FDI in Defence Sector
- Thread starter nandu
- Start date
nandu
Senior Member
- Joined
- Oct 5, 2009
- Messages
- 1,913
- Likes
- 163
Allow 49 pc FDI in defence sector: Assocham
NEW DELHI: The domestic defence equipment industry's demand to allow 100 per cent FDI in the defence sector should be evaluated properly by the government before reaching at a consensus, industry body Assocham said today.
The industry has been asking the government to allow 100 per cent FDI in the defence sector in a view to give a fillip to the domestic manufacturing units.
The chamber has proposed that initially foreign direct investment up to 49 per cent should be allowed in the sector, instead of 100 per cent.
Consensus has yet to emerge on hiking FDI ceiling in defence from current level of 26 per cent as the Ministry of Defence itself is opposed to the idea due to security reasons, Assocham President Swati Piramal said.
Defence is an extremely sensitive sector as India has not yet fully geared up to absorb private equity of 100 per cent in the sector, she added.
India can acquire self-reliance in defence production with raising FDI ceiling to 49 per cent and subsequently this could be increased to 100 per cent FDI, it said.
Further, it said, the defence offset policy is expected to bring in USD 10 billion during the 11th Five-Year Plan period as every foreign company is required to spend 30 per cent of the value on offsets goods or services purchased from Indian defence companies.
Piramal said a host of Indian firms can get the benefit of the offset policy.
http://economictimes.indiatimes.com...fence-sector-Assocham/articleshow/5874249.cms
NEW DELHI: The domestic defence equipment industry's demand to allow 100 per cent FDI in the defence sector should be evaluated properly by the government before reaching at a consensus, industry body Assocham said today.
The industry has been asking the government to allow 100 per cent FDI in the defence sector in a view to give a fillip to the domestic manufacturing units.
The chamber has proposed that initially foreign direct investment up to 49 per cent should be allowed in the sector, instead of 100 per cent.
Consensus has yet to emerge on hiking FDI ceiling in defence from current level of 26 per cent as the Ministry of Defence itself is opposed to the idea due to security reasons, Assocham President Swati Piramal said.
Defence is an extremely sensitive sector as India has not yet fully geared up to absorb private equity of 100 per cent in the sector, she added.
India can acquire self-reliance in defence production with raising FDI ceiling to 49 per cent and subsequently this could be increased to 100 per cent FDI, it said.
Further, it said, the defence offset policy is expected to bring in USD 10 billion during the 11th Five-Year Plan period as every foreign company is required to spend 30 per cent of the value on offsets goods or services purchased from Indian defence companies.
Piramal said a host of Indian firms can get the benefit of the offset policy.
http://economictimes.indiatimes.com...fence-sector-Assocham/articleshow/5874249.cms
nandu
Senior Member
- Joined
- Oct 5, 2009
- Messages
- 1,913
- Likes
- 163
Indian, foreign industries divided over raising FDI cap in defence: CII
The Airborne Warning and Control System (AWACS) aeroplane, an advanced form of IL-76 aircraft. File photo
Indian and foreign industries in defence sector are divided over raising the Foreign Direct Investment (FDI) to 100 per cent, a survey has found.
While the Indian industry, including the Small and Medium Enterprises (SMEs) are in favour of hiking the FDI limit to 49 per cent, foreign companies feel limiting it would make it an "unattractive proposition", the study found.
The study 'FDI in Defence - A Case for Review', released here today by Confederation of Indian Industry (CII), said the demand was for a higher FDI cap in defence industry over the existing 26 per cent.
"The major proponents for increasing FDI cap, apart from the foreign vendors, are the SMEs and larger organisations seeking to diversify into defence production," the study said.
They believe that increasing FDI limits would help to secure the transfer of key technologies to India, and would boost the foreign capital investment available to them.
"Despite attractive defence projects in the pipeline, certain foreign vendors felt that where Transfer of Technology (ToT) was involved, the returns likely to be generated on the basis of the current FDI regulations - coupled with the lack of control they would have over the technologies and know-how they are being asked to provide - makes entry into the Indian market an unattractive proposition," it said.
The CII found that the FDI issue was driven by a number of factors. These were sovereignty concerns in respect to the ownership of core strategic industries like defence; government's desire to rapidly acquire more advanced technologies; and the assistance foreign players can provide to SMEs.
That apart, there were concerns of the larger players, both private and defence public sectors units, which felt greater foreign involvement would be at the expense of their own businesses.
Further, a number of foreign companies were keen on making India their "home market" - both a major domestic sales market and a global manufacturing hub.
"But the current FDI restrictions constrain their ambitions in this regard. The result is it has limited FDI inflows to India with a total of only Rs 7 million between April 2000 and February 2009," the study said.
Among the other key findings were that the industry was not in favour of 100 per cent FDI in defence segment, though more than 50 per cent of CII members wanted an increase in the FDI limit to 49 per cent, which they felt would be beneficial.
"The FDI should not exceed 49 per cent," the study said.
The CII members said the current 26 per cent FDI in the segment could be increased subject to Joint Ventures (JVs) also engaged in Research and Development and the Intellectual Property Rights (IPR) should rest with the JV.
They also opined that foreign partner should ensure access to the global market to the JVs, though it would be subject to Government approval.
"Foreign partner should bring high level specialised technology that is not easily available," the members said during the study.
The study said the case for raising the FDI cap primarily rested on increasing investment and transfer of foreign technologies.
"Restricting the FDI limit to 26 per cent has been challenged by certain foreign companies as they believe that it acts as an inhibiting factor towards their entry into the Indian defence market," it said.
Despite the on-going uncertainty as to whether the permissible FDI levels would be raised, many large foreign Original Equipment Manufacturers (OEMs) were already setting up JVs in India within the existing investment limits, though they were in the hope that FDI limits would soon be increased, it added.
http://beta.thehindu.com/business/article425479.ece
The Airborne Warning and Control System (AWACS) aeroplane, an advanced form of IL-76 aircraft. File photo
Indian and foreign industries in defence sector are divided over raising the Foreign Direct Investment (FDI) to 100 per cent, a survey has found.
While the Indian industry, including the Small and Medium Enterprises (SMEs) are in favour of hiking the FDI limit to 49 per cent, foreign companies feel limiting it would make it an "unattractive proposition", the study found.
The study 'FDI in Defence - A Case for Review', released here today by Confederation of Indian Industry (CII), said the demand was for a higher FDI cap in defence industry over the existing 26 per cent.
"The major proponents for increasing FDI cap, apart from the foreign vendors, are the SMEs and larger organisations seeking to diversify into defence production," the study said.
They believe that increasing FDI limits would help to secure the transfer of key technologies to India, and would boost the foreign capital investment available to them.
"Despite attractive defence projects in the pipeline, certain foreign vendors felt that where Transfer of Technology (ToT) was involved, the returns likely to be generated on the basis of the current FDI regulations - coupled with the lack of control they would have over the technologies and know-how they are being asked to provide - makes entry into the Indian market an unattractive proposition," it said.
The CII found that the FDI issue was driven by a number of factors. These were sovereignty concerns in respect to the ownership of core strategic industries like defence; government's desire to rapidly acquire more advanced technologies; and the assistance foreign players can provide to SMEs.
That apart, there were concerns of the larger players, both private and defence public sectors units, which felt greater foreign involvement would be at the expense of their own businesses.
Further, a number of foreign companies were keen on making India their "home market" - both a major domestic sales market and a global manufacturing hub.
"But the current FDI restrictions constrain their ambitions in this regard. The result is it has limited FDI inflows to India with a total of only Rs 7 million between April 2000 and February 2009," the study said.
Among the other key findings were that the industry was not in favour of 100 per cent FDI in defence segment, though more than 50 per cent of CII members wanted an increase in the FDI limit to 49 per cent, which they felt would be beneficial.
"The FDI should not exceed 49 per cent," the study said.
The CII members said the current 26 per cent FDI in the segment could be increased subject to Joint Ventures (JVs) also engaged in Research and Development and the Intellectual Property Rights (IPR) should rest with the JV.
They also opined that foreign partner should ensure access to the global market to the JVs, though it would be subject to Government approval.
"Foreign partner should bring high level specialised technology that is not easily available," the members said during the study.
The study said the case for raising the FDI cap primarily rested on increasing investment and transfer of foreign technologies.
"Restricting the FDI limit to 26 per cent has been challenged by certain foreign companies as they believe that it acts as an inhibiting factor towards their entry into the Indian defence market," it said.
Despite the on-going uncertainty as to whether the permissible FDI levels would be raised, many large foreign Original Equipment Manufacturers (OEMs) were already setting up JVs in India within the existing investment limits, though they were in the hope that FDI limits would soon be increased, it added.
http://beta.thehindu.com/business/article425479.ece
- Joined
- Dec 17, 2009
- Messages
- 13,811
- Likes
- 6,734
There is nothing you can do that is going to make foreign companies give India the IP rights to their property unless they buy it. They will not come unless you increase FDI to over 50% so they can control it. You let them come in they will take it over. You don't go 50+ and they won't come. Better that they don't come than selling out your defence industry.
nandu
Senior Member
- Joined
- Oct 5, 2009
- Messages
- 1,913
- Likes
- 163
FDI in defence should not be raised to 100%: CII
Foreign direct investment (FDI) in the defence sector should not be raised to 100 per cent from the present 26 per cent, says the Confederation of Indian Industry (CII).
'Industry is not in favour of 100 per cent FDI in defence segment. Increasing the FDI limit to 49 per cent would be beneficial,' said the industry lobby.
Govt mulls 100% FDI in defence
In May 2001, the government allowed the participation of the private sector in the defence industry permitting 100 per cent equity with a maximum of 26 per cent of FDI, subject to licensing.
Under the 2008 Defence Procurement Procedure, up to 49 per cent FDI was allowed on a per case basis. However, the foreign investment promotion board is yet to approve the formation of a venture with a 49 per cent FDI component.
'FDI in defence industry is indeed essential because most defence products involve a relatively high level of technology and this technology gets transferred only if the foreign partner has a long term stake in the company. The aim of seeking FDI by India in its defence sector may be to get both funds and technology,' it said.
FDI stance on retail unchanged - Anand Sharma
The CII suggested that the current 26 per cent FDI in defence may be increased and joint venture (JV) with foreign partner should be encouraged in research and development, and the intellectual property rights should be kept with the JV.
'Foreign partner should ensure JV's access to the global market, subject to the government approval. The partner should bring high level specialised technology that is not easily available,' it said.
It also suggested that India should consider incentives like tax holidays and grants, and leverage its technical manpower against foreign technology. Besides, import of dual use technology should be encouraged as it benefits other segments of the economy also.
http://sify.com/finance/fdi-in-defe...-to-100-cii-news-investments-kfjl4ddghcb.html
Foreign direct investment (FDI) in the defence sector should not be raised to 100 per cent from the present 26 per cent, says the Confederation of Indian Industry (CII).
'Industry is not in favour of 100 per cent FDI in defence segment. Increasing the FDI limit to 49 per cent would be beneficial,' said the industry lobby.
Govt mulls 100% FDI in defence
In May 2001, the government allowed the participation of the private sector in the defence industry permitting 100 per cent equity with a maximum of 26 per cent of FDI, subject to licensing.
Under the 2008 Defence Procurement Procedure, up to 49 per cent FDI was allowed on a per case basis. However, the foreign investment promotion board is yet to approve the formation of a venture with a 49 per cent FDI component.
'FDI in defence industry is indeed essential because most defence products involve a relatively high level of technology and this technology gets transferred only if the foreign partner has a long term stake in the company. The aim of seeking FDI by India in its defence sector may be to get both funds and technology,' it said.
FDI stance on retail unchanged - Anand Sharma
The CII suggested that the current 26 per cent FDI in defence may be increased and joint venture (JV) with foreign partner should be encouraged in research and development, and the intellectual property rights should be kept with the JV.
'Foreign partner should ensure JV's access to the global market, subject to the government approval. The partner should bring high level specialised technology that is not easily available,' it said.
