100% FDI in Defence: Understanding Pros and Cons

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Manish_Sharma
BRF Oldie
Posts: 5128
Joined: 07 Sep 2009 16:17

100% FDI in Defence: Understanding Pros and Cons

Post by Manish_Sharma »

I'm starting this thread so the 100% FDI in defence can discussed and ignorant people like myself can also be educated as to what it means:

http://forums.bharat-rakshak.com/viewto ... 0#p1663382
Suraj wrote: As for FDI in defence, I'm probably one of the silent many who ask 'WHAT is that ?' Serious question onlee. Can someone start a thread in Mil Forum and explain:
* What is the current issue set ?
* Where is expertise needed ?
* What precisely is 'FDI in defence' ?
* How does the need of the foreign investor align with our need ?

There's an ongoing discussion in the Indian Economy thread about FDI in retail. I explained there how retail FDI doesn't necessarily align with what matters to us. The discussion has been quite fruitful, with others like muraliravi, Theo, amit et al weighing in. It would really help to have a thread in Mil Forum for FDI in Defence, or any topic aligned with the imperatives of the current government, so BRF can understand and debate details knowledgeably.
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http://forums.bharat-rakshak.com/viewto ... 8#p1667001
Shonu wrote:
Karan M wrote:Technically yes, but it all depends on intent and the nature of the program itself. I mean, if we look at MRO - financially viable, useful employment generator - but not as complex as actual aircraft assembly, which in turn is not as complex as being vertically integrated..
Most people here are not factoring in some basic rules in defence production:

A- Companies that invest want profit, they will take 100% of this profit home. This is the case with every company all over the world. They are not in your country to make you developed or help you grow or give your countrymen jobs. They are here to make money and make money they will.

B- Defence is a "national security" issue the world over. No company will develop/manufacture/enhance the latest tech in another country. Period. Do you think the US govt will let LM manufacture tech that will be used in the F35? Or perhaps you think the anti-radar coating will be made in india? The US won't even let the F22 take part in a war-game with india, what to speak of building it elsewhere? The only bits and pieces that will get build/developed in india would be cheap and dirty stuff which (if lost) will not put the host country's security in jeopardy.

Lilo posted this in another thread - it is for Boeing:
Image
What do you notice? Outside the US, they don't make anything that can be termed as "high tech" or "critical" in the real sense. Where are the engines made? Where are the computers that run the plane made? And this isn't even a military plane. Also notice the job distribution - jobs outside the US don't even make up a fraction of those in the US. Further, they are just importing this stuff with no investment outside the US.

You expect them to invest in india AND make critical stuff????

Lets be honest here, given the incentive, I am sure indian companies can make every single thing in that image that is sourced from outside the US - or learn to make it within 1-2 years. This is not rocket science. What indian companies will struggle with is real high tech stuff like engines, fan blades, ECUs, software that runs the system etc.. This can only be developed in india with proper investment and R&D and incentive from the govt. DRDO can't do it on its own and neither should it.

What these companies will build in india are stuff that anyone can do, but these companies will gain from cheap labour, lax environmental laws, corrupt bureaucracy etc.. If an indian company develops something and starts to grow, these companies will buy it out and take the IP back to the host nation. Indians will have nothing but more paper money that has been printed at a US mint.

Speaking of which, india cannot even make the paper it uses for its currency, why isn't de la rue opening shop india with 100% FDI to make that paper in india? I guess even paper used for currency is "high tech" which has national security repercussions!
SBajwa wrote:FDI in 100% for things like

1. Night vision goggles for all forces (police + defense) for both export (to approved countries) and in house.
2. All type of small guns and military guns and their ammunition for both export and in house.
3. Tents, water bottles, uniforms, boots, running shoes, hats, hand held GPS, GPS for vehicles, etc.
4. Small boats, etc.

lot of this stuff is used by sportsmen, hikers, etc.. so it is used with both Defense and civilians.

and off course! Indian companies should be given some tax breaks for defense items, while levying a tariff on foreign companies.
Let me help you there:
1- UK has europes only company that makes CCDs. Again, this is fab/clean room based stuff which india torpedoed back in 2008 (when intel wanted to open up a plant in AP, but weren't provided tax benefits so they built it in israel instead). India has little or no knowledge about running huge cleanrooms which make this sort of thing. NV requires CCDs for converting light into images (the kind used in NV/TV etc). I can assure you, that this company that makes CCDs in the UK will NEVER, let me say that again NEVER, transfer this tech over to india or any other country. It has been built over 60years of R&D and billions of $$s so they ain't gonna set up shop in india.
2- Instead of learning and developing from INSAS you want FDI to build a plant to make parts and assemble them for the army? Guess where the R&D team for this company will be? I'll give you a clue, not india!
3- Sure, you want even the simple stuff to be over run by non-desi companies. nice!
4- really?
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http://forums.bharat-rakshak.com/viewto ... 0#p1666020
Karan M wrote: 100% FDI in defence is a retarded move and Modi & co have no clue of what they are doing if they permit this, swooning on the rhetoric of creating mass manufacturing jobs. Instead of this, they should be working with Tata et al to create domestic chaebols or conglomerates who can compete with the world, not create a situation wherein whatever we have is now up for sale.

Idiots if they implement this. A lot of folks are into all this 100% business because its been lobbied hard & the import gang pushed for this when it became clear India was asking for more and more TOT as time went on. When the MMRCA contest TOT requirements became known, the lobbying became frantic.

Even simpler programs have been stuck up because all the great providers from abroad want is our money, and show off random assembly shops set up with their involvement as TOT.

In contrast programs such as seeker transfer to BEL as quid pro quo for a much larger program already in implementation never took off. Taking that lesson to heart. DPSUs with less persistent leadership have quickly jumped on to the put sticker, call Indian wagon. Private firms do that with even more savvy, and call their stickers "value addition".

BTW, there are enough idiots on the domestic fence who are willing to sing for 100% FDI, makes their life easier to import subsystems, put a swadeshi sticker on it, and call it a successful program, which some of our DPSUs are already adept at doing.

The few folks who have seen the manner in which this "Easy way to succeed" method screws up long term indigenization goals are already fed up.

Kiss goodbye to the Indian SME sector as well if this happens. MOD will stand by with mouth open as MNCs with warchests that dwarf entire R&D spend, use a days worth of operations money to purchase firms which make all the crucial gizmos that go into our missiles etc. And when India wants to move ahead, this time around approval has to come from Washington, or Paris.

What a stupid idea and all said and done, AK had the sagacity to at least prevent this, even though he did a lot of damage elsewhere with his selfish desire to protect himself.

In this case, the BJP and Modi & co, are completely clueless of the ramifications of what they are doing, as their so called think tanks are full of rtd colonel blimps who made a career out of ambling around Vienna, Paris, Moscow with shopping lists while always complaining indigenous was not worth it.

Now those same fools are busy advising the BJP that buying from aboard can be supplanted by 100% FDI without a single fcking clue of how the industry works and the amount of control the parent nations and their security structure have in these decisions.

