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From: sanjeev nayyar
There are widespread misconceptions about raising the foreign direct investment (FDI) limit in defence production. This is especially so in the hazy post-Congress euphoria of economic azadi, where any loosening of government controls is reflexively lauded as a progressive step even when it involves issues far beyond economic liberalisation. I observed this while participating in a recent television discussion on the initiative by the ministry of commerce and industry to raise the current 26 per cent cap to 49, 74 or even 100 per cent. My co-panellists - one from the Bharatiya Janata Party (BJP) and the other from the Congress - had little interest in debating whether, or how, a higher FDI cap would boost indigenisation. Instead, they squabbled over credit. The BJP member boasted about his party's purposefulness on defence; the Congressman claimed correctly that the United Progressive Alliance had already permitted 100 per cent FDI for firms that brought in high technology. Ironically, they were both seeking credit for giving foreign arms vendors concessions that are both unprecedented and unnecessary.
FDI in defence is usually considered in a highly simplistic context, summarised in a 2010 proposal by the Department of Industrial Policy and Promotion (DIPP), which has now been dusted out again. The 2010 proposal notes: "Manufacturing within the country … will be a better option than importing the equipment from abroad... The general perception is that the present FDI cap of 26 per cent discourages original equipment manufacturers (OEMs) from bringing in proprietary technology, as OEMs may be reluctant to license their proprietary technology to a company in which their equity is restricted to a minority of 26 per cent. This has resulted in India not being able to access the latest high-end technologies available."
This argument is plain wrong. Since 2006 the government has permitted 100 per cent FDI in defence on a "case-by-case basis", that is, for OEMs who bring in high-end technology to build weaponry in India. Since then, not one OEM has responded with a proposal, nor is anyone likely to. That is because even when a vendor sees a terrific business case in building defence systems in India, it is not her board but her government that will have the final say on technology export. The OEM can release no proprietary technology to an Indian production unit, even fully owned, without the home government's explicit sanction. This requirement is legislated by every major defence exporter through laws like the US International Traffic in Arms Regulations. As the Federation of Indian Chambers of Commerce and Industry wrote to the government in 2010 while contesting the DIPP proposal, "A 100 per cent owned Indian subsidiary (hypothetical case) of an OEM thus has no special status when it comes to obtaining technology from [the] overseas parent company."
The DIPP is even more mistaken in measuring indigenisation in the framework of percentage of manufacture rather than design capability. There is no truth in the belief that transferring defence manufacture to India, even of low-to-medium-end equipment, would make the country more secure or its defence more affordable. Instead, the crucial first step in indigenisation is to nurture the expertise needed for designing major weapons platforms in accordance with our operational requirements, environmental conditions and user capabilities. India must build on its growing ability to design the major weapons platforms it needs - tanks, artillery, battlefield communications, warships and fighter aircraft. It is acceptable to initially build these platforms with foreign components that are readily available over the counter, especially to a high-volume buyer like India. Just as western OEMs see no conflict in designing defence electronics and avionics with computer chips built cheaply in Southeast Asia, India should have no problem in initially building its fighters with foreign engines and cockpit avionics; its tanks with bought-out engines and thermal imaging sights; and its warships with imported engines and transmission. Having established design capability, manufacturing indigenisation can proceed based upon an evaluation of what sub-systems can be manufactured cheaply in India, and what would be essential for supporting the basic platform through its service life.
This fundamental truth animates the Kelkar Committee report of 2005, which notes: "There is an urgent need to review the whole concept of indigenisation and self-reliance and it is time to go beyond the idea of looking at indigenisation purely as import substitution of components, sub-assemblies, etc within the country from raw materials. Today indigenisation as a concept will need to involve capability enhancement and development, increasing know-why, design and system integration, rather than having numerical targets."