It also suggested that India should consider incentives like tax holidays and grants, and leverage its technical manpower against foreign technology. Besides, import of dual use technology should be encouraged as it benefits other segments of the economy also.
http://sify.com/finance/fdi-in-defe...-to-100-cii-news-investments-kfjl4ddghcb.html
nandu
Senior Member
- Joined
- Oct 5, 2009
- Messages
- 1,913
- Likes
- 163
New FDI norms for 'Indian' firms likely
FIPB may be asked to vet downstream projects.
The government may soon ask companies with less than 50 per cent foreign equity to seek approval of the Foreign Investment Promotion Board (FIPB) to make any downstream investment.
ey stakeholders in the country's FDI regime have agreed on a proposal to route all investments by such companies through FIPB into sectors where caps on FDI are in place or where they are not on automatic route.
This would result in significant dilution of a series of Press Notes issued by the Ministry of Commerce and Industry last year, which redefined the country's FDI policy.
Press Notes 2 to 4 had deemed firms that had less than 50 per cent foreign ownership and where the control was in Indian hands as 'Indian' companies. Such companies were permitted to make downstream investments even where there were sectoral caps on FDI, without seeking clearance from FIPB. The notes defined "control" as the power to appoint majority of the directors on the company's board.
This policy, however, came under sharp criticism from the Reserve Bank of India and some departments in the finance ministry, which said the policy could be manipulated by foreign companies to make a backdoor entry into India. They said it allowed foreign companies to make investments through their Indian units into sectors where FDI was restricted, as in multi-brand retail where FDI is banned.
These issues came up for a debate in a meeting last month between FIPB, RBI and the departments of legal affairs, financial services, economic affairs, and industrial policy and promotion.
The meeting, which took place following a directive from Finance Minister Pranab Mukherjee, reached a consensus to impose checks on downstream investments by companies with less than 50 per cent foreign equity and were under Indian control.
This means that such companies would now have to approach FIPB for clearance if they wished to make an investment in, say, defence, a sector where foreign investment cannot be more than 26 per cent.
They, however, can make downstream investment, without FIPB clearance in areas where 100 per cent FDI is on the automatic approval route.
The consensus offers a mid-way path. It is better than the earlier policy where all downstream projects, even if they were under the automatic route, had to go to FIPB.
In the meeting, RBI suggested that for an Indian controlled and owned company subsequent approval of downstream investment should be made mandatory. The FIPB representative also agreed that for any company, Indian or foreign controlled, which had more than 50 per cent FDI, FIPB clearance should be mandatory. The infrastructure and investment division of the Department of Economic Affairs also opined that as "control" was not clearly defined, all downstream investments by Indian-owned and controlled companies with less than 50 per cent FDI should be on a "case by case basis."
Serious concerns were raised by members on the issue of "control" and representatives from DEA said it could not be defined in a mathematical way and there should be an "oversight" system. Representatives from the Department of Legal Affairs as well as Financial Services also agreed that there was no universal accepted definition of control — a point endorsed by RBI.
It was argued that foreign-owned and controlled companies were required to inform FIPB on the various agreements signed between shareholders, but there was no such "oversight" system for Indian owned and controlled companies. RBI was of the opinion that the task should be undertaken by the administrative ministry. But other representatives argued that since there was just one time approval required by the Indian controlled companies, the administrative ministries had no legal authority to control their downstream investments.
However, the lone contrarian view came from DIPP, which argued that as long as ownership and control of the investing company was in the hands of Indians, it should not be of concern where the downstream investments were made. Its representative argued that large corporate houses had a presence in retail, a sector where FDI was capped, but it was unconceivable to imagine that these corporate houses did not have even an "ounce" of foreign investment. So, DIPP argued that as long as the control was Indian, the company should be allowed to make downstream investments in all sectors.
http://www.business-standard.com/india/news/new-fdi-norms-for-\indian\-firms-likely/394313/
FIPB may be asked to vet downstream projects.
The government may soon ask companies with less than 50 per cent foreign equity to seek approval of the Foreign Investment Promotion Board (FIPB) to make any downstream investment.
ey stakeholders in the country's FDI regime have agreed on a proposal to route all investments by such companies through FIPB into sectors where caps on FDI are in place or where they are not on automatic route.
This would result in significant dilution of a series of Press Notes issued by the Ministry of Commerce and Industry last year, which redefined the country's FDI policy.
Press Notes 2 to 4 had deemed firms that had less than 50 per cent foreign ownership and where the control was in Indian hands as 'Indian' companies. Such companies were permitted to make downstream investments even where there were sectoral caps on FDI, without seeking clearance from FIPB. The notes defined "control" as the power to appoint majority of the directors on the company's board.
This policy, however, came under sharp criticism from the Reserve Bank of India and some departments in the finance ministry, which said the policy could be manipulated by foreign companies to make a backdoor entry into India. They said it allowed foreign companies to make investments through their Indian units into sectors where FDI was restricted, as in multi-brand retail where FDI is banned.
These issues came up for a debate in a meeting last month between FIPB, RBI and the departments of legal affairs, financial services, economic affairs, and industrial policy and promotion.
The meeting, which took place following a directive from Finance Minister Pranab Mukherjee, reached a consensus to impose checks on downstream investments by companies with less than 50 per cent foreign equity and were under Indian control.
This means that such companies would now have to approach FIPB for clearance if they wished to make an investment in, say, defence, a sector where foreign investment cannot be more than 26 per cent.
They, however, can make downstream investment, without FIPB clearance in areas where 100 per cent FDI is on the automatic approval route.
The consensus offers a mid-way path. It is better than the earlier policy where all downstream projects, even if they were under the automatic route, had to go to FIPB.
In the meeting, RBI suggested that for an Indian controlled and owned company subsequent approval of downstream investment should be made mandatory. The FIPB representative also agreed that for any company, Indian or foreign controlled, which had more than 50 per cent FDI, FIPB clearance should be mandatory. The infrastructure and investment division of the Department of Economic Affairs also opined that as "control" was not clearly defined, all downstream investments by Indian-owned and controlled companies with less than 50 per cent FDI should be on a "case by case basis."
Serious concerns were raised by members on the issue of "control" and representatives from DEA said it could not be defined in a mathematical way and there should be an "oversight" system. Representatives from the Department of Legal Affairs as well as Financial Services also agreed that there was no universal accepted definition of control — a point endorsed by RBI.
It was argued that foreign-owned and controlled companies were required to inform FIPB on the various agreements signed between shareholders, but there was no such "oversight" system for Indian owned and controlled companies. RBI was of the opinion that the task should be undertaken by the administrative ministry. But other representatives argued that since there was just one time approval required by the Indian controlled companies, the administrative ministries had no legal authority to control their downstream investments.
However, the lone contrarian view came from DIPP, which argued that as long as ownership and control of the investing company was in the hands of Indians, it should not be of concern where the downstream investments were made. Its representative argued that large corporate houses had a presence in retail, a sector where FDI was capped, but it was unconceivable to imagine that these corporate houses did not have even an "ounce" of foreign investment. So, DIPP argued that as long as the control was Indian, the company should be allowed to make downstream investments in all sectors.
http://www.business-standard.com/india/news/new-fdi-norms-for-\indian\-firms-likely/394313/
nandu
Senior Member
- Joined
- Oct 5, 2009
- Messages
- 1,913
- Likes
- 163
Raising FDI cap in defence manufacturing to 74 percent will save forex
New Delhi, May 17 (IANS) In what reads more like an indictment of the Indian defence establishment, a government working paper Monday suggested the foreign investment cap in the military manufacturing sector be raised to 74 percent from the present 26 percent to attract established players to the area, save tremendous foreign exchange and revive the country's industry at large.
"The established players in the defence industry should be encouraged to set up manufacturing facilities and integration of systems in India with FDI (foreign direct investment) up to 74 percent under the government route," says the paper, circulated by the commerce and industry minister among different stakeholders in the field for their views and suggestions by July 31.
The paper is particularly harsh on the defence R&D sector, saying that it had failed to keep up with the times and that the defence public sector units and the ordnance factories were turning out products that were obsolete.
The paper also has a caveat: "The views expressed in this discussion paper should not be construed as the views of the government. The department (of industrial policy and promotion that has generated it) hopes to generate informed discussion on the subject, so as to enable the government to take an appropriate policy decision at an appropriate time."
Noting that the "general perception" is that the present FDI cap of 26 percent discourages original equipment manufacturers (OEMs) from bringing in proprietary technology, resulting in India "not being able to access the latest high-end technologies available", the paper lists a series of benefits that would accrue by raising the level to 74 percent.
This could provide a significant incentive for transfer of knowhowechnology, leading to higher levels of technological expertise. "International experience suggests that this would lead to significant spin-offs, in terms of absorption of such technologies, into related areas of civilian use", the paper says.
This, in turn, would assist in achieving the government's objective of 70 percent indigenization through encouraging transfer of new and state-of-the-art technologies to the Indian defence industry, as also through the absorption of latest technologies, thereby promoting the government's objective of self-reliance.
It would also encourage OEMs to bring in proprietary technology and lead to corresponding modernization of our defence equipment and help promote private R&D by complementing the efforts of the public sector.
As the defence industry is highly capital intensive it would be difficult for India's indigenous defence industry to develop without the supplemental funds made available through FDI.
"Higher levels of foreign investment would reduce the corresponding fund requirements of the Indian partners. At the same time, this would promote growth and expansion of Indian companies in the defence sector, over which the government can exercise higher control, as compared to overseas firms/entities.
Since a large share of Indian foreign exchange goes towards defence purchases, allowing more FDI in defence "would result in significant savings in foreign exchange, as more foreign companies will establish defence industries in India", the paper says.
Liberalisation of the FDI regime would strengthen India's export potential by way of exports of defence products to other countries.
In this context, the paper notes that India's defence exports have ranged between 1.5 to 2.4 percent of the total production, with an import:export ratio of 194:1, compared to 1.3:1 for Israel, 8.8:1 for South Korea and 19.7:1 for Singapore.
India's defence exports in 2005 were a mere $15 million, against $1,026 million of Britain, $382 million of China, $402 million of Israel and $86 million of South Africa.
Then, in spite of emerging as a large economy, India has a very low manufacturing base. "The production of military equipment within the country will provide immediate impetus to the manufacturing sector in the shape of large scale ancillarization as has happened in the case of major industrialized nations like the US, France and Germany," the paper notes.
Also, large numbers of manufacturers of defence and dual-use products find it difficult to manage their production in western countries due to increasing costs of labour and other inputs.
"This is the right time for India to project itself as a new hub for manufacturing. A number of global defence majors are waiting to set up an alternative/additional manufacturing base in India. "It is, therefore, not at all necessary for us to underwrite production," the paper says.
While the defence ministry has often said that the cap could be selectively raised to 49 percent, the paper said this would only be cosmetic.
Therefore, "in case we really want to have the state of the art technology, we have to permit anything above 50 percent if not 100 percent. It may, therefore, be desirable to allow either 100 percent or 74 percent as in the case of the telecom sector", the paper says, pegging its recommendation at the latter figure.
It notes in this context that indigenous R&D "has not kept pace with the requirements of present day warfare and manufacture through transfer of technology to public sector units (PSUs)/ordnance factories (OFs) has proved to be an ineffective and slow process".
In most cases, the transfer of technology itself "was not complete, as the suppliers were more keen to push their own product, rather than indigenizing the production in India".
"Also, in the absence of any incremental technology, the OFs could not modernize or upgrade their platforms" and were "getting more and more marginalized and becoming irrelevant as far as the goal of modernization of the armed forces is concerned. This is bound to result in more and more dependence on imports", the paper notes.
"There is, therefore, an urgent need to enhance the deterrent and operational capability of the armed forces through upgradation/modernization of existing equipment, as well as acquisition of state-of-the-art equipment," the paper says.
http://www.thaindian.com/newsportal...nt-will-save-forex-second-lead_100365311.html
New Delhi, May 17 (IANS) In what reads more like an indictment of the Indian defence establishment, a government working paper Monday suggested the foreign investment cap in the military manufacturing sector be raised to 74 percent from the present 26 percent to attract established players to the area, save tremendous foreign exchange and revive the country's industry at large.
