MOD Committee Recommends Increase in Defence FDI

Discussion in 'Politics & Society' started by notinlove, Jan 12, 2010.

  1. notinlove

    notinlove Regular Member

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    The Defence Expenditure Review Committee (DERC) of India has recently made recommendations for the Defence Sector, which includes an increase in the foreign direct investment (FDI) limit in the defence sector to 49 per cent and divestment of defence public sector units (PSUs).

    The DERC is a high-level committee, headed by former Secretary (Defence Finance) Mr. V.K Misra, and comprises of three former senior officers representing each of the defence wing. The DERC was formed to look into the discrepancies in arms procurement and rectify time delays, as well as other contentious issues like scams and mismanagement of defence funds.

    The DERC, whose report has not been made public yet, has criticised the procurement procedures of the three Indian defence services who, between 2001 and 2008, could not utilise funds to the tune of $8.53 billion.

    The DERC report has clearly indicated that an across the board increase in FDI limit to 49% is needed, with the provision for a case by case enhancement to 74%-100%. The DERC report states that a clear-cut disinvestment plan is needed for the PSU to increase accountability and efficiency. The report has also emphasised that the Armed Forces and the Ministries must adopt Information Technology for futuristic network-centric operations.

    The DERC also seeks a five-fold increase in the financial powers of the defence minister to roughly $100 million. This, in turn, will bring about effective change in structure and reforms pertaining to the Indian Defence Ministry. The DERC has urged the Indian government to apply the reforms in the Rama Rao Committee report, to bring about changes in the state-owned Defence Research and Development Organization (DRDO). There must be complete synergy among DRDO, Ordnance Factory Boards, defence PSUs and the private sector to address design, manufacturing and maintenance concerns of India’s defence. “The private sector needs to be encouraged for participation”, the report added. The committee suggests that the government encourage the private sector to take over foreign defence firms, and look at setting up a sovereign wealth fund for this purpose.

    Other committee recommendations include reduction of time lost between the request for information and final acquisition by way of efficient procurement processes. The DERC has clarified that, except in “strategic and operational” reasons, single source situation should be avoided. India has suffered setbacks in single vendor purchases which have led to price escalation and other contractual hazards. The DERC recommended the setting up of a defence regulatory authority to deal with a range of issues concerning offsets, defence industrialisation, capital acquisitions and potential reforms in defence sector.

    MOD Committee Recommends Increase in Defence FDI | India Defence Online
     
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  3. bengalraider

    bengalraider DFI Technocrat Stars and Ambassadors

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    All in all this report brings good news the increase in FDI should encourage more foreign players to set up manufacturing bases whithin india, However given the deep entrenchement of the OFB labor unions i do not see this(the divesment of defence PSU's) becoming a reality anytime soon.
     
  4. ..Azad

    ..Azad Regular Member

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    I agree, six broad reasons why India will attract defence FDI.

    1- India is a chosen destination for tier-I and tier-II offset vendoring, read Indian offset policy
    2- Low cost manufacturing base, with dedicated SEZ’s
    3- Cost effective Maintenance, as maintenance make 40% of most defence contacts.
    4- Low cost space technology, as many future defence projects are either directly related to space or uses sophisticated tech derived from space based R&D.
    5- World class IT industry, with most cost effective research.
    6- Like China, Indian aerospace industry is one of the fastest-growing aerospace markets, International players can’t trust China.

    "Special Economic Zone – QuEST Global SEZ"
     
  5. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    Do they have any other options?

    With so much money supposed to be reinvested in India, with hardly a decent private sector base in the defence sector, the fdi cap will have to be raised or else a lot of money supposed to be reinvested will remain unused, and parked overseas for a long time to come and may never really be used, so a sensible decision in the end.

    The significant thing is they are still not talking about change in the management control, which will still remain in the hands of Indian proprietors, though case by case scrutiny of fdi limit of 74-100% does not come as music to ears (which should remain as the rarest of the rare cases), which hopefully should not become a rule for at least another decade or so.

    The idea to introduce private sector was to create a pool of Indian owned companies which develop expertise in various defence specialized segments and not make a way for back door entry for the boeing’s, the dassault’s, the IAI’s, etc to set up their shop here with over 50.1% fdi (which technically means change in management control), which if allowed will be very disappointing because our dependence on the foreign components/companies will remain so just the way it was in the past, the only difference will be, a certain boeing will not be manufacturing in the us but in India with the technology transfer done to its Indian arm, but never shared with any Indian company, so in this nothing would have been gained other than a setup of a manufacturing unit, and with the generation of employment. The key thing technology would still be elusive.

    One would like to see the private sector grow beyond a certain big names that one hears today to some huge 500(+) companies who would have the potential of taking over certain good names in their respective specialized fields across the globe, who can nurture in house r&d supported by the GoI, and who can themselves develop next generation technology and for that we do need to remain protectionist for some time to come even if it means allowing inefficacy in the DPSUs to go unchecked, though that can be tackled with a smart management.
     
  6. ..Azad

    ..Azad Regular Member

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    Fair question thaker saab and the simple answer is TOT. Just look at all the MOU's signed till date by the major Indian houses, all of them do have this clause.

    Moreover this will help:-

    http://www.ey.com/Publication/vwLUAssets/19_Nov_09_Enchancing_role_of_SMEs_in_Indian_defence_industry_EY_CII_report/$FILE/19%20Nov'%2009_Enchancing%20role%20of%20SMEs%20in%20Indian%20defence%20industry%20_EY_CII_report.pdf
     
  7. Indianrabbit

    Indianrabbit Regular Member

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    We should get private sector involved. Private aviation companies should be setup, HAL will be overloaded.
     

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