Despite cash crunch, navy eyes new warships worth Rs 45,000 crore by year-end - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Sunday 5 November 2017

Despite cash crunch, navy eyes new warships worth Rs 45,000 crore by year-end

Tenders are maturing, but the navy its constrained by its lowest warship budget since 2011-12

By Ajai Shukla
Business Standard, 7th Nov 17

About two and a half years have elapsed since the navy last signed a contract for new warships – the Rs 45,381 crore deal in 2015 with Mazagon Dock Ltd, Mumbai (MDL) and Garden Reach Shipbuilders & Engineers, Kolkata (GRSE) for seven stealth frigates under Project 17A.

With numerous other warship purchases stuck in the defence ministry’s famously clogged procurement pipeline, the navy has surrendered Rs 15,041 crore rupees during the last five years from its budgetary allocation for new warships.

In four of the last five financial years (see Table 1), the navy has surrendered thousands of crores of unspent money. It returned Rs 2,543 crore in 2012-13; Rs 3,621 crore in 2013-14; Rs 5,285 crore in 2015-16; and Rs 4,371 crore last year.

Table 1:  Navy fleet: capital allocation and actual spend

              (Rs crore)




Under(-) / over(+)
(-) 2543
(-) 3621
(+) 779
(-) 5285
(-) 4371

(Source: Union government budget documents)

Only in 2014-15 did the navy manage to spend its allocation, overspending by Rs 779 crore.

Now, with contracts almost finalised for 23 new warships, the navy finds itself constrained by the lowest budgetary allocation since 2011-12. This year it has only Rs 11,023 crore for fleet expansion, compared to Rs 13,617 crore in 2012-13; Rs 11,772 crore in 2013-14; Rs 12,576 crore in 2014-15, Rs 16,050 crore in 2015-16, and Rs 12,467 crore last year.

This reduction in the fleet budget is compounded by inflation, which usually runs at 5-10 per cent annually for defence weaponry, including warships.

Now, with Rs 45,000 crore worth of warship contracts near signing, navy admirals tell Business Standard there is concern the government might cite a budget crunch. If the navy were to sign the impending contracts without delay, it would need to pay out Rs 4,500 crore, which is the traditional 10 per cent signing amount.

However, most of this year’s Rs 11,023 crore budget is pre-committed towards instalments on earlier contracts and on-going projects, including the construction of Project 75 Scorpene submarines, Project 15B destroyers, Project 17A frigates, Project 28 corvettes, the indigenous aircraft carrier, INS Vikrant, and others.

The admirals say the contracts for 23 new warships depends upon whether the government agrees to allocate an additional Rs 4,500 crore towards the “Navy Fleet” accounting head in the defence budget.

“The government thought it fit to take back Rs 4,371 crore last year and Rs 5,285 crore the year before. So, hopefully, it will find a way to enhance this year’s allocation by a similar amount”, says a senior admiral, speaking anonymously.

The 23 contracts nearing finalisation are for the building in Indian shipyards of five hydrographic survey vessels, two diving support vessels, and 16 anti-submarine warfare shallow water craft (ASWC). These will involve a pay out of about Rs 20,000 crore over 5-7 years, with an advance of Rs 2,000 crore to be paid this year.

“We have concluded cost negotiations with the shipyards that will build these vessels. By the year-end, the first two contracts should be signed. The one for ASWC needs to be cleared by the Cabinet Committee on Security, so we are targeting March 31”, said a MoD official closely involved in these procurements.

Besides these, the navy hopes to conclude another big contract this year for building four “landing platform docks” (LPDs). The estimated Rs 25,000 crore contract is currently at the bid-opening stage.

After concluding these Rs 45,000 crore worth of contracts this year, the navy’s target for 2018 is a Rs 25,000-30,000 crore contract for four Grigorivich-class frigates (Russian nomenclature: Project 1135.6). Two of these stealth frigates will be built in Russia, while Goa Shipyard Ltd will build the other two.

The MCPP and LTIPP both talk about increasing the navy’s warship strength from the current 140, to 198 warships by 2027. This would involve increasing the navy’s warship numbers by 5-6 every year; in addition to replacing 2-3 warships that retire after completing their service lives.

Towards this, the navy has about 75 vessels of various types in the procurement pipeline, which will be completed by 2027 (see Table 2).

Table 2:  Navy’s warship pipeline

Indigenous aircraft carrier (INS Vikrant)                          :           1
Project 15B stealth destroyers                                         :           4
Project 17A stealth frigates                                             :           7
Project 1135.6 frigates (from Russia)                               :           4
Project 28 corvettes                                                        :           1
Project 75 submarines (Scorpene-class)                           :           6
Anti-Submarine Warfare Shallow Water Craft (ASWC)        :           16
Mine Counter Measure Vessels (MCMV)                             :           12
Hydrography Survey Vessels                                            :           5
Cadet Training Ships                                                        :           3
Naval Offshore Patrol Vessels (NOPV)                                :           5
Deep Sea Rescue Vessels (from UK)                                  :           2
Landing Platform Docks (LPD)                                           :           4
Fleet Support Ships (FSS)                                                 :           5

TOTAL            :           75 vessels

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