"The established players in the defence industry should be encouraged to set up manufacturing facilities and integration of systems in India with FDI (foreign direct investment) up to 74 percent under the government route," says the paper, circulated by the commerce and industry minister among different stakeholders in the field for their views and suggestions by July 31.
The paper is particularly harsh on the defence R&D sector, saying that it had failed to keep up with the times and that the defence public sector units and the ordnance factories were turning out products that were obsolete.
The paper also has a caveat: "The views expressed in this discussion paper should not be construed as the views of the government. The department (of industrial policy and promotion that has generated it) hopes to generate informed discussion on the subject, so as to enable the government to take an appropriate policy decision at an appropriate time."
Noting that the "general perception" is that the present FDI cap of 26 percent discourages original equipment manufacturers (OEMs) from bringing in proprietary technology, resulting in India "not being able to access the latest high-end technologies available", the paper lists a series of benefits that would accrue by raising the level to 74 percent.
This could provide a significant incentive for transfer of knowhowechnology, leading to higher levels of technological expertise. "International experience suggests that this would lead to significant spin-offs, in terms of absorption of such technologies, into related areas of civilian use", the paper says.
This, in turn, would assist in achieving the government's objective of 70 percent indigenization through encouraging transfer of new and state-of-the-art technologies to the Indian defence industry, as also through the absorption of latest technologies, thereby promoting the government's objective of self-reliance.
It would also encourage OEMs to bring in proprietary technology and lead to corresponding modernization of our defence equipment and help promote private R&D by complementing the efforts of the public sector.
As the defence industry is highly capital intensive it would be difficult for India's indigenous defence industry to develop without the supplemental funds made available through FDI.
"Higher levels of foreign investment would reduce the corresponding fund requirements of the Indian partners. At the same time, this would promote growth and expansion of Indian companies in the defence sector, over which the government can exercise higher control, as compared to overseas firms/entities.
Since a large share of Indian foreign exchange goes towards defence purchases, allowing more FDI in defence "would result in significant savings in foreign exchange, as more foreign companies will establish defence industries in India", the paper says.
Liberalisation of the FDI regime would strengthen India's export potential by way of exports of defence products to other countries.
In this context, the paper notes that India's defence exports have ranged between 1.5 to 2.4 percent of the total production, with an import:export ratio of 194:1, compared to 1.3:1 for Israel, 8.8:1 for South Korea and 19.7:1 for Singapore.
India's defence exports in 2005 were a mere $15 million, against $1,026 million of Britain, $382 million of China, $402 million of Israel and $86 million of South Africa.
Then, in spite of emerging as a large economy, India has a very low manufacturing base. "The production of military equipment within the country will provide immediate impetus to the manufacturing sector in the shape of large scale ancillarization as has happened in the case of major industrialized nations like the US, France and Germany," the paper notes.
Also, large numbers of manufacturers of defence and dual-use products find it difficult to manage their production in western countries due to increasing costs of labour and other inputs.
"This is the right time for India to project itself as a new hub for manufacturing. A number of global defence majors are waiting to set up an alternative/additional manufacturing base in India. "It is, therefore, not at all necessary for us to underwrite production," the paper says.
While the defence ministry has often said that the cap could be selectively raised to 49 percent, the paper said this would only be cosmetic.
Therefore, "in case we really want to have the state of the art technology, we have to permit anything above 50 percent if not 100 percent. It may, therefore, be desirable to allow either 100 percent or 74 percent as in the case of the telecom sector", the paper says, pegging its recommendation at the latter figure.
It notes in this context that indigenous R&D "has not kept pace with the requirements of present day warfare and manufacture through transfer of technology to public sector units (PSUs)/ordnance factories (OFs) has proved to be an ineffective and slow process".
In most cases, the transfer of technology itself "was not complete, as the suppliers were more keen to push their own product, rather than indigenizing the production in India".
"Also, in the absence of any incremental technology, the OFs could not modernize or upgrade their platforms" and were "getting more and more marginalized and becoming irrelevant as far as the goal of modernization of the armed forces is concerned. This is bound to result in more and more dependence on imports", the paper notes.
"There is, therefore, an urgent need to enhance the deterrent and operational capability of the armed forces through upgradation/modernization of existing equipment, as well as acquisition of state-of-the-art equipment," the paper says.
http://www.thaindian.com/newsportal...nt-will-save-forex-second-lead_100365311.html
nandu
Senior Member
- Joined
- Oct 5, 2009
- Messages
- 1,913
- Likes
- 163
Sharma says "absolutely no" to 100 pc FDI in defence sector
Ruling out 100 per cent FDI in defence production, Commerce and Industry Minister Anand Sharma today said his ministry will make the next move on hiking foreign investment in the strategic sector only after taking on board the defence establishment.
"Absolutely no, certainly no," Sharma told PTI when asked whether his ministry favoured 100 foreign direct investment (FDI) in the defense sector.
Proposing 74 per cent FDI in the sensitive sector, the Department of Industrial Policy and Promotion (DIPP) under Sharma's charge, had stated that 100 per cent overseas investment would be "desireable".
At present, 26 per cent FDI is allowed in the sector.
Sharma said the country has not reached the stage of completely eliminating the FDI cap. "If the cent per cent foreign investment is allowed, then what is the stake left for the Indian industry and our own ordinance factories"?
Over the reported concerns of the Ministry of Defence and other key establishments like DRDO (Defence Research and Development Organisation), Sharma said, "We will take the next step only after detailed discussions with the Defence Minister and defence establishments taking fully on the board their views and senstivities...since defence is a strategic sector."
He said if the Ministry of Defence and the Indian industry is comfortable with the 49 per cent limit, "it is good enough".
But he reinforced the DIPP views saying," the ultimate objective is to raise the technological prowess of the country".
He said the issue is to bring in the best of technologies, increasing the country's defence production and lessening our dependence on imports. "Look at the amount we spend on imports," he said.
As one of the largest users and importers of conventional defence equipment, India's cumulative defence budget has been growing annually at 13.4 per cent since 2006-07 to Rs 1,47,344 crore (USD 31.9 billion) in 2010-11.
Of this, about 40 per cent is capital expenditure and 70 per cent of which (about USD 8billion) is met through imports.
According to the DIPP discussion paper seeking views from the stakeholders by July 31, only 15 per cent of India's defence equipment can be described as state-of-the-art and nearly 50 per cent is suffering from obsolescence. "There is, therefore, an urgent need to enhance the deterrent and the operational capabilities of the armed forces...," it said.
http://indiatoday.intoday.in/site/Story/97873/Business/Sharma+says+
Ruling out 100 per cent FDI in defence production, Commerce and Industry Minister Anand Sharma today said his ministry will make the next move on hiking foreign investment in the strategic sector only after taking on board the defence establishment.
"Absolutely no, certainly no," Sharma told PTI when asked whether his ministry favoured 100 foreign direct investment (FDI) in the defense sector.
Proposing 74 per cent FDI in the sensitive sector, the Department of Industrial Policy and Promotion (DIPP) under Sharma's charge, had stated that 100 per cent overseas investment would be "desireable".
At present, 26 per cent FDI is allowed in the sector.
Sharma said the country has not reached the stage of completely eliminating the FDI cap. "If the cent per cent foreign investment is allowed, then what is the stake left for the Indian industry and our own ordinance factories"?
Over the reported concerns of the Ministry of Defence and other key establishments like DRDO (Defence Research and Development Organisation), Sharma said, "We will take the next step only after detailed discussions with the Defence Minister and defence establishments taking fully on the board their views and senstivities...since defence is a strategic sector."
He said if the Ministry of Defence and the Indian industry is comfortable with the 49 per cent limit, "it is good enough".
But he reinforced the DIPP views saying," the ultimate objective is to raise the technological prowess of the country".
He said the issue is to bring in the best of technologies, increasing the country's defence production and lessening our dependence on imports. "Look at the amount we spend on imports," he said.
As one of the largest users and importers of conventional defence equipment, India's cumulative defence budget has been growing annually at 13.4 per cent since 2006-07 to Rs 1,47,344 crore (USD 31.9 billion) in 2010-11.
Of this, about 40 per cent is capital expenditure and 70 per cent of which (about USD 8billion) is met through imports.
According to the DIPP discussion paper seeking views from the stakeholders by July 31, only 15 per cent of India's defence equipment can be described as state-of-the-art and nearly 50 per cent is suffering from obsolescence. "There is, therefore, an urgent need to enhance the deterrent and the operational capabilities of the armed forces...," it said.
http://indiatoday.intoday.in/site/Story/97873/Business/Sharma+says+
nandu
Senior Member
- Joined
- Oct 5, 2009
- Messages
- 1,913
- Likes
- 163
India's defence import:export ratio is 194:1, Commerce ministry seeks your input for FDI increase to 74%
19 May 2010 : 17 years after CII formed a defence division to promote private sector participation in defence, 9 years after India opened defence to private sector and an equal number of years that defence ministers give speeches that they will reverse the Indian ratio of import:indigenous production ratio from 70:30 to 30:70, the sad truth is that not only is that ratio still at 70:30 but that the defence import to defence export ratio is an unbelievable 194:1. Even Pakistan does better. Add to this the fact that since the introduction in 2001 of FDI in to defence, the grand total of investments in defence through the FDI route have been a laughable US$ 0.15 million.
With the powers-that-be refusing to recognise their failures and change policies it has taken intervention from Commerce Ministry to bring about a critically needed change. It has released a discussion paper seeking views on increasing the FDI cap in the defence sector up to 74% if not all the way up to 100%. The paper can be downloaded from here. We request that you give your response immediately to [email protected], [email protected], [email protected] (do 8ak.in a favour and quote that you read the paper on this website!).
In a rare, but needed, admission, the paper starts off by analysing failures:
* Quality: Only 15% of India's defence equipment can be described as 'state-of-the-art' and nearly 50% is suffering from obsolescence
* Sourcing: few Requests for Proposals (RFPs) for sourcing of defence equipment that have fructified in a timely manner
* Private Sector: Reluctance in encouraging the Private Sector into defence production and welcome FDI in the sector is on account of concern for the Defence PSUs and the Ordinance Factories
* R&D: The indigenous R&D has not kept pace with the requirements of present day warfare and manufacture through transfer of technology to Public Sector Units (PSUs)/Ordnance Factories (OFs) has proved to be an ineffective and slow process. Most of the time, the transfer of technology itself was not complete, as the suppliers were more keen to push their own product, rather than indigenizing the production in India. Also, in the absence of any incremental technology, the OFs could not modernize or upgrade the platforms.
* Exports: India's defence exports have ranged between 1.5 to 2.4 % of the total production, with an import:export ratio of 194:1, as compared to 1.3:1 in the case of Israel, 9:1 in the case of South Korea and 20:1 in the case of Singapore . India's defence exports in 2005 were $15 million, as compared to $1,026 million of U.K., $382 million of China, $402 million of Israel and $86 million of South Africa.
http://www.8ak.in/
19 May 2010 : 17 years after CII formed a defence division to promote private sector participation in defence, 9 years after India opened defence to private sector and an equal number of years that defence ministers give speeches that they will reverse the Indian ratio of import:indigenous production ratio from 70:30 to 30:70, the sad truth is that not only is that ratio still at 70:30 but that the defence import to defence export ratio is an unbelievable 194:1. Even Pakistan does better. Add to this the fact that since the introduction in 2001 of FDI in to defence, the grand total of investments in defence through the FDI route have been a laughable US$ 0.15 million.
With the powers-that-be refusing to recognise their failures and change policies it has taken intervention from Commerce Ministry to bring about a critically needed change. It has released a discussion paper seeking views on increasing the FDI cap in the defence sector up to 74% if not all the way up to 100%. The paper can be downloaded from here. We request that you give your response immediately to [email protected], [email protected], [email protected] (do 8ak.in a favour and quote that you read the paper on this website!).