Morons are handing over the entire key to the local MIC to the firms abroad. Congratulations. Time was when USAF knew more about IAF bases than average Indian citizen. And now time is firms abroad will know exact range of Agni by virtue of owning its subsystem suppliers while BRF bickers about how great it is, and all so secret.
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http://forums.bharat-rakshak.com/viewto ... 9#p1666959
Karan M wrote:Brahmos BTW is an interesting discussion - almost entirely Indian funded using up the funds we "owed" Russia as their part of the financing..
Uses Indian tech for all the ground eqpt - FCS, carriers/TELs, command and control. "Core" - ie the missile - dominated by Russian expertise on the Yakhont program - only few key avionics items like navigation system, onboard comp derived from Prithvi.
Now - as a program - 100% success in meeting service requirements etc.
However, success bred complacency and the folks did not move on indigenizing the seeker/propulsion until a salvo from Unkil's Harpoon program almost sunk the programs Army procurement on cost grounds. Now they are doing it.
Russia of course, showed us the finger in a sense and exported its own variant, the Yakhont since all the stuff in it was from Russia (and why should they subsidize the Indian MIC).

IMHO - Brahmos shows the pros (rapid development/deployment) and cons (limited indigenization/control/cost) of JVs. They have to be constantly monitored and program objectives changed over time, as conditions change.

Other great hope was (is?) Barak-NG aka LRSAM for the IAF/IN. Seems to be finally moving. Time will tell if we got a good deal.
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http://forums.bharat-rakshak.com/viewto ... 5#p1666945
Karan M wrote:
ravi_g wrote:But this does not mean that the foreigner MIC owners (not the goddamned MNC owners) are playing games of subverting the MIC of others and buying up good ideas.
Problem is they are..

There has been a huge lobbying effort underway now for several years on the following tacks:

1. DRDO/DPSU complex/entire Indian MIC - drop it entirely. Constant attempt and expect it to continue. DRDO in particular is considered a big pain by many folks because they run India's strat programs, and folks are worried about tech transfer between programs. Also because they are the originators of many of the critical ideas such as offsets, stringent TOT restrictions (as versus screwdriver giri etc).

2. Kill current high profile programs and buy foreign equivalents. G vs LCA. Luckily, IAF went for all out capability, and that was skipped. Has succeeded for T-90 vs Arjun, as much as we may crib.

3. Kill the offsets program and TOT programs both. Offsets are being targeted via the argument it raises costs of the program (nevermind + impact on industry itself) and TOT via citing the inefficiently run earlier TOT programs which were shoddily drafted and poorly executed.

There is a famous saying - when a lot of folks turn up in opposition, you are doing something right.. much the same here.

The usual suspects - arms traders and their media pimps - have been baying a lot on 1-3. It'll continue. This FDI stuff is another in a long line of such attempts.

The acqiuisition of foreign tech is no big thing BTW. The offsets proposals mean the foreign firm will have to grow its Indian partner to get its work done.

They did it for the Chinese, now its our turn.

Ditto if TOT is open to pvt and public both, see the results.
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http://forums.bharat-rakshak.com/viewt ... 8#p1666928
Karan M wrote:BTW, offsets are intended to allow the defence industry to scale up. There was a lot of hue and cry from the same quarters (think tanks, rtd blimps etc) that offsets would benefit only the DPSUs. Reality - largest chunk of the offset contracts went to pvt SMEs.
Thankfully, even the MMRCA Offsets contract clause was not relaxed.

That was the first "battle" won.

Next of course is this second round, wherein the SMEs themselves are being targeted, and notes being prepared to state that 100% FDI will do the trick and nothing else.

Its blatant really. Nobody wants to transfer TOT or provide technology for offsets to India, but are being forced to via the strict DPP - so this latest "wild card entry" to somehow let 100% subsidiaries in India do the trick.

Sure..

As matter of fact, if the offsets contracts are strictly enforced, that itself will lead to boomtime in Indian industry - private especially.

The onus is on the winning contractor to get the job done, identify an Indian partner and have things sorted out within a fixed deadline. Some leakage is inevitable, but even if half the contracts fructify, we will be seeing a rapid change for the better.

What is holding up the entire movement, simply put, is the lack of decision making at both the MOD level & the shambolic movement at the Defence Offsets Mgmt agency - even so contracts have been put in place and orders are in delivery.

But if we had better movement, such trojan horses of 100% FDI would have been dismissed with contempt earlier on itself.

The biggest farce is the Arty Upgrade program. Thousands of guns required, Indian companies willing to invest, yet no movement.
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Karan M wrote:
Cosmo_R wrote:The problem is that until these SMEs get started and deliver products on a commercial scale, we'll be importing. It is THAT import stream that would be very useful to target. Example, allow Dassault to invest 100% in the supply chain in India on the condition their India employees are 95% Indian. There will a spinoff of know how at the individual level and after a few years a significant number will start their own parts and sub assembly businesses which can then benefit from grants and so on.
Sorry but those SMEs are delivering products on a commercial scale. We are talking of preventing these commercially viable SMEs from being transferred lock, stock and barrel to the benevolent folks at Dassault, who charge an arm and a leg for their patented technology & will then claim ownership of long term support as well.
What good is 100% local ownership of OFBs that import everything and screw it together (with OEM screwdrivers)? Its neither fish nor fowl. My take is that with 100% FDI: the investors take the risks without any guaranteed contract from the GoI. Right now, many of our OFBs are an employment scheme based on an import stream.

Irrelevant, because we are speaking of SMEs and those pvt firms which do make items inhouse and supply it to the OFBs, and not the OFBs themselves. As matter of fact, the DPSUs have outsourced a lot of the work they should be doing to the SMEs.
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Karan M wrote:
Supratik wrote:@karanM,

Modi wants all-India projects to be explained in 10 slides. Anything longer is a rant or rambling. :)
So, are you Modi? Have a reality check please. Modi is a PM. Do you think he has the time to understand or even contemplate the pros and cons of each issue beyond a point? That is why he has ministers or even advisers. The debate here tends to be more detailed...last I remembered, nobody here talks in bullet points either. Your comment was pompous.
You shouldn't take it personally.
If you are unable to communicate politely, it will be taken personally. Simply put, the issue is at your end. You seem to think I owe you detailed explanations and with nice soundbytes wherein you sit & decide what to accept and what not to, and you are entitled to it. This for a topic that is so detailed that it takes hours to even move past the first look. Sure!
Anyway, unless you are working inside DRDO or other orgs and unless there are concrete examples I will still call it CT.
Concrete examples? :rotfl:

Why are you even debating this issue when by your own admission you don't particularly understand or even follow the military forum?

There are threads there which have tracked specific examples of glaring malfeasance and you want to be spoonfed information when told explicitly that it is not in Indian interests to debate specific manners in which specific Indian programs can be harmed by these actions and also, that by naming the organizations responsible for having committed dodgy stuff in the past (some of which are active), there are wider repercussions.

Boss, go do some reading, talk to people, step out of your own cocoon, in whatever field you are, but are completely unaware of the dirt, or the elbow grease that percolates or makes the Indian defence sector, where there are hard won successes as well. One doesn't even have to be in the field directly to be aware of the details of many of the things being discussed.

I am not going to spend any more time making nice "Ten minute presentations" for you either..
However, your argument about protecting Indian innovation, technology and companies is correct and I am in agreement with it. If I am not mistaken most countries with MIC don't allow their companies to be bought. As regarding corruption in India you wouldn't be able to do even your morning Pakistan if you worry about corruption because even the best policies are corruptible. Having said that there are two things a) I don't think the 100% FDI is automatic so India will have control over what comes in, b) we haven't seen the fine print yet so we don't know what the terms and conditions are. If a foreign company wants to set-up an Indian subsidiary and sell stuff I don't see any problem in that. The picture will be clearer as we go along.
Ah, so now you get the point in bold. That is all, zimble. Nothing more.

