Dismiss Notice
Welcome to IDF- Indian Defence Forum , register for free to join this friendly community of defence enthusiastic from around the world. Make your opinion heard and appreciated.

This explains why India needs foreign investment in defence

Discussion in 'Indian Defence Industry' started by Manmohan Yadav, Aug 2, 2014.

Thread Status:
Not open for further replies.
  1. Manmohan Yadav

    Manmohan Yadav Brigadier STAR MEMBER

    Joined:
    Jul 1, 2011
    Messages:
    21,213
    Likes Received:
    5,716
    Country Flag:
    India
    Even by the ritualistic standards of Indian politics, it’s become a well-oiled ceremony—any proposal for change in the status quo of India’s defence procurement or manufacturing is immediately met with cries of protest.

    Finance minister Arun Jaitley’s budget proposal to raise the limit of foreign direct investment in defence production to 49% was the latest—and it has predictably stirred consternation.

    Former defence minister AK Anthony has warned that Indian defence firms will resultantly come under the control of multinational corporations, while Jaitley has sought to allay concerns about security.

    [​IMG]

    But here’s a single chart that makes the case for more FDI in India’s defence sector.

    The fact is that India—the largest arms importer in the world—spends precious little on research and development (R&D), and it’s only getting worse.

    The proportion of the defence budget received by the Defence Research & Development Organisation, the Indian defence ministry’s main R&D arm, has dropped since 2008.

    A 12% increase in the defence budget for 2014-15, however, might stem that fall if more money flows into R&D.

    But compared to global military powers, it still likely won’t be enough. The United States spends about 11% of its defence budget on research, development, testing and evaluation, while Russia allocates about 7%.

    And although China doesn’t provide specific numbers, Craig Caffrey, a senior analyst at IHS, reckons it spends about 6%—or $11 billion—on defence. India’s defence budget is only about a third of China’s.

    Part of the India’s defence industry’s problem is that it doesn’t have the entire set of capabilities required to execute high-end development programs. That’s where opening up the industry could be useful.

    “If Indian organisations were to partner with more experienced foreign companies in some of these projects then that technical expertise could probably be leveraged more easily and in turn Indian industry would gain the expertise needed to eventually pursue these kind of complex R&D programmes independently,” Caffrey explained.

    The Indian government, of course, remains concerned about Indian firms losing control to foreign enterprises, although it remains reluctant to put more money into developing its industry. Not that the country’s private sector has stepped up to make large investments either. The industry blames this on lack of a clear policy and visibility on potential returns.

    And even if the government ploughed in more money, it’s unclear whether India’s state-owned defence establishment—consisiting of the DRDO, eight public sector enterprises, and 40 ordnance factories—would be able to effectively utilise (pdf) such investments.

    So, India can either choose to continue spending billions to buy its military hardware, or open up its defence industry further to start work on manufacturing the stuff its armed forces actually need. If his campaign speeches are any indication, PM Modi will push in the latter direction. Both during his campaign as well as after assuming power, he has talked about the need for India to become a net exporter of arms.
     
  2. INDIAN NATIONALIST

    INDIAN NATIONALIST Major SENIOR MEMBER

    Joined:
    Oct 15, 2011
    Messages:
    2,175
    Likes Received:
    1,558
    India would get far more R&D bang for its buck if it had a systematic and comprehensive means of identifying technical and creative talent nationwide from an early age, and then investing resources toward developing the talent to maximum potential, wherever it is found.

    Today India fights with foreign corporations to retain whatever skills it can find, from a talent pool that is far smaller than it needs to be for greater indigenization without sacrificing competitiveness of our technology.

    Yet, there is an enormous gap between classes in education, nutrition, sanitation, health care and repressive culture as well; it's very difficult to objectively identify talent with such disparity in development of children.

    If there is any sweeping reform to support India's R&D competitiveness, producing the groundwork for universal child welfare and uniform education standards is probably the best place to start.

