Ajai Shukla: Defence needs projects, not FDI

Discussion in 'Economy & Infrastructure' started by AVERAGE INDIAN, Jun 9, 2014.

  1. AVERAGE INDIAN

    AVERAGE INDIAN EXORCIST Senior Member

    Joined:
    Sep 22, 2012
    Messages:
    2,762
    Likes Received:
    2,718
    Location:
    Detroit MI
    There are widespread misconceptions about raising the foreign direct investment (FDI) limit in defence production. This is especially so in the hazy post-Congress euphoria of economic azadi, where any loosening of government controls is reflexively lauded as a progressive step even when it involves issues far beyond economic liberalisation. I observed this while participating in a recent television discussion on the initiative by the ministry of commerce and industry to raise the current 26 per cent cap to 49, 74 or even 100 per cent. My co-panellists - one from the Bharatiya Janata Party (BJP) and the other from the Congress - had little interest in debating whether, or how, a higher FDI cap would boost indigenisation. Instead, they squabbled over credit. The BJP member boasted about his party's purposefulness on defence; the Congressman claimed correctly that the United Progressive Alliance had already permitted 100 per cent FDI for firms that brought in high technology. Ironically, they were both seeking credit for giving foreign arms vendors concessions that are both unprecedented and unnecessary.

    FDI in defence is usually considered in a highly simplistic context, summarised in a 2010 proposal by the Department of Industrial Policy and Promotion (DIPP), which has now been dusted out again. The 2010 proposal notes: "Manufacturing within the country … will be a better option than importing the equipment from abroad... The general perception is that the present FDI cap of 26 per cent discourages original equipment manufacturers (OEMs) from bringing in proprietary technology, as OEMs may be reluctant to license their proprietary technology to a company in which their equity is restricted to a minority of 26 per cent. This has resulted in India not being able to access the latest high-end technologies available."

    This argument is plain wrong. Since 2006 the government has permitted 100 per cent FDI in defence on a "case-by-case basis", that is, for OEMs who bring in high-end technology to build weaponry in India. Since then, not one OEM has responded with a proposal, nor is anyone likely to. That is because even when a vendor sees a terrific business case in building defence systems in India, it is not her board but her government that will have the final say on technology export. The OEM can release no proprietary technology to an Indian production unit, even fully owned, without the home government's explicit sanction. This requirement is legislated by every major defence exporter through laws like the US International Traffic in Arms Regulations. As the Federation of Indian Chambers of Commerce and Industry wrote to the government in 2010 while contesting the DIPP proposal, "A 100 per cent owned Indian subsidiary (hypothetical case) of an OEM thus has no special status when it comes to obtaining technology from [the] overseas parent company."

    The DIPP is even more mistaken in measuring indigenisation in the framework of percentage of manufacture rather than design capability. There is no truth in the belief that transferring defence manufacture to India, even of low-to-medium-end equipment, would make the country more secure or its defence more affordable. Instead, the crucial first step in indigenisation is to nurture the expertise needed for designing major weapons platforms in accordance with our operational requirements, environmental conditions and user capabilities. India must build on its growing ability to design the major weapons platforms it needs - tanks, artillery, battlefield communications, warships and fighter aircraft. It is acceptable to initially build these platforms with foreign components that are readily available over the counter, especially to a high-volume buyer like India. Just as western OEMs see no conflict in designing defence electronics and avionics with computer chips built cheaply in Southeast Asia, India should have no problem in initially building its fighters with foreign engines and cockpit avionics; its tanks with bought-out engines and thermal imaging sights; and its warships with imported engines and transmission. Having established design capability, manufacturing indigenisation can proceed based upon an evaluation of what sub-systems can be manufactured cheaply in India, and what would be essential for supporting the basic platform through its service life.

    This fundamental truth animates the Kelkar Committee report of 2005, which notes: "There is an urgent need to review the whole concept of indigenisation and self-reliance and it is time to go beyond the idea of looking at indigenisation purely as import substitution of components, sub-assemblies, etc within the country from raw materials. Today indigenisation as a concept will need to involve capability enhancement and development, increasing know-why, design and system integration, rather than having numerical targets."

    Once the defence ministry prioritises design capability over manufacture, the logical next step would be to prioritise "Make" category acquisitions over other categories like "Buy & Make (Indian)", which involves the production of foreign weaponry by an Indian manufacturer, based on technology transferred by the OEM. It is often forgotten that the "tried and tested" weapon thus built would be technologically 15 to 20 years old when it enters service - at least five years in development, five years in host country operational service and five years in evaluation and production for India's military. With the hope of exporting such a system bleak, the Indian production line would shut down after fulfilling the domestic order. Furthermore, the OEM does not transfer key technologies for production in India; the Defence Procurement Procedure allows the retention of "proprietary technologies".

