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India counts cost of Soviet ties.

India which long put its trust in the Soviet Union as its closest ally, is now counting the cost of this heavy dependence. For reasons now seen as short sighted, India allowe4d bilateral trade with the Soviet Union to grow to 13 per cent of the country's commercial imports and exports. India also purchased almost 70 per cent of its military supplies from the Soviet Union and drew heavily on Soviet equipment for its steel mills, hydro-electric dams and other heavy engineering projects. Estimates of the cost to the Indian economy and the armed forces of the disruption in the Soviet Union vary enormously. It is expected Indo-Soviettrade would drop by 20-40 per cent this year from what the two governments had initially anticipated.

But both the government and Indian industry are in the dark over what the level of trade will be next year. Disputes have to be resolved over exchange rates, financing and the treatment of India's debt to the Soviet Union. The Indian side say they do not know whom to deal with in the Soviet Union. A trade protocol that should have been signed in October was postponed.

On the military side, the Indian air force and navy in particular are beginning to suffer from their dependence on Soviet equipment. There have been reports of MiG-21s, MiG-23s, and MiG-29s that have been grounded because of shortages of spares, as well as of problems with the Schika surface-to-air missile system with Soviet-purchased multiple rocket launchers and with radar systems. Western diplomats say that the Indian airforce could be virtually grounded by January. A third of the Indian navy is in port. India is seeking spares from East-European countries. It has also examined the possibility of producing key components here. But this has run into the difficulty of obtaining dual purpose machine tools from both Western and Soviet suppliers who are restrictive over selling to nations in areas of conflict.

In contrast to the foreign ministry's figures, the commerce ministry reckons that only 53 per cent of a downward revised target of Rs. 75bn (Pound Sterling 1.7bn) in two-way trade will be achieved this year. The Soviet Union is expected to deliver only 23,000 of the 70,000 tonnes of newsprint it had promised. By August supplies of the 7m tonnes of crude oil and petroleum products expected from the Soviet Union were running at 50 per cent of what was scheduled. There have been no deliveries of the non ferrous metals that had been projected and none are expected. Imports of fertilizers howevr, are almost double the level projected. In terms of exports from India, the Soviet Union is hungry for textiles, knitwear leather goods, consumer durables, tea coffee, soaps and detergents. But many Indian suppliers became nervous in April when there were long delays in payments. Also India, which came close to defaulting on its foreign debt earlier this year and is under immense IMF pressure to cut its budget deficit has had to lend the Soviet Union about Rs. 20bn over the last 18 months to maintain exports at even this depressed level.

A further cause of uncertainty is the exchange rate. Trade between the two countries is denominated in rupees at a mutually agreed exchange rate. But with the rouble fast depreciating, India feels it selling its goods far too cheaply. For all these reasons, both importers and exporters are unclear about that the future holds.

New Investment Policy

India expects its military exports to reach give billion rupees during the nexttwo years. A study group has been established under the leadership of Secretary Defence N.N. Vohra to promote these exports. The Indian Federation of Engineering Industries has already agreed to chalk out the list of those private organisations which were earlier secret or there was government monopoly on defence production in them.

The Indian exports for the time being include apart from some non-military products, many types of arms and Soviet model training aircraft and helicopters. The annual value of these military exports is Rs. 780 million. It is estimated that by 1993, India would be able to export short and medium range missiles, Soviet T-72 type tanks and electronic system to fire the missiles on their targets. The Indian arms manufacturing sector has gained considerable expertise in naval equipment and ship-building and is producing the warships of frigated type.

The Defense Minister, Mr. Pawar, has a plan to make the arms manufacturing industry economically profitable so as to meet the defense requirements with profit. For this purpose such arms which are not to be kept secret would be handed over to the private sector, because 60% capacity of the India's 39 ordnance factories and fifty per cent capacity of the eight defense factories of the public sector are being utilized. The most important objective of the arms export increase at present, is to grow the foreign exchange income because India is currently facing the worst balance of payment situation. India is trying to seek aid from the IMF for this purpose. But the categorical instructions of the IMF are that any amount provided by it should not be used for the Indian defence budget.

India ranks at number three among the developing countries seeking defence technology and its defence industrial research department is considered to be the biggest one. India has forty-two important laboratories where nearly twenty-five fivusand people are employed out of which six thousand are scientists and engineers. But, according to a report prepared for the US Senate Armed Forces Committee India's policy for self-reliance in arms has failed because it is engaged beyond its capacity in modern arms manufacturing. Another reason is that private sector was not provided the latest arms production technology according to the requirement nor appropriate investment was made in this connection.
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Title Annotation:Global Outlook; India's military policy
Publication:Economic Review
Date:Jul 1, 1992
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