In a rare, but needed, admission, the paper starts off by analysing failures:
* Quality: Only 15% of India's defence equipment can be described as 'state-of-the-art' and nearly 50% is suffering from obsolescence
* Sourcing: few Requests for Proposals (RFPs) for sourcing of defence equipment that have fructified in a timely manner
* Private Sector: Reluctance in encouraging the Private Sector into defence production and welcome FDI in the sector is on account of concern for the Defence PSUs and the Ordinance Factories
* R&D: The indigenous R&D has not kept pace with the requirements of present day warfare and manufacture through transfer of technology to Public Sector Units (PSUs)/Ordnance Factories (OFs) has proved to be an ineffective and slow process. Most of the time, the transfer of technology itself was not complete, as the suppliers were more keen to push their own product, rather than indigenizing the production in India. Also, in the absence of any incremental technology, the OFs could not modernize or upgrade the platforms.
* Exports: India's defence exports have ranged between 1.5 to 2.4 % of the total production, with an import:export ratio of 194:1, as compared to 1.3:1 in the case of Israel, 9:1 in the case of South Korea and 20:1 in the case of Singapore . India's defence exports in 2005 were $15 million, as compared to $1,026 million of U.K., $382 million of China, $402 million of Israel and $86 million of South Africa.
http://www.8ak.in/
nandu
Senior Member
- Joined
- Oct 5, 2009
- Messages
- 1,913
- Likes
- 163
Antony wants to stick to 20% FDI policy in defense industry
Press Trust of India / New Delhi May 20, 2010, 13:07 IST
Defense Minister A K Antony today ruled out for now any change in the defense production policy to raise FDI, from existing the 26 per cent to 100 per cent, as suggested by the commerce ministry recently.
"At the moment it (the FDI policy on defense) is 26 per cent. Our Defense Production Policy (DPP) is evolving over the years...But at the moment we feel Indian defense sector is not matured enough...Not ready to absorb more FDI in defense sector. We feel that time is not right to further expand it," Antony told reporters on the sidelines of the Navy Commanders Conference.
Antony said initially, there was 100 per cent monopoly of PSUs in the defense sector, but that policy was changed over the last decade to first allow 100 per cent private participation and later permitting 26 per cent FDI in the defense industry.
But, the 26 per cent FDI policy notwithstanding, the defense ministry would consider allowing more than the prescribed FDI in the sector "on a case-to-case basis," he added.
"Ultimately, forever I can not rule out (higher FDI). On a case-by-case basis, we will allow more FDI in defense sector," he said.
The commerce ministry had recently brought out a discussion paper that called for allowing 100 per cent FDI in the defense sector, a demand forcefully made by foreign players who are eyeing the over $50 billion Indian defence spending expected over the next five years.
"Commerce Ministry has brought out a discussion paper only. The Commerce Minister himself said it is a discussion paper. We can discuss. There is no problem. You should not think there is a clash (between the two ministries)," Antony said.
He said the annual review of the DPP was in progress, and in the next round of DPP amendments, his ministry would give more emphasis on Indianisation to strengthen domestic defense industrial base.
"Not only the PSUs, we will give more space to private sector also. So by combining the resources and capacity of the PSUs and Indian private sector, we want to enhance the capacity of Indian defense sector.
"This year, in the coming edition of the DPP, our priority is to strengthen the Indian defense industry," he added.
To another question on the environment ministry asking for a moratorium on new shipyards along the coast due to ecological considerations, Antony said the priority was modernisation of the Navy and Coast Guard by providing its more ships and vessels to enable it to meet the increasing threats from the seas and the coastal areas.
"Whatever is needed to expand the capacity to provide more ships and vessels to the Navy and the Coast Guard... whatever effort is needed, we will make. We must modernise the Navy at the earliest to enable it to meet the increasing threats from the seas and coastal areas as fast as possible," he added.
http://www.business-standard.com/in...to-20-fdi-policy-in-defense-industry/94965/on
Press Trust of India / New Delhi May 20, 2010, 13:07 IST
Defense Minister A K Antony today ruled out for now any change in the defense production policy to raise FDI, from existing the 26 per cent to 100 per cent, as suggested by the commerce ministry recently.
"At the moment it (the FDI policy on defense) is 26 per cent. Our Defense Production Policy (DPP) is evolving over the years...But at the moment we feel Indian defense sector is not matured enough...Not ready to absorb more FDI in defense sector. We feel that time is not right to further expand it," Antony told reporters on the sidelines of the Navy Commanders Conference.
Antony said initially, there was 100 per cent monopoly of PSUs in the defense sector, but that policy was changed over the last decade to first allow 100 per cent private participation and later permitting 26 per cent FDI in the defense industry.
But, the 26 per cent FDI policy notwithstanding, the defense ministry would consider allowing more than the prescribed FDI in the sector "on a case-to-case basis," he added.
"Ultimately, forever I can not rule out (higher FDI). On a case-by-case basis, we will allow more FDI in defense sector," he said.
The commerce ministry had recently brought out a discussion paper that called for allowing 100 per cent FDI in the defense sector, a demand forcefully made by foreign players who are eyeing the over $50 billion Indian defence spending expected over the next five years.
"Commerce Ministry has brought out a discussion paper only. The Commerce Minister himself said it is a discussion paper. We can discuss. There is no problem. You should not think there is a clash (between the two ministries)," Antony said.
He said the annual review of the DPP was in progress, and in the next round of DPP amendments, his ministry would give more emphasis on Indianisation to strengthen domestic defense industrial base.
"Not only the PSUs, we will give more space to private sector also. So by combining the resources and capacity of the PSUs and Indian private sector, we want to enhance the capacity of Indian defense sector.
"This year, in the coming edition of the DPP, our priority is to strengthen the Indian defense industry," he added.
To another question on the environment ministry asking for a moratorium on new shipyards along the coast due to ecological considerations, Antony said the priority was modernisation of the Navy and Coast Guard by providing its more ships and vessels to enable it to meet the increasing threats from the seas and the coastal areas.
"Whatever is needed to expand the capacity to provide more ships and vessels to the Navy and the Coast Guard... whatever effort is needed, we will make. We must modernise the Navy at the earliest to enable it to meet the increasing threats from the seas and coastal areas as fast as possible," he added.
http://www.business-standard.com/in...to-20-fdi-policy-in-defense-industry/94965/on
nandu
Senior Member
- Joined
- Oct 5, 2009
- Messages
- 1,913
- Likes
- 163
Decision on raising FDI in defence by September: DIPP
New Delhi: India will take a decision on raising the foreign direct investment (FDI) limit in defence production to 74 percent from the present 26 percent by September, an official said Monday.
The commerce and industry ministry hopes to get the defence ministry's views on the FDI hike by July. The Department of Industrial Policy & Promotion (DIPP) released a paper May 17 suggesting the FDI cap in defence manufacturing be raised to attract established players and save foreign exchange.
"Everything will be clear by September 2010 on FDI policy front as the government would have completed its next sectoral review, involving sectors such as defence, retail, telecom, agriculture etc... the proposals will acquire a shape of government policy after all stakeholders in the process have their consent in it," said DIPP Director Deepak Narain.
"Till now the consultation paper remains in the proposal form of DIPP and reflects no government policy decision as regards to increased equity of overseas business in defence and retail," Narain said at an event organised by industry lobby Assocham here.
The DIPP paper says the present FDI cap of 26 percent discourages original equipment manufacturers (OEMs) from bringing in proprietary technology, resulting in India "not being able to access the latest high-end technologies available".
It also lists a series of benefits that would accrue when the FDI cap is raised.
Defence Minister AK Antony reiterated, soon after the consultation paper was released, that the FDI cap would remain at 26 percent but could be raised to 49 percent on a case-by-case basis.
http://biz.zeenews.com/news/news_content.aspx?newscatid=1&newsid=7133
New Delhi: India will take a decision on raising the foreign direct investment (FDI) limit in defence production to 74 percent from the present 26 percent by September, an official said Monday.
The commerce and industry ministry hopes to get the defence ministry's views on the FDI hike by July. The Department of Industrial Policy & Promotion (DIPP) released a paper May 17 suggesting the FDI cap in defence manufacturing be raised to attract established players and save foreign exchange.
"Everything will be clear by September 2010 on FDI policy front as the government would have completed its next sectoral review, involving sectors such as defence, retail, telecom, agriculture etc... the proposals will acquire a shape of government policy after all stakeholders in the process have their consent in it," said DIPP Director Deepak Narain.
"Till now the consultation paper remains in the proposal form of DIPP and reflects no government policy decision as regards to increased equity of overseas business in defence and retail," Narain said at an event organised by industry lobby Assocham here.
The DIPP paper says the present FDI cap of 26 percent discourages original equipment manufacturers (OEMs) from bringing in proprietary technology, resulting in India "not being able to access the latest high-end technologies available".
It also lists a series of benefits that would accrue when the FDI cap is raised.
Defence Minister AK Antony reiterated, soon after the consultation paper was released, that the FDI cap would remain at 26 percent but could be raised to 49 percent on a case-by-case basis.
http://biz.zeenews.com/news/news_content.aspx?newscatid=1&newsid=7133
nandu
Senior Member
- Joined
- Oct 5, 2009
- Messages
- 1,913
- Likes
- 163
First-ever open debate on foreign investment in Indian defence
India's business media thrives on reporting possible changes in foreign direct investment (FDI) limits that range over legally significant figures from nothing to 26% and 49%, and on to 50%, 51%, 74% and 100%. The figures give foreign companies varying degrees of control, and each level provides easy media stories and catchy headlines – and simple facts for sources to plant with minimal briefings on gullible journalists.
In the past the debates – or, rather, the pushes and pulls of (often suitcase-carrying) vested interests – have been invisible behind the headlines. But that has now partly changed. The Commerce Ministry's industrial policy department (DIPP) has publicised a debate about whether FDI should be raised in defence production by issuing a discussion document that covers all the issues. More discussion documents are planned on FDI in retail and low cost housing and other subjects.
This is surely good. I wrote here in February last year that one of the biggest weaknesses affecting India's economic liberalisation was the way that industrial and allied policies are made and changed without apparent reasoned analysis and debate. The biggest-ever changes in assessing foreign control for as FDI had then just been announced, leaving virtually everyone totally confused. The general conclusion was that the changes were designed to facilitate specific big company deals – and that big funds had accordingly flowed into the Congress Party's election coffers. No-one denied it – how could they – but the then commerce minister Kamal Nath extolled the changes' virtues without much clarity.
The government's defence manufacturing discussion paper has raised the basic question of whether FDI is needed and, if so, how much. This is a good question, and it has rarely been asked on any Indian FDI in the past.
Responding to vested interests
Instead, responding to vested interests, the government has gradually opened the floodgates – for example in telecoms, but only after Indian companies such as Bharti AirTel had had time to establish a leading Indian presence. It has blocked it in general retail because of pressure from big Indian companies such as Reliance, Tata and the Future group, though Kishore Biyani who runs Future is believed to be changing his mind. It has also blocked it at 26% in insurance because of public sector resistance to a higher limit even though many private sector insurance companies urgently need foreign funds, and at various levels in media to please influential media interests such as the Times of India group.
Some of these decisions were surely sensible. Indian companies need time to establish themselves before FDI is allowed at such high percentages that foreign companies swamp the market and make India in effect a virtual subsidiary of powerful developed economies.
That is the issue now in defence – is it time to open up and how far? Currently the FDI limit is 26%, apart from a very few higher exceptions, and it is generally accepted that this is not enough to attract commitment, top executives and high technology from most foreign defence companies. A notable exception is the UK's BAE Systems, which has a 26-74% joint venture with Mahindra & Mahindra (M&M ) for products (land systems to use the jargon) ranging from trucks to guns, which I mentioned about four months ago.
It is now fashionable to argue that it is illogical to restrict defence FDI because foreign companies from Russia, Israel, Europe and the US control the market by supplying about 70% of India's defence equipment, as they have done for years. If there is already such foreign control goes the argument, why not let the suppliers into India with higher FDI. This would boost India's auto industry-based and high-end manufacturing industry, generate employment, and enable the country gradually to become a defence equipment exporter.
Strengthening that argument is the government's evolving "offset" policy that requires foreign defence suppliers to spend 30%-50% of a contract's value on defence equipment investment and purchasing in India. This is making it more attractive for the foreign suppliers to set up joint ventures here, and is correspondingly leading to increased foreign pressure on the government for FDI above 51%.
The domestic industry, led by companies such as Larsen & Toubro (L&T), M&M and various Tata group businesses, however wants the limit raised only to 49% so that they maintain control and have a chance to grow, having been restricted till relatively recently from doing more than supply components. This view has been backed by a recent Confederation of Indian Industry-KPMG survey with 57% of respondents saying "yes" to a higher FDI limit and 26% more saying "maybe".
There have been various unsuccessful attempts in the past ten years to reform India's slothful defence manufacturing capability, which is dragged down by public sector corporations (DPSUs) and ordinance factories that dominate production, generally perform badly, and block change along with trade unions and the defence ministry. Currently, they are opposing any increase in the 26% limit.
India's armed forces are however becoming tired of being saddled both with poor domestic equipment and by the defence ministry's failure to award foreign contracts on time. As the government's FDI consultation paper says, "only 15% of equipment can be described as 'state of the art' and nearly 50% is suffering from obsolescence".National security coindserns
National security concerns
There is some concern that India's security interests will be endangered if FDI is raised, but most of these can be dealt with by detailed regulations. For example, India will presumably pick and choose which countries to admit – presumably not China, despite that country's invasion of India's telecoms equipment market. It will also need to insist (as it has done with media FDI) that Indian nationals hold top managerial posts, and that it also controls export destinations and have some influence over changes in foreign management control. (The US allows 100% FDI in defence but imposes security-related restrictions, including an ability to block takeovers).
There is also concern that a foreign-invested defence company might be forced by its owner to stop production, or not receive components from its home country, if India was involved in a war or other activity that did not get international backing. The US has blocked supplies, most recently after India's 1998 nuclear tests. That risk however would presumably be no greater than it has been in the past with foreign supplies, and might turn out to be less serious.
The Commerce Ministry DIPP discussion document firmly recommends 74% – and does not oppose even 100% – in order to "have state of the art technology". Raising it only to 49% might, it says, lead to accusations "by posterity of doing too little too late".
Personally, I don't agree with this. Indian companies need time to grow, as they have in telecoms and insurance, so the limit should be raised to just 49%. That would, I believe (having talked to many contacts), be sufficient to bring in commitment, management expertise and technology, despite foreign companies' protestations to the contrary.
Unfortunately this seems unlikely to happen. The Commerce Ministry has started a public debate on the issue with a spectacular attempt to crack the defence establishment's luddite grip on policy – but the decisions will be still dominated by the defence ministry cabal. I guess that means we can expect no more than a fudge of 49% in "special cases", which will help a bit but lead to confusion and manipulation.
http://ridingtheelephant.wordpress....bate-on-foreign-investment-in-indian-defence/
India's business media thrives on reporting possible changes in foreign direct investment (FDI) limits that range over legally significant figures from nothing to 26% and 49%, and on to 50%, 51%, 74% and 100%. The figures give foreign companies varying degrees of control, and each level provides easy media stories and catchy headlines – and simple facts for sources to plant with minimal briefings on gullible journalists.
In the past the debates – or, rather, the pushes and pulls of (often suitcase-carrying) vested interests – have been invisible behind the headlines. But that has now partly changed. The Commerce Ministry's industrial policy department (DIPP) has publicised a debate about whether FDI should be raised in defence production by issuing a discussion document that covers all the issues. More discussion documents are planned on FDI in retail and low cost housing and other subjects.
This is surely good. I wrote here in February last year that one of the biggest weaknesses affecting India's economic liberalisation was the way that industrial and allied policies are made and changed without apparent reasoned analysis and debate. The biggest-ever changes in assessing foreign control for as FDI had then just been announced, leaving virtually everyone totally confused. The general conclusion was that the changes were designed to facilitate specific big company deals – and that big funds had accordingly flowed into the Congress Party's election coffers. No-one denied it – how could they – but the then commerce minister Kamal Nath extolled the changes' virtues without much clarity.
The government's defence manufacturing discussion paper has raised the basic question of whether FDI is needed and, if so, how much. This is a good question, and it has rarely been asked on any Indian FDI in the past.
Responding to vested interests
Instead, responding to vested interests, the government has gradually opened the floodgates – for example in telecoms, but only after Indian companies such as Bharti AirTel had had time to establish a leading Indian presence. It has blocked it in general retail because of pressure from big Indian companies such as Reliance, Tata and the Future group, though Kishore Biyani who runs Future is believed to be changing his mind. It has also blocked it at 26% in insurance because of public sector resistance to a higher limit even though many private sector insurance companies urgently need foreign funds, and at various levels in media to please influential media interests such as the Times of India group.
Some of these decisions were surely sensible. Indian companies need time to establish themselves before FDI is allowed at such high percentages that foreign companies swamp the market and make India in effect a virtual subsidiary of powerful developed economies.
That is the issue now in defence – is it time to open up and how far? Currently the FDI limit is 26%, apart from a very few higher exceptions, and it is generally accepted that this is not enough to attract commitment, top executives and high technology from most foreign defence companies. A notable exception is the UK's BAE Systems, which has a 26-74% joint venture with Mahindra & Mahindra (M&M ) for products (land systems to use the jargon) ranging from trucks to guns, which I mentioned about four months ago.
It is now fashionable to argue that it is illogical to restrict defence FDI because foreign companies from Russia, Israel, Europe and the US control the market by supplying about 70% of India's defence equipment, as they have done for years. If there is already such foreign control goes the argument, why not let the suppliers into India with higher FDI. This would boost India's auto industry-based and high-end manufacturing industry, generate employment, and enable the country gradually to become a defence equipment exporter.
Strengthening that argument is the government's evolving "offset" policy that requires foreign defence suppliers to spend 30%-50% of a contract's value on defence equipment investment and purchasing in India. This is making it more attractive for the foreign suppliers to set up joint ventures here, and is correspondingly leading to increased foreign pressure on the government for FDI above 51%.
The domestic industry, led by companies such as Larsen & Toubro (L&T), M&M and various Tata group businesses, however wants the limit raised only to 49% so that they maintain control and have a chance to grow, having been restricted till relatively recently from doing more than supply components. This view has been backed by a recent Confederation of Indian Industry-KPMG survey with 57% of respondents saying "yes" to a higher FDI limit and 26% more saying "maybe".
There have been various unsuccessful attempts in the past ten years to reform India's slothful defence manufacturing capability, which is dragged down by public sector corporations (DPSUs) and ordinance factories that dominate production, generally perform badly, and block change along with trade unions and the defence ministry. Currently, they are opposing any increase in the 26% limit.
India's armed forces are however becoming tired of being saddled both with poor domestic equipment and by the defence ministry's failure to award foreign contracts on time. As the government's FDI consultation paper says, "only 15% of equipment can be described as 'state of the art' and nearly 50% is suffering from obsolescence".National security coindserns
National security concerns
There is some concern that India's security interests will be endangered if FDI is raised, but most of these can be dealt with by detailed regulations. For example, India will presumably pick and choose which countries to admit – presumably not China, despite that country's invasion of India's telecoms equipment market. It will also need to insist (as it has done with media FDI) that Indian nationals hold top managerial posts, and that it also controls export destinations and have some influence over changes in foreign management control. (The US allows 100% FDI in defence but imposes security-related restrictions, including an ability to block takeovers).
There is also concern that a foreign-invested defence company might be forced by its owner to stop production, or not receive components from its home country, if India was involved in a war or other activity that did not get international backing. The US has blocked supplies, most recently after India's 1998 nuclear tests. That risk however would presumably be no greater than it has been in the past with foreign supplies, and might turn out to be less serious.
The Commerce Ministry DIPP discussion document firmly recommends 74% – and does not oppose even 100% – in order to "have state of the art technology". Raising it only to 49% might, it says, lead to accusations "by posterity of doing too little too late".
Personally, I don't agree with this. Indian companies need time to grow, as they have in telecoms and insurance, so the limit should be raised to just 49%. That would, I believe (having talked to many contacts), be sufficient to bring in commitment, management expertise and technology, despite foreign companies' protestations to the contrary.
Unfortunately this seems unlikely to happen. The Commerce Ministry has started a public debate on the issue with a spectacular attempt to crack the defence establishment's luddite grip on policy – but the decisions will be still dominated by the defence ministry cabal. I guess that means we can expect no more than a fudge of 49% in "special cases", which will help a bit but lead to confusion and manipulation.
http://ridingtheelephant.wordpress....bate-on-foreign-investment-in-indian-defence/
nandu
Senior Member
- Joined
- Oct 5, 2009
- Messages
- 1,913
- Likes
- 163
Boost Investment In India's Defence Sector: Are We Ready?
There has been an animated debate on the need to boost Foreign Direct Investment (FDI) in India's defence sector which has not been in a position to meet the diverse requirements of the Indian defence forces owing to the lack of financial resources, technological expertise and advanced manufacturing base. While some consider FDI to be an alluring option for giving impetus to the domestic defence sector, there is also a view that the entire issue is "sensitive and controversial" in nature. This implies that a balance must be struck between increased FDI flow and national interest. India could institute a policy framework to encourage foreign participation in terms of financial investment, technological know how, manufacturing expertise and marketing skill to not only meet the domestic requirements but also to cater to the export market. As an exporter of defence hardware, India would be in a position to expand its sphere of influence.
It was in 2001 that the Indian defence sector opened up for private participation, with the FDI limit capped at 26%. The Indian Parliament's Standing Committee on defence has proposed raising the FDI cap to 49%. Similarly, many industry bodies have made a strong case for increasing the FDI limit in the Indian defence sector with a view to boost defence hardware production capability. But without a level playing field it would be impossible to attract a higher level of FDI into the Indian defence sector. After all foreign companies willing to invest in the Indian the defence sector should not expect benefits as high as their Indian counterparts. While formulating a policy aimed at boosting FDI in the Indian defence sector, this issue needs to be addressed.
The Indian Defence Ministry is opposed to the idea of boosting the FDI limit in the Indian defence sector on the grounds of "security concern." Whether Indian Defence Minister A.K. Antony's overdrive for self reliance in defence production is a major hindrance in the way of boosting FDI, one is not sure. Even so, an increased FDI flow into the defence sector has the potential to decrease imports in which the role of agents and middlemen have been conspicuous. On its part, the Department of Industrial Policy and Promotion (DIPP) of the Ministry of Commerce and Industry has pleaded for allowing 100% FDI in the defence sector. "The abolition of FDI limit would outweigh any perceived drawbacks as also bring additional benefits. Most importantly, foreign companies could determine the extent of the FDI they could make depending on the technology they plan to induct to make a success of their venture," observes Thomas Mathew, Deputy Director General of the New Delhi based think-tank, the Institute for Defence Studies and Analysis (IDSA).
With India emerging as a lucrative market for defence hardware, foreign companies are keen to invest in the Indian defence sector if a favourable environment is created. A.K.Barbora, Vice Chief of the Indian Air Force (IAF) has made a strong plea for initiating an action plan to attract an increased FDI into the defence sector. "We have to take steps. We need to be bold enough to invite FDI more so into the defence sector," observed Barbora. It is high time that the suggestion of Barbora is taken by the Defence Ministry with the seriousness it deserves. Moreover, the issue of "security concern" involved in facilitating a higher level of participation by foreign companies in India's defence sector needs to be discussed before a decision on boosting FDI in to the defence sector is taken.
A joint study by the Confederation of Indian Industry (CII) and the consulting firm KPMG, opines that foreign companies would not be satisfied with anything less than a controlling stake of 51%. The CII-KPMG study states that foreign investors reject the argument of "national security concerns." As pointed out by a joint study by the industry body ASSOCHAM and research firm Ernst and Young (E&Y), 26% FDI in defence sector does not provide foreign investors incentives with respect to capacity expansion, buy back guarantee and exports while subjecting them to purchase and price discrimination vis-Ã -vis public sector enterprises. It is high time that the Indian Defence Ministry realized that for India to stay in step with rapidly changing technological trends in defence production, foreign participation is an unavoidable step.
