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Mint
7 hours ago
- Business
- Mint
Evaluate life-cycle costs for big-ticket acquisitions by the Indian Navy
The Indian Navy has embarked upon aggressive shipbuilding. Indian shipyards have been active, with a large number of ships and submarines on order. The shipbuilding cycle has significantly reduced in India and platforms are being inducted into service at an accelerated pace. Though ship design and construction are predominantly indigenous, India still imports high-technology equipment of the so-called 'Move' category (which includes high-power engines, gas turbines and propulsion motors and the like), 'Fight' category (radars, missile systems and so on) and special category systems for specialized platforms such as tankers, aircraft carriers and submarines. Indigenization efforts in these categories, however, are currently on a fast track. Also Read: Why we must celebrate the three new warships joining India's naval fleet Military hardware projects typically require large amounts of funding. Let us take a broad look at the costs involved in warship projects. Official data is hard to come by, but we have indicative numbers. According to Defence News, Visakhapatnam Class Destroyers, inducted into service between years 2021 and 2025, have been built at a cost of about ₹36,000 crore. Their indigenization level was put at 70%, which suggests an import bill in the range of ₹10,000 crore. The next-generation destroyers that are in the pipeline are expected to cost about ₹85,000 crore; these will have an import component of about ₹20,000 crore (less than 25%), as projected. The volatility of the current geopolitical situation will demand more and more ships to be built quickly. Debates on India's defence requirements suggest that one or two aircraft carriers will be needed, along with a larger number of submarines. Can the country afford such high budgets for naval upgradation? Probably not. Also Read: Arming up: 'Be Indian, buy Indian' is a useful mantra for strategic autonomy However, all defence projects, including warship-building, have a multiplier effect on the country's economy. Prasanna Tantri and Aditya Kuvalekar on 18 May 2025 argued in the Times of India that state expenditure on defence projects in India could deliver a fiscal multiplier of around 2. This means that every rupee spent by the government on these projects should result in ₹2 added to India's annual output. Tantri and Kuvalekar propose the use of long-term borrowing to fund India's defence expenditure. This article takes their argument forward to suggest ways of funding warship-building projects of the Indian Navy. Seen from a life-cycle perspective, warship equipment has two cost components: the one-time acquisition cost and the ongoing operation and maintenance (O&M) costs. With 25-30 years of ship life, O&M costs typically far outweigh acquisition costs. New-technology equipment can either be imported or developed by an Indian supplier. While advanced systems can be bought from foreign suppliers, an Indian supplier would need to make significant capital investments in research and development (R&D) and establishing a manufacturing set-up with skilled manpower. Since project tenders under the current system go solely by acquisition costs, Indian suppliers cannot compete with their foreign counterparts on price, as the latter need not bear heavy capital costs. Also Read: China's latest naval exercises have shown how far it can project power Acquisition costs are deal-sealers because they are covered by the capital budget, whereas O&M costs come under the revenue budget. We have no structural or regulatory provision for evaluating the two costs together. But these two costs can be clubbed into 'life-cycle cost' (LCC) by following the principles of life-cycle management (LCM). The US Navy and some other naval forces follow LCM and integrated logistics support (ILS) principles for evaluating a high-cost project at its early concept or design stage to decide on the best option. There is a strong case for the Indian Navy to adopt LCM and ILS processes and consider LCC for sourcing costly equipment and systems, especially at a time when India is exploring import substitution opportunities. Research studies indicate that Indian suppliers would be far more cost effective for new-technology equipment if LCC is taken into consideration. The basic logic of this is clear: R&D costs can be amortized over the equipment life-cycle. The Navy benefits from support during the equipment's life-cycle through local maintenance contracts and shore repair facilities, while onshore testing and training set-ups smoothen the induction of platforms. It aids upgradation planning for obsolescence too. Tender decisions should thus be made on an LCC basis. There has been much debate on the affordability of aircraft carriers and submarines. Once LCC becomes the norm for comparing the bids of suppliers, the picture will change. Equipment suppliers, assured of a revenue stream throughout the life-cycle of a ship, will recalculate their offers. It could lead to a new funding model. By assuring Indian suppliers a revenue stream for 25-30 years, the country could expect them to bear a large part of the initial acquisition cost of equipment against that assurance. The capital cost burden of the ministry of defence could significantly be reduced this way, making fiscal space for the induction of more ships. Partnerships with private suppliers like L&T, the Tata Group, Adani Group, Kalyani Group, Mahindra Group and many others could make a big difference to India's naval defence preparedness. The key is to do away with the upfront funding of capital-intensive warship-building. The author is an Indian Navy veteran with a PhD in life cycle management of naval warship equipment.
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Business Standard
22-04-2025
- Business
- Business Standard
Best of BS Opinion: Fiscal fights, market machines, and policy pain
There's a makeshift wooden ladder outside my building, made out of hollowed bamboo and wedged into the ground like it has no business being there. A mason climbs it daily, with one hand steadying the paint bucket, the other reaching out for support. It wobbles, always. But somehow, he gets to the top. I watched him again this morning, the ladder squeaking as he shifted his weight — and it struck me: that's the world today. Perpetually climbing ladders that rest on shaky ground — fiscal structures, market trends, regulatory balances, old institutions—and hoping it holds long enough to fix the wall. Let's dive in. Take the 16th Finance Commission. Tasked with redistributing India's tax revenues, it is juggling rising state debt, Centre-State friction, and demands for a larger state share in the divisible pool, highlights our first editorial. Add Tamil Nadu's pitch for GDP-based distribution, and you see the ladder tilt: richer states demanding more because they 'contribute more.' But then come the cesses and surcharges. They're like loose pebbles under the ladder's feet, eroding trust. In the markets, the human touch is slipping off the rails. Algorithms now command 54 per cent of trades in NSE's cash market, notes our second editorial. They're calculating, relentless — and often incomprehensible, even to the people who built them. Manual traders are slowly being edged out, like craftsmen watching machines duplicate their life's work. Trading floors aren't buzzing anymore; they're humming quietly, in binary. It is the long-term investors who keep the paint job going despite the ground becoming increasingly wobbly, unlike the day-traders. Akash Prakash highlights another wobbly climb: the US dollar. Still dominant globally, yet overvalued, out of sync with America's real economy. With $25 trillion in foreign-owned assets and rising bond yields, the dollar's grip is loosening. It may remain the world's reserve, but its golden pedestal is built on Wall Street illusions, not Main Street reality. Closer home, Prasanna Tantri explains how gold loan regulations could backfire. The RBI's new draft treats banks and NBFCs unequally, limiting NBFCs' lending while allowing banks more leeway. But banks aren't necessarily safer. This regulatory imbalance may deny underserved communities access to much-needed credit — yet another ladder set on loose ground. And finally, Neha Bhatt reviews Policing and Violence in India: Colonial Legacies and Contemporary Realities edited by Deana Heath and Jinee Lokaneeta, a book that dissects institutional brutality. It's a stark reminder: even ladders designed to uphold justice can be weaponised when anchored in colonial design. Reform isn't about repainting rungs—it's about rebuilding the ground beneath. Stay tuned!