Regarding corruption, the amount of corruption in India dwarfs that in other countries which is what makes laws and relying on them infeasible. That is the point. You were saying laws will do the trick, when coupled with policy relaxation, as they will hedge the risks - but practise tells us they wont.

You need to retain current policy of not allowing foreign acquisitions instead and stick to it.

Instead of making complex laws which you can't enforce anyhow. Try arm twisting the French when your privates are in their hands thanks to the Mirage/Rafale/Milan etc. A few months delay in spares and our serviceability will go from 80% to 40%, and so does our warmaking potential, and India can't replace $130 Mn aircraft either.. such is the way of the arms trade.
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Karan M wrote:BTW, you want rapid advances in Indian industry? Set up clusters in each sector with DRDO, pvt industry, services & DPSUs. Indian ownership, Indian control, accountability (user involved from day 1). Also, services to be told to ramp up engineering capability in terms of manpower and program management personnel. Our EXISTING budget alone is sufficient to sustain a huge amount of movement. But its not done. Its not rocket science to conclude there was a gravy train in imports being run from RGs era when the prince figured out foreign exchange via imports could easily be tapped using the emotive national security angle and hence even projects like the OFB (expanded after '71 when foreign powers refused to even give us basic ammo) became vehicles for getting such nice contracts in.

Heres another recent example. Army runs short of FSAPDS. Existing DRDO program abandoned, citing its "behind", never mind, long term promise & requirements, IMI tapped, that completely fails, MOD then blacklists it for corruption, India runs to Russia for new FSAPDs at reportedly 3-4X the actual cost (UOR- Urgent Operational Requirement) and guess what, since that "new FSAPDS" is actually a decade old, Army also wants tens of thousands of million $s of worth of missiles imported and "license made" at BDL. The same missiles which failed earlier in trials. DRDO program only restarted much later, with movement/impetus lost, further delays baked in to the program via tardy approvals

Who benefits? Cui Bono?
How did this entire chain of comedy of errors begin? Why was the local FSAPDS program not kickstarted in between? Why is it that we need to import over expensive missiles which are vulnerable to countermeasures as a backup to main gun rounds which may be obsolete in a decades time (and they are already obsolete against western tanks).

These games of ARTIFICIAL SCARCITY are then used to portray the line that a) Imports are the only solution B ) Only FDI etc can solve the issue with benevolent providers from abroad fixing the issue.

Nobody ever asks why is it that FSAPDS manufacture was not opened up to L&T or TATA (say) to work with DRDO and not just OFB. Why is it that we never worked with the Germans for FSAPDS tech or any one else who are willing to work with even the Poles (who are spending peanuts in comparison). If NATO is an issue, why is it that we are buying obsolete ammo for a flawed platform, the T-90 from the Russians? How it is that Russia would work with us for Brahmos but not FSAPDS? And even in Brahmos, why is that great success of a program only now looking at full scale or major indigenization of the missile propulsion and seeker itself, so late? If the Russians agreed to it now, why not earlier?

Instead, we are told that opening up the defence sector to FDI is the solution. Govt can wash its hands off the investments. Yeah right..
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http://forums.bharat-rakshak.com/viewto ... 9#p1666869
Karan M wrote:
Supratik wrote: You don't need to make personal attacks. I am highly qualified in my field.
When you dismiss opinions about a topic you clearly know nothing or little about as rants, expect to be called out on it. Your rejoinder about not making personal attacks or whatever would have had some grounds to stand upon if you had not made such a patronizing post to begin with.

I would not have responded forcefully either. You could have merely asked me to elucidate further on the points you didn't grok/agree with.

But lets proceed to the facts and keep personal acrimony (which is useless and counter productive) off the table.
From what I could gather from what you wrote I have already said that Indian IPR should be protected and for that we need laws if they already don't exist.
You have not understood what I am saying.

It is not about IPR alone. This IPR stuff is money is the be-all, everything that can be catalogued should be sort of attitude which is completely orthogonal to security considerations.

Lets get to that later.

First, lets not have the notion that it is new laws which will make a difference, when

a) existing policy can get the job done without having to depend on more laws and

b) relying on laws as a primary driver is dangerous when current laws are being violated left right and center without lack of adequate enforcement

c) it is policy (e.g. DRDO deliberately reaching out to MSMEs from Kalams time) and now even DPSUs - which is working

Again, see how the offset policy was violated (Ajai Shukla has an article on that too as I recall) to do all sorts of dubious stuff. Even the AW deal for which a bunch of bigwigs were caught out, used offset laws to do money laundering.

This BTW is the offset policy which HAS done good and IS necessary. Its the one good thing that came out of the UPA. Its been revised year after year and was still misused.

The misuse was tacitly agreed to by the import starved services and egged on by all the administrators who greased the wheels for their personal benefit. So what does that tell us?

It means laws alone in a notoriously creaky edifice such as India's are of limited use. The spirit of the law will be completely misconstrued and every sort of loophole found and misused.

So if tomorrow the policy/law is completely misused, who will bell the cat, when we don't even handle the issue when existing agreements are violated openly? We dont have the strength to tackle any foreign Govt on existing deals for the most part.

Instead, a good policy which does not tinker with existing laws and strengthens them, as versus replacing them, is the need of the hour. Good policy in that we develop our own capabilities, forcing foreign firms to work with us, for our market and they can't stop our own growth either.

If no Indian SMEs are open for acquisition, if Indian imports for complex platforms which cannot be built only from local resources remain open, and that policy states Indian participation is critical, everyone from aunt jemima to victoria homme will send their execs to India to work with Indian partners to get a share of the defence pie. China did this.

Next - the claim that its all about "IPR". No its not!!

We DONT want or NEED any foreign entity to:

a) Know intricate levels of our current technology across the spectrum
b) Have access to our current ecosystem
c) Own any part of our current ecosystem

We need a firewalled industry which operates on ITS own terms, accesses technology paid for by the Indian taxpayer to India's benefit and gets whatever it can gain from the WW industry.

That is what the US does. The French do. The Russians do. The Chinese do.

For instance, Indian firms cannot procure Thales. France will say get lost.

India need not be some model of globalization or capitalism that allows its vendors to be bought out so that next time, any ambitious program is launched, the Indian SME says "sorry sir, we made x widget for you, and x+1, but now, y is not available unless Shri Duckbottom who sits in Foggy Dum can clear it." And by approaching Foggy Dum for clearance, we - in India -

a) Inform everyone about what we lack (so that going forward they can continue to work on it)

b ) Are now dependent on FD for a long while to come

c) Any attempt to replace FD with a local Indian vendor can be similarly torpedoed when that vendor is bought out.

d) DRDOs entire budget is at the$1-2 Bn level. Its peanuts. Using those peanuts they have developed Rs 1 Cr - 2Cr SMEs across the spectrum. Those firms can be bought out for trifling amounts by the MNC groups which spend 10x that amount on protective patents.

e) By allowing access to these firms we also open up ALL our systems to foreign intervention. It does not take magic to figure out that system A runs on X OS sourced from the open source community. That it uses Y chip. However, if you pair that knowledge with actual implementation details, the hardware details, access details, suddenly you have enough data to cripple the entire system. See Stuxnet and how it was used. That is btw an infrastructure attack. To develop systems targeting tactical systems would be childs play in comparison.

f) Usual excuse is hey we import anyways, so e) shouldn't be an issue. Guess what, we have STILL managed to overcome e in a substantial fashion using the SME base. However we now risk that!