As things stand now, India's defence manufacturing base leaves much to be desired. For instance only three Indian enterprises—Hindustan Aeronautical Ltd (HAL), Bharat Electronics Ltd and Ordnance Factory Board (OFB)—make it to the list of top 100 defence outfits in the world.
It is obvious that the Indian Defence Ministry has a strong bias towards state owned enterprises. But it is high time that the Indian Defence Ministry transforms its image of being partisan to state owned enterprises. Industry sources say that the Indian Defence Ministry should support research and development in private sector industries through a variety of measures including appropriate incentives. This step along with an increased FDI flow could galvanize the private sector to increase the quantum of resources and time to develop futuristic weapons systems that Indian defence forces are keen on acquiring.
http://www.eurasiareview.com/201006...nt-in-indias-defence-sector-are-we-ready.html
There has been an animated debate on the need to boost Foreign Direct Investment (FDI) in India's defence sector which has not been in a position to meet the diverse requirements of the Indian defence forces owing to the lack of financial resources, technological expertise and advanced manufacturing base. While some consider FDI to be an alluring option for giving impetus to the domestic defence sector, there is also a view that the entire issue is "sensitive and controversial" in nature. This implies that a balance must be struck between increased FDI flow and national interest. India could institute a policy framework to encourage foreign participation in terms of financial investment, technological know how, manufacturing expertise and marketing skill to not only meet the domestic requirements but also to cater to the export market. As an exporter of defence hardware, India would be in a position to expand its sphere of influence.
It was in 2001 that the Indian defence sector opened up for private participation, with the FDI limit capped at 26%. The Indian Parliament's Standing Committee on defence has proposed raising the FDI cap to 49%. Similarly, many industry bodies have made a strong case for increasing the FDI limit in the Indian defence sector with a view to boost defence hardware production capability. But without a level playing field it would be impossible to attract a higher level of FDI into the Indian defence sector. After all foreign companies willing to invest in the Indian the defence sector should not expect benefits as high as their Indian counterparts. While formulating a policy aimed at boosting FDI in the Indian defence sector, this issue needs to be addressed.
The Indian Defence Ministry is opposed to the idea of boosting the FDI limit in the Indian defence sector on the grounds of "security concern." Whether Indian Defence Minister A.K. Antony's overdrive for self reliance in defence production is a major hindrance in the way of boosting FDI, one is not sure. Even so, an increased FDI flow into the defence sector has the potential to decrease imports in which the role of agents and middlemen have been conspicuous. On its part, the Department of Industrial Policy and Promotion (DIPP) of the Ministry of Commerce and Industry has pleaded for allowing 100% FDI in the defence sector. "The abolition of FDI limit would outweigh any perceived drawbacks as also bring additional benefits. Most importantly, foreign companies could determine the extent of the FDI they could make depending on the technology they plan to induct to make a success of their venture," observes Thomas Mathew, Deputy Director General of the New Delhi based think-tank, the Institute for Defence Studies and Analysis (IDSA).
With India emerging as a lucrative market for defence hardware, foreign companies are keen to invest in the Indian defence sector if a favourable environment is created. A.K.Barbora, Vice Chief of the Indian Air Force (IAF) has made a strong plea for initiating an action plan to attract an increased FDI into the defence sector. "We have to take steps. We need to be bold enough to invite FDI more so into the defence sector," observed Barbora. It is high time that the suggestion of Barbora is taken by the Defence Ministry with the seriousness it deserves. Moreover, the issue of "security concern" involved in facilitating a higher level of participation by foreign companies in India's defence sector needs to be discussed before a decision on boosting FDI in to the defence sector is taken.
A joint study by the Confederation of Indian Industry (CII) and the consulting firm KPMG, opines that foreign companies would not be satisfied with anything less than a controlling stake of 51%. The CII-KPMG study states that foreign investors reject the argument of "national security concerns." As pointed out by a joint study by the industry body ASSOCHAM and research firm Ernst and Young (E&Y), 26% FDI in defence sector does not provide foreign investors incentives with respect to capacity expansion, buy back guarantee and exports while subjecting them to purchase and price discrimination vis-Ã -vis public sector enterprises. It is high time that the Indian Defence Ministry realized that for India to stay in step with rapidly changing technological trends in defence production, foreign participation is an unavoidable step.
As things stand now, India's defence manufacturing base leaves much to be desired. For instance only three Indian enterprises—Hindustan Aeronautical Ltd (HAL), Bharat Electronics Ltd and Ordnance Factory Board (OFB)—make it to the list of top 100 defence outfits in the world.
It is obvious that the Indian Defence Ministry has a strong bias towards state owned enterprises. But it is high time that the Indian Defence Ministry transforms its image of being partisan to state owned enterprises. Industry sources say that the Indian Defence Ministry should support research and development in private sector industries through a variety of measures including appropriate incentives. This step along with an increased FDI flow could galvanize the private sector to increase the quantum of resources and time to develop futuristic weapons systems that Indian defence forces are keen on acquiring.
http://www.eurasiareview.com/201006...nt-in-indias-defence-sector-are-we-ready.html
EagleOne
Regular Member
- Joined
- May 10, 2010
- Messages
- 886
- Likes
- 87
Calibrated FDI opening in retail, defence
India has said it will go for calibrated FDI liberalisation in sectors like defence and retail amidst the US demand for opening different segments for foreign investors.
Indian Commerce and Industry Minister Anand Sharma, who participated in the Indo-US CEOs Forum Tuesday, said: "(In) defence and retail trade ... we favour calibrated (foreign investment) liberalisation on account of domestic
sensitivities."
He said that his government's initiatives like
simplification and consolidation of the FDI policy would go a long way in improving business environment in India.
FDI is not allowed in multi-brand retail, which is dominated by the neighbourhood kirana stores and is a politically-sensitive topic. However, foreign players are permitted in wholesale trade as also in single-brand retail,
At present 26 per cent FDI is allowed in defence sector.
Sharma also met the US Trade Representative Ron Kirk and the two leaders agreed to enhance opportunities for bilateral trade and investment to create jobs in both the countries.
"Kirk urged India to address longstanding impediments such as investment caps, agricultural market access barriers, high tariffs, intellectual property rights and the need for
continuing regulatory streamlining and transparency," the USTR spokesman Matthew Lawrence said in a statement.
Sharma was leading an official and industry delegation for the second meeting of the Forum co-chaired by Tata Group Chairman Ratan Tata and Honeywell Inc CEO Dave Cote.
The meeting was also attended by Finance Minister Pranab Mukherjee and Deputy Chairman of Planning Commission of India Montek Singh Ahluwalia.
The US official delegation included Secretary of State Hillary Clinton, Treasury Secretary Timothy Geithner, Commerce Secretary Gary Locke, US Trade Representative Ambassador Ron
Kirk and Director of National Economic Council Larry Summers.
Sharma also welcomed the CEO Forum initiative on the launching of a USD 1 billion venture capital /private equity fund for clean energy technology development projects.
He also lauded the initiative of the Forum to establish a joint Indo-US Drug Discovery Fund and said the move would enhance the research and development efforts.
Sharma and Kirk also reviewed the implementation of the India- US Trade Policy Forum Framework for Cooperation on Trade and Investment singed in March 2010.
http://www.businessghana.com/portal/news/index.php?op=getNews&news_cat_id=&id=130035
India has said it will go for calibrated FDI liberalisation in sectors like defence and retail amidst the US demand for opening different segments for foreign investors.
Indian Commerce and Industry Minister Anand Sharma, who participated in the Indo-US CEOs Forum Tuesday, said: "(In) defence and retail trade ... we favour calibrated (foreign investment) liberalisation on account of domestic
sensitivities."
He said that his government's initiatives like
simplification and consolidation of the FDI policy would go a long way in improving business environment in India.
FDI is not allowed in multi-brand retail, which is dominated by the neighbourhood kirana stores and is a politically-sensitive topic. However, foreign players are permitted in wholesale trade as also in single-brand retail,
At present 26 per cent FDI is allowed in defence sector.
Sharma also met the US Trade Representative Ron Kirk and the two leaders agreed to enhance opportunities for bilateral trade and investment to create jobs in both the countries.
"Kirk urged India to address longstanding impediments such as investment caps, agricultural market access barriers, high tariffs, intellectual property rights and the need for
continuing regulatory streamlining and transparency," the USTR spokesman Matthew Lawrence said in a statement.
Sharma was leading an official and industry delegation for the second meeting of the Forum co-chaired by Tata Group Chairman Ratan Tata and Honeywell Inc CEO Dave Cote.
The meeting was also attended by Finance Minister Pranab Mukherjee and Deputy Chairman of Planning Commission of India Montek Singh Ahluwalia.
The US official delegation included Secretary of State Hillary Clinton, Treasury Secretary Timothy Geithner, Commerce Secretary Gary Locke, US Trade Representative Ambassador Ron
Kirk and Director of National Economic Council Larry Summers.
Sharma also welcomed the CEO Forum initiative on the launching of a USD 1 billion venture capital /private equity fund for clean energy technology development projects.
He also lauded the initiative of the Forum to establish a joint Indo-US Drug Discovery Fund and said the move would enhance the research and development efforts.
Sharma and Kirk also reviewed the implementation of the India- US Trade Policy Forum Framework for Cooperation on Trade and Investment singed in March 2010.
http://www.businessghana.com/portal/news/index.php?op=getNews&news_cat_id=&id=130035
EagleOne
Regular Member
- Joined
- May 10, 2010
- Messages
- 886
- Likes
- 87
India Moves Toward Faster Defense Acquisitions
NEW DELHI - India's Finance Ministry has proposed new regulations that would allow the Defence Ministry to award contracts worth up to $108.6 million - up from the current $21.7 million limit - without Finance Ministry approval, a Defence Ministry official said.
In addition, only defense contracts of more than $217.3 million must be brought to the Cabinet Committee of Securities (CCS).
The changes are expected to take effect in the next month, the Defence Ministry official said.
Under existing rules, the Defence Ministry at the end of each budget year has been forced to surrender more than $1 billion in funds allocated to buy new weapons and military equipment because of bureaucratic procedures that delay final contract decisions. The changes by the Finance Ministry should help clear at least a dozen defense contracts valued at around $100 million each year.
The changes will facilitate the quick approval of spare parts and maintenance contracts for the Indian military, the Defence Ministry official said.
Ministry sources said the government also is considering increasing the limit of foreign direct investment in Indian defense companies from the current 26 percent level to as much as 74 percent.
While the Defence Ministry is not keen to extend the limit to 74 percent, the Commerce Ministry has indicated on several occasions that such an increase would enable the meaningful collaboration of major foreign companies with Indian companies, and thereby boost defense production here, the sources said.
NEW DELHI - India's Finance Ministry has proposed new regulations that would allow the Defence Ministry to award contracts worth up to $108.6 million - up from the current $21.7 million limit - without Finance Ministry approval, a Defence Ministry official said.
In addition, only defense contracts of more than $217.3 million must be brought to the Cabinet Committee of Securities (CCS).
The changes are expected to take effect in the next month, the Defence Ministry official said.
Under existing rules, the Defence Ministry at the end of each budget year has been forced to surrender more than $1 billion in funds allocated to buy new weapons and military equipment because of bureaucratic procedures that delay final contract decisions. The changes by the Finance Ministry should help clear at least a dozen defense contracts valued at around $100 million each year.
The changes will facilitate the quick approval of spare parts and maintenance contracts for the Indian military, the Defence Ministry official said.
Ministry sources said the government also is considering increasing the limit of foreign direct investment in Indian defense companies from the current 26 percent level to as much as 74 percent.
While the Defence Ministry is not keen to extend the limit to 74 percent, the Commerce Ministry has indicated on several occasions that such an increase would enable the meaningful collaboration of major foreign companies with Indian companies, and thereby boost defense production here, the sources said.
nrj
Ambassador
- Joined
- Nov 16, 2009
- Messages
- 9,658
- Likes
- 3,911
Allow 100% FDI in defence sector: Assocham
The government should allow 100 per cent FDI in defence sector so that the country can become self-reliant in production and encourage technology transfers, industry body Assocham has said.