    In contrast, the defence ministry should act purposefully on its oft-expressed intention to promote "Make" category projects, in which Indian consortia develop and manufacture futuristic platforms, co-opting foreign OEMs only for inaccessible technologies. This category galvanises indigenisation across the spectrum, from research, design and development to manufacture, with the intellectual property rights resident in India. While the defence ministry is already committed to funding 80 per cent of development cost, the user service should contribute another 10 per cent. Success would depend heavily upon the full involvement of user services in the integrated project management teams that oversee each project, rather than outsourcing technology management to the Defence Research and Development Organisation, which is the current tendency. Currently there are just two "Make" category projects under way. Stepping these up to 100 to 150 would galvanise India's defence industry and put an end to the uninformed FDI debate.

    Ajai Shukla: Defence needs projects, not FDI | Business Standard
     
  2.  
  3. Hari Sud

    Hari Sud Senior Member Senior Member

    Joined:
    Mar 31, 2012
    Messages:
    1,054
    Likes Received:
    855
    Location:
    Ontario
    If loosening of strings of FDI was so laudable under UPA, then how come no foreign military goods vendor ever decided to set up shop in India.

    The author of lead paper above is not making clear, what is the best policy for India. Restriction on FDI on military goods and hardware manufacture by UPA has done greater damage than good.

    Too many conditions and too much of bureaucracy was holding movement on any defence related project.

    When you want more experienced defence contractors to bring in technology which India does not have, but badly need it then India has to spread a welcome mat. One of the mats is to remove all conditions and hold ups on establishing a manufacturing base. Very incorrectly India has been insisting that foreign vendors enter into collaboration with inefficient public sector companies, OFB, HAL and others on manufacturing military hardware. All these have been a drag for any foreign vendor to come to India.

    Alternative is import. That is path India has pursued for the last two decades. First, it gave rise to corruption, influence peddling and delays. Second, India was permanently dependent on imports. Third it was drain on India's foreign currency reserves.

    I am arguing for Raising the FDI limit to bring vendors to India to supply us what we need.
     
    Last edited: Jun 10, 2014
  4. Kaalapani

    Kaalapani Tihar Jail Banned

    Joined:
    Apr 15, 2014
    Messages:
    613
    Likes Received:
    280
    Location:
    india
    FDI will help all those inefficient PSU to adopt or cease to exist.
     
    Sameet Pattnaik likes this.
  5. arnabmit

    arnabmit Homo Communis Indus Senior Member

    Joined:
    Dec 25, 2012
    Messages:
    5,894
    Likes Received:
    5,859
    Location:
    Kolkata
  6. Twinblade

    Twinblade Senior Member Senior Member

    Joined:
    Dec 19, 2011
    Messages:
    1,405
    Likes Received:
    2,414
    Wait what ? his article says the exact opposite thing. He says no one will bring critical technologies with 100% FDI and 'Make' (read domestic) projects are the way to go forward.
     
  7. arnabmit

    arnabmit Homo Communis Indus Senior Member

    Joined:
    Dec 25, 2012
    Messages:
    5,894
    Likes Received:
    5,859
    Location:
    Kolkata
    You misunderstand. The proposal is not blanket 100% FDI, but graded depends on who brings in what technology. Companies sharing 100% technology would get 100% FDI, Those bringing none would get minority share FDI allowance.

    Ajai Shukla is against technology coming in, hence spreading canards about the proposal. He would much prefer we keep buying so that he can play a role in it.

     
  8. Twinblade

    Twinblade Senior Member Senior Member

    Joined:
    Dec 19, 2011
    Messages:
    1,405
    Likes Received:
    2,414
    Companies sharing critical technologies are already allowed to bring 100% FDI. Not one company has done so till date. What the NDA government is doing is just old wine in a new bottle, rather old piss in new bladders.
     
  9. arnabmit

    arnabmit Homo Communis Indus Senior Member

    Joined:
    Dec 25, 2012
    Messages:
    5,894
    Likes Received:
    5,859
    Location:
    Kolkata
    Really? Didn't know about any existing rule of 100% FDI which brings in critical technology. Links please!

     
  10. Ray

    Ray The Chairman Defence Professionals Moderator

    Joined:
    Apr 17, 2009
    Messages:
    43,118
    Likes Received:
    23,545
    Location:
    Somewhere
    Ajai Shukla has failed to tell us why the UPA failed inspitr of higher cap.of 100% FDI.
     
  11. arnabmit

    arnabmit Homo Communis Indus Senior Member

    Joined:
    Dec 25, 2012
    Messages:
    5,894
    Likes Received:
    5,859
    Location:
    Kolkata
    Ajai Shukla is one of the ex-army "expert consultants" who wanted to gift Siachen away to Pakistan. You think he would ever speak anything against UPA?

     
  12. abhi_the _gr8_maratha

    abhi_the _gr8_maratha Senior Member Senior Member

    Joined:
    Apr 15, 2014
    Messages:
    2,194
    Likes Received:
    598
    Location:
    aurangabad
    ajay shukla is noob + bot combination
     
  13. Sameet Pattnaik

    Sameet Pattnaik Regular Member

    Joined:
    Jun 12, 2014
    Messages:
    123
    Likes Received:
    36
    Location:
    Dhule
    IS he Indian if he is then its time to hunt him down !
     

Share This Page