If a L&T purchases a SME and L&T remains Indian, good!! If a foreign firm purchases an Indian SME or a L&T defence SBU - should not be allowed period.

We are NOT an ally or a client state of ANY of the other powers, other nations and their joined at the hip stuff is hence not something we should be replicating.

The alternative? We import those systems, and become dependent while our systems are swadeshi outside, videshi inside.
I am not an expert in the field of defense (I don't contribute to the mil forum although I read it) but in my field FDI has enormously benefited India. There are companies mushrooming all over India some of whom are doing cutting edge stuff unthinkable even 10 yrs back. Many of these are run by Indians previously working for MNCs. Since you are an expert on this subject I will also be interested for my own GK to know specific examples from the Indian defense sector where Indian companies have been bought up bending rules, their IPR taken over and have intentionally or inadvertantly disrupted Indian programs.
If your own sector is not defence oriented, its success or not is not directly applicable to Indian defence sector which has severely different constraints and risks.

Further, I am not giving specific examples or even specific names for a reason which is why I prefer this discussion remain in GD.

A) By telling which firms are particularly critical , its painting a bulls eye on them. Similarly, the firms which have been targeted in the past & talking about how it affected us, is similarly openly admitting those tactics worked. Why would I mention those specifics so that those who used those methods knew which worked and which didn't, so that they could replicate them?

B) By telling which firms are acknowledged by some to have gamed the system (hint: check out who pushed for all these rule relaxations), I open up the forum to legal challenges from these packs of predatory animals.

c) One of the big problems that has happened and which makes the no acquisitions policy critical is to benefit from the offsets policy many MSMEs and others have widely publicized their capabilities. This was done with the tacit understanding that they would still remain within the gamut of Indian control. This retarded move to allow 100% FDI and acquistion now torpedoes that intent as now sufficient information exists to determine which companies are working on specific programs.

d) Worst part is the amount of leverage foreign firms have, they can easily swamp our entire sector with a blanket purchase policy. We can do nothing to stop it as our inability to even police our current system is thoroughly inefficient.

e)Last but not least, I point out this quote about how keenly our setup is scrutinized. One DRDO personal - "whatever we wanted to import they would not give us, when we developed it, it would be available". This is a consistent policy followed by the entire arms cartel when it comes to India - west or east. Only when we started making offers they couldn't refuse ($$) they started giving us stuff we really wanted. Even there, they want to do it on their terms.

We shouldn't be playing their game. They should be playing ours, sir!!
I think RahulM has a good suggestion to take it to the mil forum where there are many experts on defense and there the pros and cons can be better discussed.
I am not going to openly discuss these topics on an open forum, thanks much.
NRao
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by NRao »

B- Defence is a "national security" issue the world over. No company will develop/manufacture/enhance the latest tech in another country. Period. Do you think the US govt will let LM manufacture tech that will be used in the F35? Or perhaps you think the anti-radar coating will be made in india? The US won't even let the F22 take part in a war-game with india, what to speak of building it elsewhere? The only bits and pieces that will get build/developed in india would be cheap and dirty stuff which (if lost) will not put the host country's security in jeopardy
No "F-22", no 100% FDI!!! It is that simple.

I think people are jumping the gun.

First and foremost, India will need to define what is that they need that will be deemed really high tech. Would it include design and future development within India - I would like it to be so. Just manufacturing some high slung thing will not do. It should have a design + test component to it, else what use would it be beyond a crutch? And, if that is the case, sure, let the parent company take the profits - India at that point should be able to fill *that* hole and perhaps in the future compete on an equal footing.

The *only* thing missing - as I see it - is research. No idea how that hole can be patched.
SaiK
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by SaiK »

why question at all is my question?
100% FDI for anything and everything is insanity at helm!

can you or anyone from MoD/Gov sit with DRDO/our forces, and take list of objectives first?
what are our needs? schedules? investment plan? etc?

tradeoff against, which country in the darn world would give away 100% of tech transfer, even if you pay 200% FDI (say like I pay you 100% of the cost, for you to invest 100% with tech transfer).

bull! no country or product owner will do it.
shiv
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by shiv »

I am myself ignorant of the pros and cons - but imagine Beretta setting up a plant with 100% FDI. They could export to a whole lot of nations while supplying Indian needs. Indian labor would be paid and whatever can be outsourced to local companies will benefit local industry. The young engineer who works for Beretta for 10 years and leaves may some day start something on his own at a later date. etc.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Pratyush »

I am not in favor of automatic 100 % FDI in defense. I wouls like the Indian SMEs to grow and become global players over the next 10 to 15 year in the area of defense. But for that DPP needs to be streamlined.

100 % FDI may not be the solution to that.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by vic »

Army has come out with a tender for importing pistols. Very soon we will be importing toilet papers and tissue wipes for the Jarnails.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Rahul Mehta »

vic wrote:Army has come out with a tender for importing pistols. Very soon we will be importing toilet papers and tissue wipes for the Jarnails.
Links please. TTIA = Ten Thanks in Advance
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by vinod »

I trust Modi enough to be able to maintain the right balance between protecting domestic industry and getting foreign tech and process in without enslaving ourselves to foreigners. I think this policy is both an economic and defence one at the same time. If done rightly, I think India will benefit and with Modi in charge, I have no hestitation right now to say it is good for us. But once Modi is gone, can this policy be misused? Can he get it to a stage that the domestic industry is both strong and profitable? That is my biggest worry.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by rohankumaon »

I think it is not a direct 100% FDI...it will depend on case to case basis.

"he commerce & industry ministry has suggested a graded foreign investment ceiling. It has suggested a cap of 49% FDI for companies that do not transfer technology, while in ventures where the foreign partner is willing to transfer knowhow, the government intends to allow up to 74% FDI, and there will be no cap (100% FDI) for companies engaged in manufacturing state-of-the art equipment and machinery or those undertaking modernization projects."

http://timesofindia.indiatimes.com/indi ... 743669.cms
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Yogi_G »

Surprise at 100% FDI is looked at with suspicion as if we are already 100% self sufficient with everything else. Look at every sphere, there is always something that CANNOT be manufactured in India even by Tatas and Ambanis if required. Processors, motherboards, SOCs etc. If West wants to embargo and screw us they sure well can. No questions about it. It is our inability to setup moderate to complex fab facilities and an electronics ecosystem which keeps us in this position. The SE Asian nations have already done it.

There is no other way around it, given that govt defence companies rule the roost in India and Indian companies facing many hurdles for technology. As Shiv ji said the foreign giants have to come manufacture stuff here, export the same while keeping Indian demands in first priority and developing ecosystem and technical skills among our suppliers/SMEs and labour. Turn the tables on them one day and start competing with them.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by JayS »

rohankumaon wrote:I think it is not a direct 100% FDI...it will depend on case to case basis.

