BMI's Executive Summary

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In Q407, as in Q307, most security issues in India were overshadowed by the deterioration of the political and internal security situation in Pakistan. Most coverage of the increasing unrest in that country has focused on the legitimacy – or lack of it – of the rule of General Pervez Musharraf. More importantly, from the point of view of both India and Pakistan, the latter's army is in conflict with domestic militants on three fronts. Pakistan's army faces an insurrection in Balochistan. The fragile truce with various armed groups in North and South Waziristan has broken down. Finally, the army faces hostility from Islamic radicals who have been alienated by the army's attack on the Lal Masjid (Red Mosque).

As if this were not enough, there is no sign of any improvement in the security situation in Afghanistan, where India has committed significant numbers of people and money. Indeed, the latest reports suggest that the Taliban guerrillas and their supporters have consolidated their control on Afghanistan. Opium production has risen from virtually zero in 2001-02, when US forces first intervened in the country, to record levels.

The main implication of the latest conflict is that the risk has increased of a total collapse of law and order in Pakistan, with the result that hundreds of thousands of refugees seek to escape to safety in India. Further, there is also the possibility that parties associated with the various militant groups in Pakistan seek to undertake terrorist attacks against targets in India.

Ironically, the level of tension in Kashmir, where the armed forces of India and Pakistan confront each other (and where the latter often have tactical parity with the Indian Army notwithstanding that Pakistan's overall capacity to wage war is much less than India's) has diminished. It was only in August 2007 that the mujahideen in Kashmir (i.e. the armed groups supporting Pakistan) claimed the first murder of a prominent local Indian security official. Commercial trucks crossed the India-Pakistan border in Punjab for the first time since Partition in 1947.

Meanwhile, there was little respite in the various other conflicts involving non-state armed groups in India. In one incident, for instance, 17 people were killed when the Naxalites attacked a cultural festival in Jharkand. Sikh militants (apparently) undertook attacks against Muslims in Punjab and Rajasthan. Six people died in separatist-related violence in Northern Assam. There was fighting between the Kuki Liberation Army and Nagaland separatists in Manipur. Against this, the Indian Army and the Assam Police announced that well over 100 fighters of the United Liberation Front of Asom (ULFA) had surrendered to the authorities in two weeks in October-November 2007.

The Malabar 2007 naval exercise in the Bay of Bengal was the largest exercise undertaken in Q407. Involving the navies of Australia, Japan, the US and Singapore, it served to highlight India's interests in maintaining control over the major sea lanes to the east and south-east. In October, the governments of India and Singapore signed an agreement on the conduct of joint training and exercises. In other developments, India sent Air Force peacekeepers to the MONUC mission in the Democratic Republic of the Congo, and agreed to provide technical assistance to the armed forces of Gabon.

Other recent developments highlighted both the strengths and weaknesses of India's (state owned) defence industries. The strengths include the ability to procure significant amounts (in practice about 75%) of materiel from indigenous suppliers. Operating under licence from British Aerospace, for instance, Hindustan Aeronautics will supply the majority of 66 Hawk advanced jet trainers, the first of which were delivered to the Indian Air Force in early October 2007. Against this, the Defence Public Sector Undertakings (DPSUs) are often inefficient and bureaucratic.

Unfortunately, some of India's foreign arms suppliers also under-deliver in terms of timeliness or quality. Mid-October 2007 saw the seventh annual India-Russia Inter Governmental Commission on Military Technical Co-operation. As we discuss in this report, a recent development has been India's agreement to write off Soviet-era debt owed to it in return for participation in joint development of a new military transport plane. The two countries have also signed an Inter-Governmental Agreement for the Joint Development and Production of the Fifth Generation Fighter Aircraft. However, the delay in the refitting and delivery to India of the aircraft carrier Admiral Gorshkov remains an irritant in what is generally a good relationship.

India maintains this relationship at the same time as it collaborates with the US. As noted in early November 2007 by Defence Minister AK Antony, 'India now sources its equipment and platforms from many countries including Russia, UK, France, Germany, Israel and of late, the United States. However India's relationship with Russia is a time-tested one and will continue.' Ironically, it is opposition from the communist members of the coalition government that is led by the Indian National Congress which appears to be the most important impediment to collaboration between India and the US on nuclear technology. Quite separately, November 2007 saw the 10th meeting of the India-France High Committee on Defence Co-operation.

Contents

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Chapter 1 - SWOT Analysis

India Political SWOT

India Security SWOT

India Defence Industry SWOT

India Economic SWOT

India Business Environment SWOT

Chapter 2 - Political Overview

Domestic Politics

Finding The Path To Reform

SEZs Under Attack

Foreign Policy

Nuclear Deal In Jeopardy

Diplomatic Progress Delayed

Sri Lanka War: Regional Implications

India's Interests

Sino-Indian Relations: A 'New Phase'

Chapter 3 - Security Risk Analysis

BMI’s Security Ratings

Table: Regional Security Ratings

Table: State Terrorism Vulnerability Index

Regional Security: North And South-West Asia Q406

Overview

Inter-State Conflicts

Internal Conflicts

India Conflict Risk

India Terrorism Risk

India Physical Safety Risk

Chapter 4 - Security Overview

Internal Security Situation

Mumbai Bombs

Religion

Insurgency

Assam

Nagaland

Maoists

Refugees

External Security Situation

International Terrorism

Border Disputes

Chapter 5 - Military Structure & Defence Industry

Armed Forces

Table: Regional Armed Forces (including conscripted) 2006

Armed Forces Funding

Table: Defence budget allocation 2006-7 (Rs bn)

International Deployments

Table: India Deployments

Joint Exercises 34

Weapons Of Mass Destruction

Table: Indian Nuclear-Capable Delivery Vehicles

Market Overview

Arms Trade Overview

Imports

Exports

Missiles

Industry Trends & Developments

Joint Ventures: US And Russia

Europe And Israel

Government Strategy And The DRDO

Indigenous Limitations

Procurement Trends & Developments

Chapter 6 - Industry Forecast Scenario

Table: Defence Historical Data and Forecasts

Key Risks To BMI's Forecast Scenario

Chapter 7 - Macroeconomic Forecast Scenario

Table: GDP And Population

Chapter 8 - Competitive Landscape

Chapter 9 - Company Profiles

Indigenous Manufacturers

Hindustan Aeronautics Limited (HAL)

Ordnance Factories (OF)

Bharat Electronics Ltd (BEL)

Bharat Dynamics Ltd (BDL)

Mazagon Dock LTD (MDL)

Foreign Manufacturers

BAE-HAL Software Ltd

Rolls-Royce International

Honeywell International

Chapter 10 - BMI Forecast Modelling

How We Generate Our Industry Forecasts

Defence Industry

Sources

Chapter 11 - Appendix A: Risk Ratings Methodology

Conflict Risk Methodology

Terrorism Risk Methodology

Physical Safety Risk Methodology

Overall Risk Rating

State Vulnerability Index Methodology

Competitive Landscape for Asia Defence & Security: Sample of  
Companies Ranked

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Rankings and Competitive Landscapes by production and sales; market share and change on previous year; number of employees, ownership structure and year established. Also includes analysis of company expansion, export and investment strategies.

Network of Defence & Security Sources

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BMI's Asian Defence & Security Reports are based on an extensive network of multilateral organisations, government departments, automotive industry associations, chambers of commerce and company reports. Information sources include: