ALCM and Meteor long-range BVRAAM. However, it is the low observable airframe equipped with an AESA radar and a SPECTRA jammer that makes it a potent force multiplier when the IAF’s inventory of aircraft is equipped with an ODL. Rafale would be able to leverage its low observable and long-range detection capabilities to detect enemy aircraft earlier, and share tactical combat information with other aircraft (such as Tejas, Mirage 2000 and MiG-29) equipped with an ODL. With its ability to act as a mini-AWACS or fighter director in a network-centric environment, the Rafale aircraft can be a significant force multiplier for the IAF.
The Saab 2000 Erieye AEW&C aircraft act as a buffer or balancer for the Pakistan Air Force (PAF) against the air superiority enjoyed by the IAF. With a targeting range exceeding 400km for the AEW&C operated by the PAF, the S-400 system makes it near-impossible for the PAF to operate their AWACS system while the IAF would be able to freely deploy its AWACS due to PAF lacking equivalent systems that can endanger the AWACS flying inside Indian territory. Any PAF fighter deployment will also have to contend with the threat of being targeted by the S-400 missile system. By virtually plugging the western border and severely limiting the deployment of PAF AWACS, the S-400 acts as a huge force multiplier.
Conclusion
The multi-pronged force multiplier impact provided by the Rafale and S-400 missile systems is a much-needed shot in the arm for the IAF. Even with lower squadron numbers, the IAF would be able to establish air superiority over the western border with the upgraded Mirage 2000 and MiG-29 fighters supported by a small compliment of Rafales and/or Su-30MKI. This essentially allows the IAF to deploy a major portion of its best fighter assets (Rafale & Su-30MKI) to defend the northern border in the eventuality of a two-front conflict.
While the low and falling squadron strength of the IAF is a big concern, the Rafale and S-400 acquisitions can act as a bulwark against the inevitable low squadron strength in the near future. After a decade of decadence, the Modi-Parrikar duo deserve accolades for their decisive action in untangling the Rafale fighter jet deal, and for the very quick progress on the S-400 deal.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.