"he commerce & industry ministry has suggested a graded foreign investment ceiling. It has suggested a cap of 49% FDI for companies that do not transfer technology, while in ventures where the foreign partner is willing to transfer knowhow, the government intends to allow up to 74% FDI, and there will be no cap (100% FDI) for companies engaged in manufacturing state-of-the art equipment and machinery or those undertaking modernization projects."

http://timesofindia.indiatimes.com/indi ... 743669.cms
Though the DIPP proposal seems more logical, who is to decide what type of ToT deserves which category of FDI. Its an ambiguous criterion, easy to be misused. Will any company who wants to build jet engines will ToT for SCBs, Blisks, latest materials even for 100% FDI?? NO. What is the gaurantee that the ToT will happen as promised?? Haven't these foreign OEMs have dis-honoured contracts previously and we did nothing about it?? Its rather difficult to punish the big corporates in anyway that would be really painful for them. And the weight thrown by their govts behind them makes it almost impossible. Is there any clearcut provision on IP rights which would protect our interests in the conflict-scenario??

Too many questions..I am still trying to comprehend full pros and cons of allowing such FDI, this discussion here is really helpful. :)
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by member_28437 »

Actually Processors, Motherboards and SoCs are one area where we do not have a problem and are pretty self-reliant.

1. DRDO already does its own custom ARM and PowerPC SoCs that have been deployed sucessfully. Granted the CPU cores
are imported but most IP is available from Indian companies - PCIe, Eth, DDR etc. Motherboards are also designed in India.
lack of fab is an issue but hopefully the 2 new fabs will come online by 2016.

2. To remove the reliance on CPU cores, there is an India Processor program that is developing home grown CPUs based on the
RISCV-ISA from UCB. Most development is happening at IIT-Madras where I coordinate the practical aspects of the project. A whole
range of CPUs from 50 MHz micro-controllers to 16/32 core server parts and 100 core HPC parts are being developed. The program is well known
outside India but seems to have little visibility here ! There is a loose collaboration with UCB, MIT and Cambridge on this effort. So we are in august company.
All output will be
in open source, so anybody can download the CPU code and tape it out. Provided of course if you have a good back-end team and fab access !
Some of the code is already online. See bitbucket.org/casl.

As part of the program we are also developing high speed interconnects based on SRIO (400 Gbits/sec per port), optical interconnects and high speed storage.
See http://www.lightstor.org. In these areas India is defining new computing standards. IIT_M sits in a couple of standards bodies in these areas and the likes of DARPA, USAF, NASA, BAE are represented. So these IPs are absolutely at the bleeding edge and completely free to boot.

I would like to see optical SRIO become a standard for our systems interconnect on all strategic systems. It is faster, cheaper and has lower latency than Ethernet.

The icing on the cake is that one of our collaborators is a company called ProDrive in Netherlands which among other things builds supercomputers for
the US DOE. So potentially our IP could be used in the interconnect on the next DOE supercomputer. Seems to be we will be in a position to embargo !

3. The program is also developing secure processors along the lines of the DARPA CRASH program (see crash-safe.org) and fault tolerant variants
for safety critical applications.

This is not a DRDO specific program but a DieTY coordinated effort to create home grown CPUs that will be competitive with Intel and ARM.
Far from being at the mercy of other countries in a few years time we probably will end up being at the cutting edge of CPU and SoC design.

All this work is in the open, so can be evaluated ,criticized and tested independently. In fact I agreed to drive the program only on the
condition that the key components be in open source. Keeps the program honest.

Some areas of concern remain - Analog IP is still not an Indian forte but the design services companies are getting there.

I agree that even if the fabs come, the support eco-system will take time to develop but we are getting there.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by JayS »

shiv wrote:I am myself ignorant of the pros and cons - but imagine Beretta setting up a plant with 100% FDI. They could export to a whole lot of nations while supplying Indian needs. Indian labor would be paid and whatever can be outsourced to local companies will benefit local industry. The young engineer who works for Beretta for 10 years and leaves may some day start something on his own at a later date. etc.
Just thinking aloud.

A very valid argument. There sure has to be trickling down of mfg technology through this. But the question is, is this the only way?? And do the cons are outweighted by this??

Mostly only non-critical technology will be passed on, which we can figure out ourselves with well-directioned efforts. If they can do it, we can too. Albeit it might be a little slower than direct ToT. But in the process we would have developed a whole ecosystem which support process right from conceptualisation to manufacturing. In ToT we don't get that backend capabilities which are very important for building on aquired skills. We have been mfging Su-30MKIs, T-90 haven't we?? How much that has upgraded our manufacturing prowess??

Can we not achieve such ToT for non-critical technology through JVs and offset clause from importing?? Slowly but steadily.. and side-by-side filling in gaps by indigenious technology?? Instead of 10 years it might take 15 years. Remember we have a head start in terms of advanced technology, published litererature etc so we should be able to make same stuff in lesser time.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Yogi_G »

macaque saar, saasthaang pranaams and ghee shakkar in your mouth for the wonderful news you bring. List of questions, kindly reply as permissible by the confidentiality provisions,

1. IIRC your program also has BARC's involvement right? Or is that a separate microprocessor program?
2. Where do you have your chips fabricated?
3. What nm process is used?
4. About the HPC, can the microprocessors be used in Param or the HP clusters?
5. I understand its a separate architecture from x86, ARM and x64? If yes, what about Bharat OS that runs on x86 and x64?
6. The 2 new fabs, who is helping us build them and what nm process will they be?
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Yogi_G »

I am posting Macaque's post in the good posts thread.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Yogi_G »

My bad, I see that you already mentioned its RISC based architecture.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by schinnas »

I am yet to find a single cogent argument to NOT go with 100% FDI in defence. Our track record in terms of indegenously developing weapons that are world class is close to ZERO. Heck, we couldnt even develop and manufacture a good automatic rifle / pistol which need to be IMPORTED at a premium. We can become a manufacturing hub for several conventional weapons which will substantially ease the pressure on our Forex in addition to contributing to local jobs market and industrialization. There is much trickling down effect to be had.

All the arguments such as we can make this make that make up only for humor value if not backed by a solid track record.

IT is not like domestic RnD will be destroyed if we allow 100% FDI. Of course incompetent institutions and PSUs will have a slow death like they used to if they dont reinvent themselves. One wonders if there are vested interests that oppose 100% FDI. A discussion on who stands to lose with 100% FDI will bring out some of those players.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by member_28437 »

1. IIRC your program also has BARC's involvement right? Or is that a separate microprocessor program?
I am sorry, I can comment only on the open part of our research. I prefer to not even mention who we work with
in the strategic areas. But this program as I mentioned is a DIT program with CDAC being involved. This is basically
an initiative to bring India to the forefront of processor design. Output of this
program can of course be used for any purpose. having said that NASA has recently adopted SRIO as their next gen bus for
satellites and we were involved in that standards effort.

2. Where do you have your chips fabricated?
Typically TSMC gets used. But tapeout is ways away. Hope to validate on FPGA by end of year.

3. What nm process is used?
40-45 nm.

4. About the HPC, can the microprocessors be used in Param or the HP clusters?
That is the idea. But in this case the complete arch - CPU, interconnect, MB will be ours.

5. I understand its a separate architecture from x86, ARM and x64? If yes, what about Bharat OS that runs on x86 and x64?
Linux and new secure experimental OS from IIT-Madras (also in open source. based on www.genode.org)


6. The 2 new fabs, who is helping us build them and what nm process will they be?
This is in public domain. They are in Delhi and Gujrat. 65 nm, going to 40+ and then to 32.
These are private sector fabs with a 10% govt. holding. IBM and ST are tech providers.