At present, India imports about 70 per cent of its defence requirements.
"We must recognise that defence production is a capital and technology intensive-sector. To develop a strong industrial base in the country, we need foreign capital and technology," Assocham said.
Currently, 26 per cent Foreign Direct Investment (FDI) is allowed in the sector.
India can acquire self-reliance in defence production with raising FDI ceiling to 100 per cent, the chamber said.
"The present cap on FDI in the sector has kept away both investments and technology transfer. There is no reason why we should not allow 100 per cent foreign investment in defence sector," Assocham Secretary General D S Rawat.
FDI along with usage of advanced technology is a better option for manufacturing defence equipment domestically rather than importing them from abroad, he added.
Allow 100% FDI in defence sector: Assocham - Indian Express
The government should allow 100 per cent FDI in defence sector so that the country can become self-reliant in production and encourage technology transfers, industry body Assocham has said.
At present, India imports about 70 per cent of its defence requirements.
"We must recognise that defence production is a capital and technology intensive-sector. To develop a strong industrial base in the country, we need foreign capital and technology," Assocham said.
Currently, 26 per cent Foreign Direct Investment (FDI) is allowed in the sector.
India can acquire self-reliance in defence production with raising FDI ceiling to 100 per cent, the chamber said.
"The present cap on FDI in the sector has kept away both investments and technology transfer. There is no reason why we should not allow 100 per cent foreign investment in defence sector," Assocham Secretary General D S Rawat.
FDI along with usage of advanced technology is a better option for manufacturing defence equipment domestically rather than importing them from abroad, he added.
Allow 100% FDI in defence sector: Assocham - Indian Express
nrj
Ambassador
- Joined
- Nov 16, 2009
- Messages
- 9,658
- Likes
- 3,911
Govt's 26% cap for FDI in defence a challenge: Dean McCumiskey, CEO, BAE Systems India
Dean McCumiskey, 50, the new India managing director and chief executive of defence contractor BAE Systems, says the opportunity in the Indian market is as large as that in the United States, the world's biggest defence spender. But the cap of 26% foreign investment in the defence sector means that BAE Systems, one the world's biggest defence contractors, cannot bring its "crown jewels" to India, he tells Biswarup Gooptu. Excerpts:
The government is sticking with the 26% cap on FDI in defence. How much of a hindrance is this?
It is a big challenge. We've consistently, in our discussions with the government, said 26% doesn't allow you a lot of scope to transfer your crown jewels. You want to do it for a revenue stream, because the technology is of significant value. We have consistently said 49% is more realistic. We fully understand that the companies will need to be Indian-owned, and for reasons of national security. But 49% is a more equal business arrangement. It will be worthwhile transferring even more technology, or even doing technology development in India. In many respects if you look at the defence industry, after all the years, India has had a defence manufacturing capability. It's only now that it started getting commercialised. There are huge opportunities for commercial organisations to bring their skills and technologies into the marketplace. But you won't get it at 26%. There will always be limitations. But we have bitten the bullets, and have entered into two joint ventures (with Hindustan Aeronautics and the Mahindra Group). We are quite happy to invest more, providing we can have an equitable return on our investments.
How significant is the Indian market for you?
If you look at the size of the opportunities here, they are as big as the opportunities in the US. At the end of the day, we are in a shrinking market from a global defence point of view. But where there is growth in defence GDP, those are the areas we have to take our expertise, fully understanding that we are never going to walk into a country and walk away with billions and billions of dollars of business without that country being absolutely involved in the front-end of manufacturing. It doesn't work like it used to 20 years ago. Our shareholders understand the market, and they understand the cycle time of defence business. The potential growth in India's spending on defence is something that companies such as BAE Systems, and its competitors, cannot ignore. If you look at the defence markets, where are you seeing growth? It's either in the Asian region, or in the BRIC-type economies. China and Russia are no-go areas.
BAE is participating in the Indian Army's tender for an infantry combat vehicle through the joint venture with the Mahindra Group. What is the status now?
We have not been shortlisted yet, but are waiting for it. Notionally, we were hoping that the short-list would be out before Defexpo 2012. But there are no guarantees. In many respects, the Future Infantry Combat Vehicle is a good example of why the joint venture with the Mahindra group - Defence Land Systems India - is filled with opportunities. Because we can bring expertise from our vehicles business, particularly in Sweden, into India, transfer intellectual property rights and technology into the joint venture, and exploit the programme. The good thing is, the JV fits into Mahindra's strategy as well as into our strategy, while the FICV fits into India's strategy. That's really the reason to have a joint venture, because you are furthering each partner's or each parent's strategy.
In terms of design and delivery timelines, what has the defence ministry mandated for the FICV?
It's a really flat schedule, and a programme that will go on for many, many years. It's challenging but we are confident that we will meet all deadlines set by the government. To go from down-select to vehicle-readiness for trial - the engineering side is a challenge. I think it's about 30-odd months for the design and development phase, and that's very challenging. Especially you're looking to make a vehicle that advanced, no matter who you're making it for.
Will BAE Systems bring its Hawk Advanced Jet Trainer production line to India?
I don't think things have moved forward that much, because we maintain manufacturing in the UK. We still build Hawks in India, for India. At this point, our focus is to make sure that we work very closely with HAL to finish the order for 42 planes, and then they start the order for 57 planes next year. But that has to be an option going forward.
Are BAE and its partners considering cutting the price of the Eurofighter Typhoon after Dassault's Rafale was shortlisted for the Indian fighter jet order?
Discussions are still ongoing back in Europe. In many respects, the multi-role medium combat aircraft is a European issue, and Eurofighter is a true consortium where each party cannot take unilateral decisions. They are still looking at what can be done. As (CEO) Ian King said, investigating pricing was only one of them. We are looking at a number of options that could potentially be offered to India.
Govt's 26% cap for FDI in defence a challenge: Dean McCumiskey, CEO, BAE Systems India - Economic Times
Dean McCumiskey, 50, the new India managing director and chief executive of defence contractor BAE Systems, says the opportunity in the Indian market is as large as that in the United States, the world's biggest defence spender. But the cap of 26% foreign investment in the defence sector means that BAE Systems, one the world's biggest defence contractors, cannot bring its "crown jewels" to India, he tells Biswarup Gooptu. Excerpts:
The government is sticking with the 26% cap on FDI in defence. How much of a hindrance is this?
It is a big challenge. We've consistently, in our discussions with the government, said 26% doesn't allow you a lot of scope to transfer your crown jewels. You want to do it for a revenue stream, because the technology is of significant value. We have consistently said 49% is more realistic. We fully understand that the companies will need to be Indian-owned, and for reasons of national security. But 49% is a more equal business arrangement. It will be worthwhile transferring even more technology, or even doing technology development in India. In many respects if you look at the defence industry, after all the years, India has had a defence manufacturing capability. It's only now that it started getting commercialised. There are huge opportunities for commercial organisations to bring their skills and technologies into the marketplace. But you won't get it at 26%. There will always be limitations. But we have bitten the bullets, and have entered into two joint ventures (with Hindustan Aeronautics and the Mahindra Group). We are quite happy to invest more, providing we can have an equitable return on our investments.
How significant is the Indian market for you?
If you look at the size of the opportunities here, they are as big as the opportunities in the US. At the end of the day, we are in a shrinking market from a global defence point of view. But where there is growth in defence GDP, those are the areas we have to take our expertise, fully understanding that we are never going to walk into a country and walk away with billions and billions of dollars of business without that country being absolutely involved in the front-end of manufacturing. It doesn't work like it used to 20 years ago. Our shareholders understand the market, and they understand the cycle time of defence business. The potential growth in India's spending on defence is something that companies such as BAE Systems, and its competitors, cannot ignore. If you look at the defence markets, where are you seeing growth? It's either in the Asian region, or in the BRIC-type economies. China and Russia are no-go areas.
BAE is participating in the Indian Army's tender for an infantry combat vehicle through the joint venture with the Mahindra Group. What is the status now?
We have not been shortlisted yet, but are waiting for it. Notionally, we were hoping that the short-list would be out before Defexpo 2012. But there are no guarantees. In many respects, the Future Infantry Combat Vehicle is a good example of why the joint venture with the Mahindra group - Defence Land Systems India - is filled with opportunities. Because we can bring expertise from our vehicles business, particularly in Sweden, into India, transfer intellectual property rights and technology into the joint venture, and exploit the programme. The good thing is, the JV fits into Mahindra's strategy as well as into our strategy, while the FICV fits into India's strategy. That's really the reason to have a joint venture, because you are furthering each partner's or each parent's strategy.
In terms of design and delivery timelines, what has the defence ministry mandated for the FICV?
It's a really flat schedule, and a programme that will go on for many, many years. It's challenging but we are confident that we will meet all deadlines set by the government. To go from down-select to vehicle-readiness for trial - the engineering side is a challenge. I think it's about 30-odd months for the design and development phase, and that's very challenging. Especially you're looking to make a vehicle that advanced, no matter who you're making it for.
Will BAE Systems bring its Hawk Advanced Jet Trainer production line to India?
I don't think things have moved forward that much, because we maintain manufacturing in the UK. We still build Hawks in India, for India. At this point, our focus is to make sure that we work very closely with HAL to finish the order for 42 planes, and then they start the order for 57 planes next year. But that has to be an option going forward.
Are BAE and its partners considering cutting the price of the Eurofighter Typhoon after Dassault's Rafale was shortlisted for the Indian fighter jet order?
Discussions are still ongoing back in Europe. In many respects, the multi-role medium combat aircraft is a European issue, and Eurofighter is a true consortium where each party cannot take unilateral decisions. They are still looking at what can be done. As (CEO) Ian King said, investigating pricing was only one of them. We are looking at a number of options that could potentially be offered to India.
Govt's 26% cap for FDI in defence a challenge: Dean McCumiskey, CEO, BAE Systems India - Economic Times
LurkerBaba
Super Mod
- Joined
- Jul 2, 2010
- Messages
- 7,882
- Likes
- 8,125
Beyond retarded. These guys are pure banias
nrj
Ambassador
- Joined
- Nov 16, 2009
- Messages
- 9,658
- Likes
- 3,911
Private Sector Participation in Defence Production: Issues of Industrial Licensing and FDI
Concept Note
It is more than decade now since the Government of India in a major policy initiative liberalised the defence industry in 2001, by allowing 100 per cent participation by the private sector with foreign direct investment (FDI) permissible up to 26 per cent, both subject to licensing and security clearance. The initiative was taken to harness the expertise of the private sector, and facilitate its participation through infusion of foreign capital and technology for enhancing self-reliance in India's defence production. By October 2011, the DIPP has given 200 Letters of Intent/Industrial Licenses (LoI/IL) to various private entities, with proposed investment totaling Rs. 11,773 crore and employment opportunities for 38,579 people. And by November 2011, a cumulative FDI of Rs 17.68 crore ($3.72 million) has flown into Indian defence industry.
The above developments notwithstanding, there are certain grey areas in both industrial licensing and FDI policy, which need further improvement to facilitate private sector's participation in defence industry in a more meaningful manner. As regards industrial license, the first major issue that intrigues the domestic private industry is the definition of defence items. Unlike some other countries and international arms control organisations, which define defence item through a comprehensive list (e.g., the Munitions List of the Wassenaar Arrangement), in India there is no such list to give clarity of what constitute a defence product. The lack of clarity becomes an issue when industry is required to provide the 'item code' and 'item description' while filling up the application form for industrial license. As per the current practice, the industry is required to provide the 'item code' from the National Industrial Classification (NIC) Code list of 1987, which has only one code ( 359.4: 'manufacture of arms and armaments') for entire defence manufacturing. The NIC code does not tell about what constitutes arms and armaments and if dual-use items are also covered by it. It also does not tell about if parts and components that go into arms and ammunition but may or may not have dual-use application, fall under this head.