Once the defence ministry prioritises design capability over manufacture, the logical next step would be to prioritise "Make" category acquisitions over other categories like "Buy & Make (Indian)", which involves the production of foreign weaponry by an Indian manufacturer, based on technology transferred by the OEM. It is often forgotten that the "tried and tested" weapon thus built would be technologically 15 to 20 years old when it enters service - at least five years in development, five years in host country operational service and five years in evaluation and production for India's military. With the hope of exporting such a system bleak, the Indian production line would shut down after fulfilling the domestic order. Furthermore, the OEM does not transfer key technologies for production in India; the Defence Procurement Procedure allows the retention of "proprietary technologies".
In contrast, the defence ministry should act purposefully on its oft-expressed intention to promote "Make" category projects, in which Indian consortia develop and manufacture futuristic platforms, co-opting foreign OEMs only for inaccessible technologies. This category galvanises indigenisation across the spectrum, from research, design and development to manufacture, with the intellectual property rights resident in India. While the defence ministry is already committed to funding 80 per cent of development cost, the user service should contribute another 10 per cent. Success would depend heavily upon the full involvement of user services in the integrated project management teams that oversee each project, rather than outsourcing technology management to the Defence Research and Development Organisation, which is the current tendency. Currently there are just two "Make" category projects under way. Stepping these up to 100 to 150 would galvanise India's defence industry and put an end to the uninformed FDI debate.
From: sanjeev nayyar
1. Border resolution must be fair: Wang by Suhasini Haidar 10/6/14 http://www.thehindu.com/news/national/border-resolution-must-be-fair-wang/article6098434.ece?homepage=true
2. China, Bangladesh vow to further partnership by Xinhua 10/6/14. 'He noted that China attaches high importance to the relations with South Asian nations, and hoped Bangladesh would support China's cooperation with the South Asian Association for Regional Cooperation (SAARC). She added that Bangladesh was ready to strengthen high-level visits with China, and jointly promote the building of the economic corridor along China, Bangladesh, India and Myanmar.
3. Power projects gets Chinese support report from Dacca. 10/6/14'. 'Bangladesh and China yesterday signed five deals including one for building a large power plant in Patuakhali with Chinese assistance. The issue of constructing the Sonadia Deep-Sea Port figured prominently in the talks, and the two sides agreed to continue discussions, Foreign Secretary Shahidul Haq told the media afterwards.' http://www.thedailystar.net/power-project-gets-chinese-support-27817. Why has GOI and Indian power co's not tried to meet Bangladesh needs?
4. Indian PM Modi meets with Chinese FM by Xinhua 10/6/14. 'Wang said China is also willing to realize convergence of development strategies with India and let the "Look East" policy of India meet and confluence with China's acceleration of opening its western regions. He also suggested that the two countries properly control and manage their boundary problem to seek a mutually acceptable, fair and reasonable solution to the boundary issue. On the boundary issue, Modi said the two countries should commonly maintain peace and tranquility on the border areas in order to provide guarantees to the development of bilateral relations. He suggested that the two countries maintain exchange of high- level visits, consolidate strategic trust, and use each other's strengths to deepen cooperation in the fields of infrastructure, manufacturing, and IT industry'.
http://www.globaltimes.cn/content/864796.shtml
http://www.globaltimes.cn/content/864796.shtml
5. Keep the focus on South Asia (Indian Sub-Continent) by Harsh Pant 10/6/14 in SLguardian. http://www.srilankaguardian.org/2014/06/keep-focus-on-south-asia.html
6. Pics of Hiuen Tsang Memorial Nalanda by sanjeev nayyar – Is there a similar memorial for any of the thousands of monks who went from India to China. http://www.esamskriti.com/photo-detail/Hiuen-Tsang-Memorial.aspx
7. Ajai Shukla: Defence needs projects, not FDI 10/6/14
FDI in defence is usually considered in a highly simplistic context, summarised in a 2010 proposal by the Department of Industrial Policy and Promotion (DIPP), which has now been dusted out again. The 2010 proposal notes: "Manufacturing within the country … will be a better option than importing the equipment from abroad... The general perception is that the present FDI cap of 26 per cent discourages original equipment manufacturers (OEMs) from bringing in proprietary technology, as OEMs may be reluctant to license their proprietary technology to a company in which their equity is restricted to a minority of 26 per cent. This has resulted in India not being able to access the latest high-end technologies available."