We also train 40-50 interns every year from other Eng. schools across the country in an attempt to
build manpower capability in these cutting edge areas. Hopefully in a decade or so
these programs will free us from foreign dependency and allow us to dictate terms.
Some processor vendors have dissuaded us from starting this effort and instead offered very sweet licensing terms !
We said no of course. No substitute for ground up design.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Yogi_G »

Thanks macaque ji.

-----------------------

to the economic Gurus here,

Can we disallow companies which sell us locally made weapons from converting the rupees to dollars and sending it back to their country HQs? Will it stand in a court of law?
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by JayS »

macaque wrote:Actually Processors, Motherboards and SoCs are one area where we do not have a problem and are pretty self-reliant.

1. DRDO already does its own custom ARM and PowerPC SoCs that have been deployed sucessfully. Granted the CPU cores
are imported but most IP is available from Indian companies - PCIe, Eth, DDR etc. Motherboards are also designed in India.
lack of fab is an issue but hopefully the 2 new fabs will come online by 2016.
.
.
.
.
Some areas of concern remain - Analog IP is still not an Indian forte but the design services companies are getting there.

I agree that even if the fabs come, the support eco-system will take time to develop but we are getting there.
Its like music to jingos' ears. :D I have had read/heard some comments that there are some efforts going in semi-conductor industry here and there, but never new about such extensive efforts. Way to go.... :)
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Will »

SaiK wrote:why question at all is my question?
100% FDI for anything and everything is insanity at helm!

can you or anyone from MoD/Gov sit with DRDO/our forces, and take list of objectives first?
what are our needs? schedules? investment plan? etc?

tradeoff against, which country in the darn world would give away 100% of tech transfer, even if you pay 200% FDI (say like I pay you 100% of the cost, for you to invest 100% with tech transfer).

bull! no country or product owner will do it.
The only way is to let the Indian private industry in. The govt needs to support private industry with money for R&D and assured orders. I say private industry, cause they have the flexibility to hire the best brains from around the world, buy into JV's or take over companies.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by member_20317 »

@Yogi_G ji

Off course it can be done. It is your country. And so long as the basic features of the constitution are not challenged it does not matter to a court what laws you pass.

But how will that help anybody's cause.

See as macaque singh ji (adding singh to make it human sounding) suggests the race is not for everything. It is for the thing you know you absolutely must have. All else that you can do/have, even if you can do it profitably or is desirable, you should not do it, in order to focus on your needs. In fact we should go ahead and deny our self even the 'needs', in order to focus building only those needs that we will be denied or that cannot be done even after prolonged efforts.

Advanced artillery - need but not denied. Even if denied we can still push our way in.
Aviation - need and denied. Find it damn hard to do even after prolonged effort.
Ship building - need but not denied. Find it damn hard to do even after prolonged effort.

There was a few years back a report saying we need 6000 weapons designer. Now we know from last 20 years of experience that engineering talent gets built up in areas where the economies of scale are present (IT, Civil, Mech) and not in areas where there is no economic demand. So kick the economic rationale into action. Despite what macaque ji says what is his intake for these programs - "also train 40-50 interns every year" besides IITM. The foreigners have ID-ed what they would not like you working on. Now we have to identify what we should be working on.

Then again the simple control issue - Why must we have same degree of control in both Small arms manufacture and SCB and Nuclear propulsion. And does the learned ability to make Insas help us in meeting our 'denied needs' in aviation. So how does same to same gets justified.

Above all else there is the funding aspect. Every lala (govt or private) likes to bet on the best skill set available. So improve the skill set.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by nash »

Apprehension regarding 100% FDI is very much similar to FDI in auto sector which happened about 2 decade back.

Then also peoples were worried about maruti, auto SMEs, etc.

But after 2 decade of FDI in Auto sector , India is among the top producer of auto parts, Maruti still no.1 producer in country, Hero's splendor, mahindra's scorpio, tata's nano,pixel,manza etc CAN be classified as world class product.

Apart from that Tata Motor, which was a non-existent entity in cars, now the owner of JLR.

Various auto giants are using or want to use India as hub for their auto export.

Similar thing has happened in field of telecommunication, infra sector and others.

Analogy may be irrelevant but if FDI in a particular sector done in proper way then not only job creation and mass manufacturing can be done but also in the mean time we can get our hands into niche technologies.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by shiv »

vic wrote:Army has come out with a tender for importing pistols. Very soon we will be importing toilet papers and tissue wipes for the Jarnails.
No need for army to import toilet paper. the entire nation is already importing paper - for currency and for toilet paper, and we are importing toilet paper as currency from Pakistan.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by JayS »

vic wrote:Army has come out with a tender for importing pistols. Very soon we will be importing toilet papers and tissue wipes for the Jarnails.
Don't we have our own TOI-let paper already?? :rotfl:
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by SwamyG »

The questions are not to my liking, but I selected 2.

FDI in everything NO.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by vic »

Rahul Mehta wrote:
vic wrote:Army has come out with a tender for importing pistols. Very soon we will be importing toilet papers and tissue wipes for the Jarnails.
Links please. TTIA = Ten Thanks in Advance
http://indiandefence.com/threads/indian ... tol.47043/
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by venkat_r »

100% FDI makes sense in an area where no expertise or industry exists, but there is a lot of potential usage and a lot of related resources exist.

Pros: It allows India to use the relatively inexpensive manpower and the govt incentives to attract the $ and the companies and allow the companies to source some of the components from India and allows India to be part of the global supply chain and brings in the IP, where Indians working in these areas would venture out and set up shop in the future in related tech (longer term)

For this the assumption is that there are no direct competition from Indian companies and any small companies in that space can still work with the companies coming in to survive and expand.

Cons: India already has many companies that are either directly or partially suppliers of defense equipment - with somewhat mixed bag integration with other companies. There are several joint ventures that were rolled out in the anticipation of MMRCA contract, etc. Once 100% FDI is allowed, there is a good chance that any local govt or small scale companies can easily be side stepped as they lack marketing muscle or the full range of products or complete integrated systems to sell. Some level of government rules around procurement might protect the government companies, but the local, small companies that do exist and trying to grow will be definitely hit. These are the same companies that the country hopes to grow if there is 100% FDI - so some irony there.

But generally IMO, looking back after 20 years India should be able to get a huge pie of this defense industrial supply chain and as one of the top countries to be importing defense equipment, it just makes sense to have more and more companies to come into India and set up shop - The advantages far outweigh the cons.

That being said, not sure what the current % is pegged at for the defense sector - As India is one of the large Importers of defense equipment, it makes sense that Indian companies also get that upside by partnering with the companies coming in and get to profit from that. So for that reason alone I am opposed to 100% as a number, but in general agree that it is the best for bringing in the FDI in defense space. For the companies coming in also, the opportunity is huge as the Indian market is pretty big and with right rules and a decent partner they can take a bite of the big pie which is Indian market and also diversify their supply chain and also get the upside of inexpensive labor which can position them better than their competition.

For the Indian government, they have to have a red carpet for these companies, make the rules simpler, easier to follow and less frustrating, allowing for more companies to come in to set up shop (read more jobs).
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by SaiK »

Q: Say a country X (let it be the best friend of ours) wants India to share 100% of LCA or Arjun technology and they allow 100% FDI. How many people here would vote for 100% Tech transfer, blue print by print, details and precision setups?

Give me the total vote count.