The issue with 'item description' is more nuanced. There is not a single dedicated list on which the Industry can rely on to describe the defence nature of its production. Rather, they have to depend on at least three different lists, depending on which list best describes their production. Apart from NIC list (which is most generic among the three), two others are Indian Trade Classification (Harmonised System) ITC (HS) Code, as maintained by the Director General of Foreign Trade (DGFT) of Ministry of Commerce for the purpose of India's external trade; and the 'Product List' as articulated in the Ministry of Defence's (MoD's) Defence Procurement Procedure (DPP), for discharge of offset obligations by the foreign vendors. The DGFT list, gives some broad sub-details of the items which can be covered under the defence industry. For instance, under the broad HS Code 93 (arms and ammunition; parts and accessories thereof), there are 16 sub-categories. The MoD list similarly provides some broad details of items in 27 categories under three broad headings: Defence Products, Products for Internal Security, and Civil Aerospace Products.
Although more elaborate in comparison to NIC list, the lists of DGFT and MoD are still not defence specific. They cater to items of defence, dual-use and even commercially off-the-shelf in nature. For instance, under HS Code 88 (aircraft, spacecraft, and parts thereof) there are sub-categories such as 'gliders', 'balloons', and 'under carriages and parts thereof', which are commercially available products or at best dual-use items. But a company producing any of the above items is at freedom to apply for a defence license and once it gets becomes a part of the defence industry, even though the item in question may not be defence in nature.
Given the above lack of clarity, the Indian defence industry in the private sector comprises of companies having a defence industrial license. Even this loosely defined industry is not free from other issues. It is noteworthy that as per the guidelines of the DIPP, defence falls under the 'Manufacturing' sector. So the companies in manufacturing business can apply for license and get it (subject to approval) and be formally part of the defence industry. However this is not the case for companies in the services sector (such as engineering, design and software, etc) which do not come under the purview of 'Manufacturing', and hence do not require a license for their services. Consequently they are not formally part of the defence industry, even though their services have direct application in defence products.
The only way companies in the services sector become, in a way, part of the defence industry is by becoming Indian Offset Partner (IOP) – an Indian company partnering with a foreign company for discharge of latter's offset obligation. However the path toward becoming IOP is not very clear in the existing policy framework. It is because the term 'Indian' in IOP in the context of a company in the services sector is interpreted differently from the one in the manufacturing sector. The difference is because of the foreign equity that is allowed in these two sectors. For defence manufacturing, FDI is allowed upto 26 per cent where as it is upto 100 per cent in case of services sector. In other words, in defence manufacturing sector a company will be called an Indian company only when it owns minimum 74 per cent of total equity share of that company. For the services sector, the equivalent minimum equity share (with the Indian shareholder) is 51 per cent to be called an Indian company. However it is believed that the Defence Offset Facilitation Agency (DOFA) – the single window agency under the Department of Defence Production of MoD responsible for facilitating offsets in defence contracts – does not buy this argument and insists that companies in the services sector must have minimum 74 per cent domestic equity share so as to participate as an IOP.
Apart from the above ambiguity caused by the FDI policy, the way foreign investment in a company in India is calculated also creates confusion in the industry. As per the current guidelines issued by the DIPP, foreign investment in an Indian company is calculated by taking into account both the direct and indirect investments (the direct investment is the one that comes directly from a foreign source where as the indirect investment is one that comes through another company in India having a foreign equity). The tricky part is that technically and as per DIPP rules, if an indirect investment comes from a company in Indian in which the foreign partner has a minority share, the said investment is not considered as foreign investment. As an illustration, if a company X in India with a foreign equity holding of 49 per cent invests 70 per cent in the equity of another company Y (which is 'owned and controlled' by resident Indians), the resultant foreign equity share in Y (49%*70=34.3) is not technically considered foreign investment. The said rules notwithstanding, the MoD has a different view, which is based on actual equity owned by the foreign partner. In the above illustration, the MoD views 34.3 per cent equity share in Y as foreign investment. At least on one case, the MoD has prevailed over the DIPP' stipulated technical rules, giving a message that when it comes to defence industry, it is the actual foreign holding that matters rather than the technical calculation as suggested by the DIPP. However given the different approach adopted by two ministries of the government, it is ideal to clarify once and for all which approach is correct.
Keeping the above in view, the Institute for Defence Studies and Analyses (IDSA) is organising a round table discussion. Senior officials from the MoD, DIPP, armed forces, industry representatives, and consultancy firms are invited to discuss and debate the following issues.
Doing away with the mandatory requirement of industrial licensing: Merits & demerits
Private Sector Participation in Defence Production: Issues of Industrial Licensing and FDI | Institute for Defence Studies and Analyses
Concept Note
It is more than decade now since the Government of India in a major policy initiative liberalised the defence industry in 2001, by allowing 100 per cent participation by the private sector with foreign direct investment (FDI) permissible up to 26 per cent, both subject to licensing and security clearance. The initiative was taken to harness the expertise of the private sector, and facilitate its participation through infusion of foreign capital and technology for enhancing self-reliance in India's defence production. By October 2011, the DIPP has given 200 Letters of Intent/Industrial Licenses (LoI/IL) to various private entities, with proposed investment totaling Rs. 11,773 crore and employment opportunities for 38,579 people. And by November 2011, a cumulative FDI of Rs 17.68 crore ($3.72 million) has flown into Indian defence industry.
The above developments notwithstanding, there are certain grey areas in both industrial licensing and FDI policy, which need further improvement to facilitate private sector's participation in defence industry in a more meaningful manner. As regards industrial license, the first major issue that intrigues the domestic private industry is the definition of defence items. Unlike some other countries and international arms control organisations, which define defence item through a comprehensive list (e.g., the Munitions List of the Wassenaar Arrangement), in India there is no such list to give clarity of what constitute a defence product. The lack of clarity becomes an issue when industry is required to provide the 'item code' and 'item description' while filling up the application form for industrial license. As per the current practice, the industry is required to provide the 'item code' from the National Industrial Classification (NIC) Code list of 1987, which has only one code ( 359.4: 'manufacture of arms and armaments') for entire defence manufacturing. The NIC code does not tell about what constitutes arms and armaments and if dual-use items are also covered by it. It also does not tell about if parts and components that go into arms and ammunition but may or may not have dual-use application, fall under this head.
The issue with 'item description' is more nuanced. There is not a single dedicated list on which the Industry can rely on to describe the defence nature of its production. Rather, they have to depend on at least three different lists, depending on which list best describes their production. Apart from NIC list (which is most generic among the three), two others are Indian Trade Classification (Harmonised System) ITC (HS) Code, as maintained by the Director General of Foreign Trade (DGFT) of Ministry of Commerce for the purpose of India's external trade; and the 'Product List' as articulated in the Ministry of Defence's (MoD's) Defence Procurement Procedure (DPP), for discharge of offset obligations by the foreign vendors. The DGFT list, gives some broad sub-details of the items which can be covered under the defence industry. For instance, under the broad HS Code 93 (arms and ammunition; parts and accessories thereof), there are 16 sub-categories. The MoD list similarly provides some broad details of items in 27 categories under three broad headings: Defence Products, Products for Internal Security, and Civil Aerospace Products.
Although more elaborate in comparison to NIC list, the lists of DGFT and MoD are still not defence specific. They cater to items of defence, dual-use and even commercially off-the-shelf in nature. For instance, under HS Code 88 (aircraft, spacecraft, and parts thereof) there are sub-categories such as 'gliders', 'balloons', and 'under carriages and parts thereof', which are commercially available products or at best dual-use items. But a company producing any of the above items is at freedom to apply for a defence license and once it gets becomes a part of the defence industry, even though the item in question may not be defence in nature.
Given the above lack of clarity, the Indian defence industry in the private sector comprises of companies having a defence industrial license. Even this loosely defined industry is not free from other issues. It is noteworthy that as per the guidelines of the DIPP, defence falls under the 'Manufacturing' sector. So the companies in manufacturing business can apply for license and get it (subject to approval) and be formally part of the defence industry. However this is not the case for companies in the services sector (such as engineering, design and software, etc) which do not come under the purview of 'Manufacturing', and hence do not require a license for their services. Consequently they are not formally part of the defence industry, even though their services have direct application in defence products.
The only way companies in the services sector become, in a way, part of the defence industry is by becoming Indian Offset Partner (IOP) – an Indian company partnering with a foreign company for discharge of latter's offset obligation. However the path toward becoming IOP is not very clear in the existing policy framework. It is because the term 'Indian' in IOP in the context of a company in the services sector is interpreted differently from the one in the manufacturing sector. The difference is because of the foreign equity that is allowed in these two sectors. For defence manufacturing, FDI is allowed upto 26 per cent where as it is upto 100 per cent in case of services sector. In other words, in defence manufacturing sector a company will be called an Indian company only when it owns minimum 74 per cent of total equity share of that company. For the services sector, the equivalent minimum equity share (with the Indian shareholder) is 51 per cent to be called an Indian company. However it is believed that the Defence Offset Facilitation Agency (DOFA) – the single window agency under the Department of Defence Production of MoD responsible for facilitating offsets in defence contracts – does not buy this argument and insists that companies in the services sector must have minimum 74 per cent domestic equity share so as to participate as an IOP.
Apart from the above ambiguity caused by the FDI policy, the way foreign investment in a company in India is calculated also creates confusion in the industry. As per the current guidelines issued by the DIPP, foreign investment in an Indian company is calculated by taking into account both the direct and indirect investments (the direct investment is the one that comes directly from a foreign source where as the indirect investment is one that comes through another company in India having a foreign equity). The tricky part is that technically and as per DIPP rules, if an indirect investment comes from a company in Indian in which the foreign partner has a minority share, the said investment is not considered as foreign investment. As an illustration, if a company X in India with a foreign equity holding of 49 per cent invests 70 per cent in the equity of another company Y (which is 'owned and controlled' by resident Indians), the resultant foreign equity share in Y (49%*70=34.3) is not technically considered foreign investment. The said rules notwithstanding, the MoD has a different view, which is based on actual equity owned by the foreign partner. In the above illustration, the MoD views 34.3 per cent equity share in Y as foreign investment. At least on one case, the MoD has prevailed over the DIPP' stipulated technical rules, giving a message that when it comes to defence industry, it is the actual foreign holding that matters rather than the technical calculation as suggested by the DIPP. However given the different approach adopted by two ministries of the government, it is ideal to clarify once and for all which approach is correct.
Keeping the above in view, the Institute for Defence Studies and Analyses (IDSA) is organising a round table discussion. Senior officials from the MoD, DIPP, armed forces, industry representatives, and consultancy firms are invited to discuss and debate the following issues.
Doing away with the mandatory requirement of industrial licensing: Merits & demerits
- Issues of industrial licensing
- Timeframe
- Eligibility/definition of product
- Issues of FDI – Existing ceiling & need for revision
- Institutional and procedural Issues of defence exports
Private Sector Participation in Defence Production: Issues of Industrial Licensing and FDI | Institute for Defence Studies and Analyses
nrj
Ambassador
- Joined
- Nov 16, 2009
- Messages
- 9,658
- Likes
- 3,911
LB,
Though I do not support complete 100% FDI, however if we are to expect heavy engagement of private domestic industry in defense sector which ofcourse will remain insignificant if proper resources are not put in R&D then I do not expect anything more than DRDO version in private sector.
Non-public enterprises are not going to invest hundreds of billions on do or die basis. They need financial support either from domestic market or abroad. I am not sure how much GOI is doing to encourage funding giants to lend money to this aspiring private defense industry. Govt does not treat anyone properly. Its just the way it has been. Commerce Min asked big banks to lend money to coal-power generators. Then govt did nothing only to sit watching situation go out of control. Today the scenario is the the Indian power sector is on the verge to become desi version of US sub prime crisis. I am giving this example only to reflect the sentiment domestic money lenders are having and trust me no private company wants to invite debt in these times.
Maybe time has not come yet to further extent the FDI ceiling but in due course of time, say 4-5yrs we should increase it to a considerable level when private companies can raise substantial money from abroad in order to mechanize big projects which will stimulate competition in vital defence product market.