    GoI were to support such an initiative the results would be apparent in the matter of a generation. Too long for any administration to risk, given that elections occur on a much shorter time span so the horizon for expectation of results from investment is about 5 - 10 years, or elected parties risk being seen as ineffective by their constituency, and loosing re-election.

    The Indian citizenry has to be educated to appreciate the interests of future generations, and understand the concept of investing time and resources toward greater returns in the longer-term with regards to improving the competitiveness of Indian industry.
     
    Last edited: Aug 3, 2014
  3. Lord Aizen

    Lord Aizen 2nd Lieutant FULL MEMBER

    Joined:
    Jul 30, 2014
    Messages:
    146
    Likes Received:
    70
    Country Flag:
    India
    49% FDI in defence unlikely to enthuse US companies.
    • [​IMG]

    WASHINGTON: The new Indian government's decision to increase FDI in the defence sector from 26 per cent to 49 per cent is only an "incremental" step and is unlikely to bring the much needed funds in this key area, the US-India Business Council (USIBC) said today.

    "The policy announcement is a welcome step forward, but incremental because the only added benefit is that a global defence prime is able to repatriate a greater share of revenue stemming from a Joint Venture Company established alongside an Indian defence manufacturing company," Rahul Madhavan, senior manager (Policy Advocacy), Aerospace & Defence; Infrastructure at the USIBC, told PTI.

    [​IMG]
    Yesterday, Finance Minister Arun Jaitley, presenting the maiden annual budget of the Modi Government announced an increase in FDI in defence sector from the current 26 per cent to 49 per cent.

    The announcement implying the FDI policy in defence remains below the 51 per cent threshold, effectively renders the new 49 per cent cap to have the same limitations on FDI as that of the 26 per cent threshold that previously existed, Madhavan said.

    "It is incremental because foreign defence manufacturers are indeed eager to partner with Indian defence industry, but in order to transfer sensitive technology, or collaborate on truly innovative and high-end manufacturing capability, there must be an ownership structure to the Joint Venture where management and certain intellectual property would have to remain in the control of the foreign investor," Madhavan said.

    Therefore, with a 49 per cent FDI cap, the incentive to do "licensed manufacturing" is greater, but not high enough a threshold (which would be 51 per cent) whereby a foreign investor would have the necessary managerial control over such elements as IP and financial order, he said.

    This, particularly in the recent past, was of critical importance from a Foreign Corrupt Practices Act compliance standpoint as well, whereby foreign defense contractors wanted to ensure control of the accounts so as to curb liability in this regard, he added.

    India's existing defence FDI policy states that, on a case-by-case basis, the FDI cap can exceed 26 per cent, 49 per cent, and even theoretically 51 per cent if "state-of-the-art" technology is transferred.

    However, with these technology parameters remaining undefined, there is little to no clarity on how to leverage this. Therefore, a concrete announcement towards 49 per cent allowability is a welcome step, but an incremental one, the USIBC official said.

    "Since 2002, when foreign defence contractors were eligible to invest in India's defence sector, only USD 4.8 million has flowed into this sector. This meager figure is unlikely to change in a substantive fashion unless the threshold increases to allow 51 per cent or above," Madhavan said.
     
  4. Lord Aizen

    Lord Aizen 2nd Lieutant FULL MEMBER

    Joined:
    Jul 30, 2014
    Messages:
    146
    Likes Received:
    70
    Country Flag:
    India
    We need to at least rise FDI cap in defence to 75%.
     
    omya likes this.
  5. Paliwal Warrior

    Paliwal Warrior Lt. Colonel ELITE MEMBER

    Joined:
    Aug 4, 2013
    Messages:
    6,186
    Likes Received:
    903
    guys the domestic industry is quiet upto the mark

    what we need to do is allow them in as first stage

    Give them some time to sprint & catch up

    L&T Pipavav ABG BHarti are capable of building Subs & Warships - are we giving them substantial orders along with PSUs

    DRDO, l&T Tata Kalyani have developed various types & kinds of field guns - are we giving them orders yet?

    Tata M&M L7T want to build FICV - are we allowing them to compete & BID?
     
Thread Status:
Not open for further replies.

Share This Page