If you can't vote, then provide me a vote count on how many Indians would work in X country, with full rights to their technology assets, and develop the IPR for that country?
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Suraj »

A few thoughts. I see three reasons why FDI can be useful, but these are not far removed from what makes conventional FDI useful:
* Access to capital
* Access to technology
* Access to production processes

These arise from the fact that our industrial sector, including the public sector military industrial complex, is lacking in all three. FDI helps bridge the gap.

HOWEVER, the fact that we're talking about defence results in some very significant strategic issues that must be always considered. External entities having a majority stake strikes me as a questionable thing. On a case by case basis, this might make sense, backed by legislative clauses giving the local minority stakeholder the option to buy out a majority stake.

A majority stake by a western investor might be ok in non-strategic areas. Small arms, perhaps ? The primary goal here is to maximize inflow of capital and technology, along with production process enhancement, at the least cost of erosion of strategic independence.

I'm against enabling anyone who has to work under rigid export licencing and technology control regimes in their own nations, from investing in India. Black box technologies might be ok, assuming the external investor also accepts that we will make a concerted effort at espionage and reverse engineering of those technologies, which we should be pragmatic about being inclined to do.

Production processes are probably the most easily absorbed. Capital can also be harnessed from local companies who are given sufficient freedom to participate in defence production, without having their hands tied behind the back vs PSUs. The main target is the acquisition of technology by any means possible - fair or foul.

The fundamental issue here is not FDI itself, but the nature of the government in charge. An effective, accountable government who seeks to reach out beyond the country's borders to obtain access to capital and technology desperately needed for industrial modernization, including defence, is to me an ok compromise being made. It matters that the government is competent and knows where boundaries lie when it comes to defending and enhancing our own strategic interests. With the current administration, I'm reasonably comfortable with the FDI in defence plan. With the previous one, no.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by abhik »

shiv wrote:I am myself ignorant of the pros and cons - but imagine Beretta setting up a plant with 100% FDI. They could export to a whole lot of nations while supplying Indian needs. Indian labor would be paid and whatever can be outsourced to local companies will benefit local industry. The young engineer who works for Beretta for 10 years and leaves may some day start something on his own at a later date. etc.
Why would a foreign defence company set up a plant in India only to export to other countries? Other than lower labour costs I can't think on any(discounting political reasons). But this is mostly high end manufacturing and the savings on this account may not be substantial.
But more than this the very nature of the business means that the there is little incentive to "off-shore" the manufacturing. Most of the world's armaments are sold by the OEM to their own governments. And they have to follow strict guidelines about where the equipment/parts are procured form, on how the industrial benefits are distributed etc. So the OEM will not be able to shift production to another country just to save some 10-15% (or whatever).
Also the arms export market is not really a free market. Most deals are made on the basis of political consideration. Here again have slightly lower price is not really an advantage. The given these reasons OEM would rather keep the production in their own countries.

PS: We recently bought 60,000+ "Made in Italy" Beretta sub machine guns for our paramilitary.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Yagnasri »

There is a difference between Maruti car and F16. We can send a probe to Mars. Yet we can not make pistol and needs 100% FDI. We just lazy bums who do not want to invest time and money to securing the nation and quick to invite Goras back.
Great move. AJ and his gang will get modern day Ray Bahadur that is Megasayne Award.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by abhik »

Suraj wrote:A few thoughts. I see three reasons why FDI can be useful, but these are not far removed from what makes conventional FDI useful:
* Access to capital
This is simply not true because the government is the sole customer of defence products. Any investments made will be recovered via government contracts. Which means that the government is paying for it anyway, so effectively defence FDI does not actually bring in any money.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Suraj »

abhik: Industrial production, particularly in medium and heavy industry, entails a substantial upfront investment in facilities and production systems. As the buyer, the government then gets to spend over a much longer time horizon, within which it has a better ability to make the capital outlay to buy, as opposed to funding the upfront capital cost of setting up the facility *and* subsequently being the buyer. This is an economic approach that spreads out the cost of the produced goods over time, as opposed to spending on both the facility and the output. Also, the government need not be the sole customer if the facilities produces military equipment for export. Doing so further enables the investor to quickly get back the capital invested in setting up the facility.

Now, I don't know details of the financial and technological wherewithal of the defense PSUs. If the argument is that they don't need capital and can handle things themselves, I would ask 'why is GoI talking about FDI in defence then ?'
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Lilo »

All those thinking that legal safeguards will somehow protect against the subversion of a strategic sector(like defence) - i.e voting for the 3rd option , should remember how our National Media(another Strategic) sector was easily made to turn Anti-India because of opening it up to major FDI in ABV era.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Mihir »

abhik wrote:
Suraj wrote:A few thoughts. I see three reasons why FDI can be useful, but these are not far removed from what makes conventional FDI useful:
* Access to capital
This is simply not true because the government is the sole customer of defence products. Any investments made will be recovered via government contracts. Which means that the government is paying for it anyway, so effectively defence FDI does not actually bring in any money.
That really depends. What if the weaponry is exported? I remember when Lockheed mooted the idea of making India a regional maintenance hub to service the F-16 fleets of Asian countries if we procured the F-16 for the MMRCA. There was much heartburn in Pakistan about it.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Karan M »

Suraj wrote:A few thoughts. I see three reasons why FDI can be useful, but these are not far removed from what makes conventional FDI useful:
* Access to capital
* Access to technology
* Access to production processes

These arise from the fact that our industrial sector, including the public sector military industrial complex, is lacking in all three. FDI helps bridge the gap.

HOWEVER, the fact that we're talking about defence results in some very significant strategic issues that must be always considered. External entities having a majority stake strikes me as a questionable thing. On a case by case basis, this might make sense, backed by legislative clauses giving the local minority stakeholder the option to buy out a majority stake.

A majority stake by a western investor might be ok in non-strategic areas. Small arms, perhaps ? The primary goal here is to maximize inflow of capital and technology, along with production process enhancement, at the least cost of erosion of strategic independence.

I'm against enabling anyone who has to work under rigid export licencing and technology control regimes in their own nations, from investing in India. Black box technologies might be ok, assuming the external investor also accepts that we will make a concerted effort at espionage and reverse engineering of those technologies, which we should be pragmatic about being inclined to do.

Production processes are probably the most easily absorbed. Capital can also be harnessed from local companies who are given sufficient freedom to participate in defence production, without having their hands tied behind the back vs PSUs. The main target is the acquisition of technology by any means possible - fair or foul.
Suraj, the part in bold cuts to the heart of the matter and its great you identified that specific area in a systematic manner in your post.

At the risk of some repetition of discussions distributed across threads, the problem is straightforward. In each specific area we have some specific vendors who have key knowledge of our programs and also, contribute to specific programs. These vendors if acquired or picked up, will easily set back our programs by roughly 4-5 years at the minimum and even a decade in some cases (thats how long it takes to certify a vendor and qualify all their items and supplies, build up their capabilities). There is also the risk of having critical data being picked up which can be used to access our systems (both tactical and via infrastructure) and also to disable them.

Unfortunately, our record via laws is very weak. We simply don't have the negotiating heft to dissuade these attempts once they occur or some misdemeanor occurs. Time and again, we have been gypped at the negotiating table or the system supplier reneges on the agreement, we only grin and bear it, because of a) overall trade ramifications (with western firms) b ) impact on existing systems elsewhere if spares supplies get delayed (issue with russian and french firms)

The problem is once a weak policy allows acquisitions, and it turns out the acquisition has left a hole in our capabilities, we really have no way to go back and fix the problem.

