MOD, Armed Forces, DRDO and Defence Systems

It is expected that MOD, Armed Forces and DRDO should work in ‘total co-ordination’ in order to execute the identified defence projects in time and without cost overruns. The DRDO should inspire desired confidence level in the stakeholders. There appears to be some trust deficit.

Who imports systems and serves the Armed Forces is immaterial on a few major counts. Firstly, it is national money being spent, Secondly, delivery of the systems needs to be timely, Thirdly, the Armed Forces must be content with the systems, and Lastly, the nation should get best value for the money. ‘Scramble’ for imports must stop.

It has been the experience that whenever new systems are needed, the DRDO ‘jumps’ to grab the project on the pretext of ‘can do’ and ‘indigenisation’, cost and time overruns notwithstanding. Invariably systems are delayed, and the Forces begin to ‘crib’ till some via media is found. A bad show for all involved.

It is worth studying projects handled by the DRDO since its raising in relation to time and cost overruns with technology perspective. The DRDO should be encouraged, developed and strengthened but not at the cost of efficiency; it impacts our defence preparedness.

Same is the case in case of Tejas Engines as reported in the Press. Read the Full report: Air Force Says DRDO Stalling Tejas Fighter Engine

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No Rushing with FDI Reforms

India favours calibrated liberalisation of foreign investment norms in sensitive sectors like retail, defence, banking and insurance on account of domestic sensitivities.

India already has a liberal and transparent FDI regime in place except for a few sensitive sectors where the country was in favour of `calibrarted liberalisation’.

India's initiatives like simplification and consolidation of the FDI policy would go a long way in improving business environment. At present, FDI is not allowed in multi-brand retail in India, but it is permitted in wholesale trade and single-brand retail. Up to 26% FDI is allowed in defence and insurance sectors, while banks can have up to 74% of foreign investment.

The US wanted 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,etc, in recently concluded CEOs Meet in the US.

These insights emerged in an official and industry delegation in 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.

Read the full Report: No Rushing with FDI Reforms

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Credit: Business Standard.

India Tells US to Remove ISRO and DRDO from Blacklist

India has asked US to remove its two state-run frontline technology establishments ISRO and DRDO from the entities list, in apparent anticipation of Washington and New Delhi opening cooperation in hi-tech systems.

ISRO and DRDO were put on American technology export control blacklist after the 1998Pokhran nuclear blast.

India has also urged American companies to invest in defence sector in the country. On the investments in defence sector, it was felt that 26 per cent FDI in the sector was very high.

Read the full Report: India Tells US to Remove ISRO and DRDO from Blacklist

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Courtesy: Business Standard.

India’s Defence and Aerospace Market: Emerging Trends

All the Studies/Reports/Surveys indicate that as defence expenditure is dropping in the traditionally big-spending western economies, including the USA, Indian defence spending will grow steadily over the next 20-25 years, as India implements a major defence modernisation. CIIs Report entitled “Prospects for Global Defence Export Industry in Indian Defence Market”, released in Jun 2010 at the Eurosatory 2010 too indicates this.

Linking defence spending to the International Monetary Fund (IMF) prediction that India’s economy will grow in real terms by 7.5 per cent from 2010 to 2014, the Studies indicate that India’s current defence expenditure of $32.03 billion will rise to an estimated $42 billion by 2015. The Capital Expenditure on new weapons / platforms will rise from the current $13.04 billion to $19.2 billion in 2015.

The figures are impressive. India will spend $100 billion on weaponry during the current Five Year Plan (2007-12), which will rise to $120 billion during the next Five Year Plan (2012-17), as per reports in the media.

“Buy Local” and "taxation arrangements" create special advantages for Indian firms. In case of Defence Public Sector Undertakings (DPSUs), tax advantages can be as high as 50 per cent. There are therefore clear opportunities for foreign firms in providing specialist inputs to Indian Defence Industry for developing advanced platforms and systems indigenously.

Read the full Article: India’s Defence and Aerospace Market: Emerging Trends

Svipja Technologies.
Courtesy: Business Standard.

Debate of FDI in the Indian Defence Industry

India’s business media reports 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. All this makes interesting story at home and abroad.

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. Could find the Discussion Paper on http://dipp.nic.in/DiscussionPapers/DiscussionPapers_17May2010.pdf

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.

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.

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”.

You could read the full Article on Debate of FDI in the Indian Defence Industry

Svipja Technologies has always advanced the argument on this Blog to limit FDI in Defence to 26% it being a strategic sector with provision of enhancement on 'case-by-case' depending on the quality and depth of technology being offered by a foreign partner, advocacy notwithstanding. I think that is fair and logical. Does not hurt anyone except for some procedural delays.

Svipja Technologies
Courtesy: USIBC and Its News Agencies.
Note: The Article was first written on RidingTheElephant Blog and then transferred to Financial Times.

Indian Aerospace Industry Nets $185 m Worth of Projects

Aerospace Sector gets projects worth USD 185 m for component makers.

Eight new projects that will entail an investment of Rs 885 Crores were finalised during the two-day Global Investors Meet in Bangalore.

"Bangalore, being the nerve centre of the aerospace sector, gives Karnataka an edge as the preferred destination for ventures in aerospace," said Ashok Nayak, chairman, Hindustan Aeronautics Ltd (HAL). "The state also provides a well-developed IT sector which is vital for aerospace."

The state is home to the only Aerospace SEZ, set up in Belgaum by engineering firm Quest Global. The Govt. is also setting up an Aerospace SEZ at Devanahalli, near the Bangalore International Airport.

Quest, on 03 Jun , signed an MoU with Indo Schottle, a Pune-based engine components maker, to set up a facility at the Belgaum SEZ to manufacture and export engine parts.

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Credit: Business Standard.