This argument is plain wrong. Since 2006 the government has permitted 100 per cent FDI in defence on a "case-by-case basis", that is, for OEMs who bring in high-end technology to build weaponry in India. Since then, not one OEM has responded with a proposal, nor is anyone likely to. That is because even when a vendor sees a terrific business case in building defence systems in India, it is not her board but her government that will have the final say on technology export. The OEM can release no proprietary technology to an Indian production unit, even fully owned, without the home government's explicit sanction. This requirement is legislated by every major defence exporter through laws like the US International Traffic in Arms Regulations. As the Federation of Indian Chambers of Commerce and Industry wrote to the government in 2010 while contesting the DIPP proposal, "A 100 per cent owned Indian subsidiary (hypothetical case) of an OEM thus has no special status when it comes to obtaining technology from [the] overseas parent company."
The DIPP is even more mistaken in measuring indigenisation in the framework of percentage of manufacture rather than design capability. There is no truth in the belief that transferring defence manufacture to India, even of low-to-medium-end equipment, would make the country more secure or its defence more affordable. Instead, the crucial first step in indigenisation is to nurture the expertise needed for designing major weapons platforms in accordance with our operational requirements, environmental conditions and user capabilities. India must build on its growing ability to design the major weapons platforms it needs - tanks, artillery, battlefield communications, warships and fighter aircraft. It is acceptable to initially build these platforms with foreign components that are readily available over the counter, especially to a high-volume buyer like India. Just as western OEMs see no conflict in designing defence electronics and avionics with computer chips built cheaply in Southeast Asia, India should have no problem in initially building its fighters with foreign engines and cockpit avionics; its tanks with bought-out engines and thermal imaging sights; and its warships with imported engines and transmission. Having established design capability, manufacturing indigenisation can proceed based upon an evaluation of what sub-systems can be manufactured cheaply in India, and what would be essential for supporting the basic platform through its service life.
This fundamental truth animates the Kelkar Committee report of 2005, which notes: "There is an urgent need to review the whole concept of indigenisation and self-reliance and it is time to go beyond the idea of looking at indigenisation purely as import substitution of components, sub-assemblies, etc within the country from raw materials. Today indigenisation as a concept will need to involve capability enhancement and development, increasing know-why, design and system integration, rather than having numerical targets."
Once the defence ministry prioritises design capability over manufacture, the logical next step would be to prioritise "Make" category acquisitions over other categories like "Buy & Make (Indian)", which involves the production of foreign weaponry by an Indian manufacturer, based on technology transferred by the OEM. It is often forgotten that the "tried and tested" weapon thus built would be technologically 15 to 20 years old when it enters service - at least five years in development, five years in host country operational service and five years in evaluation and production for India's military. With the hope of exporting such a system bleak, the Indian production line would shut down after fulfilling the domestic order. Furthermore, the OEM does not transfer key technologies for production in India; the Defence Procurement Procedure allows the retention of "proprietary technologies".
In contrast, the defence ministry should act purposefully on its oft-expressed intention to promote "Make" category projects, in which Indian consortia develop and manufacture futuristic platforms, co-opting foreign OEMs only for inaccessible technologies. This category galvanises indigenisation across the spectrum, from research, design and development to manufacture, with the intellectual property rights resident in India. While the defence ministry is already committed to funding 80 per cent of development cost, the user service should contribute another 10 per cent. Success would depend heavily upon the full involvement of user services in the integrated project management teams that oversee each project, rather than outsourcing technology management to the Defence Research and Development Organisation, which is the current tendency. Currently there are just two "Make" category projects under way. Stepping these up to 100 to 150 would galvanise India's defence industry and put an end to the uninformed FDI debate.
Warm Regards
sanjeev nayyar
https://twitter.com/sanjeev1927
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