The US government has steeply marked up the price of the BAE System-manufactured M-777 light weight howitzer on offer to India.
The US Defense Security Cooperation Agency (DSCA) issued a legally-required notification last week to the US Congress about the possible sale of 145 M-777 howitzers to India for USD 885 million.
But what many have failed to note is that the DSCA had first issued a notification about exactly such a sale on January 22, 2010 for the amount of USD 647 million, as was reported by StratPost at the time.
In purely dollar terms, the new price represents a 37 percent hike in the cost of the offer to India. But the effective increase in price for India would be even higher, going by the fall in the value of the rupee against the dollar since 2010.
This second notification by the DSCA is actually less a communication to the US Congress of intent of possible sale and more an indication of the revised price of the offer to India. What is also interesting is that the second notification lays out offset requirements on the part of the manufacturers, which was not the case in the 2010 text.
This proposed sale is under the government-to-government Foreign Military Sale (FMS) route, in which the US government guarantees the same price to India as is negotiated with the manufacturer for its own requirements, while levying a 3.8 percent service charge .
Defense industry watchers in New Delhi say there had been communications made by the US government to the Indian defense ministry about the possible hike after it kept the offer price constant for more than three years since 2010. But they also say that the defense ministry failed to respond and that vendors supplying the systems for the howitzer were no longer able to maintain the pricing that was quoted for this crucial artillery acquisition by India. The slowing down of the assembly line for the howitzer since the time of the original notification could also have contributed to the price hike.
Consequently, the US government was simply unable to keep the price constant indefinitely.
One reason that could have contributed to this delay was a retrospective revision of terms by the defense ministry in 2012 mandating the manufacturer BAE Systems to plough in 30 percent offset of the value of the deal into India even though nothing in the original notification to the US Congress required this of the manufacturer. With the price hike, further delays can be expected in the process since the value of the 30 percent offset requirement will also increase proportionately and BAE Systems would be required to negotiate additional offset contracts.
Another factor for the delay could also have been the lawsuit filed by Singapore Technologies challenging its blacklisting over allegations of paying bribes to the former Director General Ordnance Factories, Sudipta Ghosh, following which the Delhi High Court had briefly frozen all tenders in which the company was involved. One of the tenders was for the acquisition of light weight howitzers, in a process separate from the FMS process for M-777 light weight howitzers.
The defense ministry had finally issued a Letter of Request to the US Government for the procurement of 145 pieces of light artillery last November after the Defense Acquisitions Council (DAC) approved the purchase in May, 2012. Meanwhile, the Ordnance Factory Board (OFB) has also undertaken to manufacture the existing FH77 B02 Bofors gun indigenously, for which BAE Systems had offered assistance.
But most recently, news reports have said the defense ministry is investigating allegations of irregularities with respect to the M-777 acquisition.
All of this comes at a time when the Indian Army, having been deprived of any new artillery acquisitions since the aborted 1986 acquisition of Bofors self-propelled towed howitzers, is facing new challenges on its northern and eastern Himalayan borders. The ensuing imperatives have been recognized by the Indian government with the Cabinet Committee on Security (CCS) approving the creation of a new Mountain Strike Corps last month, consisting of around 50,000 troops at an estimated cost of over USD 10 billion.
This past summer has seen repeated intrusions and transgressions by Chinese People’s Liberation Army (PLA) troops into Indian territory across the Line of Actual Control (LAC) dividing India and Tibet. Light and easily transportable artillery would be an essential element of any new proposed Mountain Strike Corps.