IMHO, the only way to safeguard ourselves is to a)not allow majority acquisition (i.e. 100% or 51% FDI) and also to strictly monitor and track employee firewalling and public domain disclosures.
Right now, latter is not being done. Former was just about prevented last time around.

About FDI in non strategic systems - well the issue here is we don't really need to lay out a red carpet there. For instance, see small arms. Mahindra has a good track record in making high precision gear (automobiles & associated systems), has a track record of fiscal responsibility and delivery (i.e. good support over the weapon lifecycle). Mahindra Defense Systems could easily make and manufacture small arms. Our large requirements mean that even without exports, meeting the domestic demand over the decade would be huge in terms of volume, and MDS can easily get TOT from a range of foreign vendors and build up skills in the process.

The reason why this has not been done is unfortunately simple. OFB, the worst performing of all our DPSUs, has a lockdown on the small arms sector. Their trade unions and political heft has ensured that small arms manufacture in non state owned yet secure facilities has been opened up only on paper.

Similarly, even for artillery, Bharat Forge and some other firms have managed to either acquire tech or gather workshare agreements to different degrees for the long pending arty upgrade program. But that program was never cleared.

All GOI had to do was conduct the trials fairly, and have the requirements be achievable - both by working with the relevant service. Stringent requirements in terms of what Indian firms would contribute could also have been met. Unfortunately, Indian firms skimped on their contributions (mostly vehicle & electronics fitments as versus gun/breech/barrel/systems) because they were unsure whether the order would even come through & justified their investments.
Again, only deal that has come through, is a limited 144 Gun order for the OFB howitzer and hopefully, the DRDO led program for a future gun which taps the private vendors will come through.

In short, what I am saying is the capital and access to technology issue is not as bad as it is made out to be. There are dime a dozen vendors who are willing to work with us, and even provide technology (BAE for instance wants to automate OFB factories similar to what it did for itself for the UK Govt requirements), the main issues are around:

a. Good policy with a long term aim & firm execution at specific points
b. Good coordination b/w all stakeholders and the alphabet soup of customers, eqpt providers

The only areas where 100% FDI may **theoretically** be necessary are real cutting edge items in NVG tech, TI tech, Jet Engines re: our immediate requirements - these are areas where we are currently offering money but have been stuck in a mish mash of requirements creep, vendor resistance thanks to national laws (ITAR f.e. in US - they even monitor the number of NVGs sold to Israel and track their use) and the forex outflow (A fab for a state of the art TI detector would cost hundreds of millions of $, something the BEL-DRDO combine needs to approach the Govt for with no clear assurance that the development thereafter would be easy.. something the babus hate to hear..!)

The problem is our monitoring and enforcement structure is all but non existent and will take a decade plus to get into gear.

Any easy peasy 100%/50-51% FDI proposal will badly backfire in that vein as it will most certainly be gamed.

Now the best alternative to all the above are offsets.

They escalate the cost of the deal - but they do put pressure on the OEM to certify the local partner, transfer technologies and then get production set up. Unlike the TOT stuff which goes on with local programs, in this case, the vendor from abroad is at risk if he deliberately delays TOT (we have seen that a lot) since his reputation on international programs or domestic market suffers and he cannot claim that it was Indian inefficiency at work.

IMHO - 26-49% ownership (FDI%) and offset packages (% depending on value of deal, e,g, $20Bn MMRCA at 50% offset) are entirely sufficient to bring in foreign capital and also technology/production processes in.
The fundamental issue here is not FDI itself, but the nature of the government in charge. An effective, accountable government who seeks to reach out beyond the country's borders to obtain access to capital and technology desperately needed for industrial modernization, including defence, is to me an ok compromise being made. It matters that the government is competent and knows where boundaries lie when it comes to defending and enhancing our own strategic interests. With the current administration, I'm reasonably comfortable with the FDI in defence plan. With the previous one, no.
I hope so, but what we have in India is not just the Govt but too many vested interests and a multiplicity of stakeholders working at cross interests. Even a good govt will find it hard to coordinate. Even programs which have a unified structure run into many issues. I once asked a LCA Program Manager what was his hardest task - I expected the answer to be technology etc, he waved his hand to the rest of the room - full of technocrats, partner orgs, users etc - and he said, "this is too complex".

Basically, we need industry clusters - aero, naval, land - each with a specific authority/leader at the top, harnessing all resources aligned to that cluster and its programs.
Lilo
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Lilo »

Actually methinks best course is to forget about this harebrained 100% FDI in defence (frankly which other "independent" nation allows such an abomination- Russia?,China?,Brazil?,Iran? - nyet nyet nyet nyet..)

And do some long overdue balltwisting on Aerospace Giants etc by legislating offset clauses in procurement of civilian Aircraft and the like.How did China get itself a Boeing jumbojet assembly line hain ji?

Definitely not by allowing 100%FDI in Defence but by some old style ball twisting and simultaneous dangling the carrot of huge orders.
So yes 100% FDI is allowed but not in defence(which is a strategic sector) but in the assembly lines you are going to setup for manufacturing parts of civilian aircraft (which btw we too are going to purchase).
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Suraj »

Karan M: that's a rather long post, and I expected someone to say all that. However, if you think about it, it's not strictly a matter related to FDI, but rather, the defence procurement process in general. I don't think FDI will solve anything if procurement processes remain broken.

Frankly, the FDI in defence thing is something I'm hesitant to support . Not merely because of the strategic issues involved, but simply because I do not think it's the immediate priority. Access to technology is the primary driver, but the ability to acquire it depends on a level of maturity and far sightedness at procurement that does not currently exist. I would rather see GoI overhaul the procurement process , get the defense PSUs in line and give the local private sector a substantial stage in defence production, before talking FDI.

Of course, it's possible that GoI *is* working on overhauling MoD and other defence procurement logistics quietly, and the FDI in defence just happens to get most of the press, because foreign vendors have every reason to trumpet it, even if GoI ultimately has no desire to rush through with it, and is simply dangling bait.
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Re: 100% FDI in Defence: Understanding Pros and Cons

Post by Karan M »

Suraj wrote:Now, I don't know details of the financial and technological wherewithal of the defense PSUs. If the argument is that they don't need capital and can handle things themselves, I would ask 'why is GoI talking about FDI in defence then ?'
Ah sir, for that you have to thank the great Shri P Chidambaram. For the past several years, profits of the DPSUs which are not publicly listed (and some of those listed as well), have been repatriated to the MOD under "dividends" as the MOD is the primary/majority stakeholder, instead of the money being reinvested in Capex/Manpower. The result is the ostensibly cash rich, asset rich PSUs are operating in a farcical environment.

So, as you know, they are owned by the MOD - so technically its all accounting rigmarole in that one GOI entity (the DPSU), bills another GOI entity (the Services) for goods and services rendered, which theoretically should make up the profit in terms of lower local cost of production, that "profit" is then repatriated back to the Govt, after a portion is deducted to keep the DPSUs current. Unfortunately, the system is completely broken down. In many cases, while the cost escalation of the local programs wipes out the so called cost advantage of making local (the strategic aspect of sourcing local remains), even the modernisation is stuck because money is sucked out for boondoggles like MNREGA etc.

The DPSUs remain stuck in a time warp, unable and unwilling to spend on own modernisation & R&D, dependent on artificial markups of items sold to a grumbling customer and also, on periodic injections of TOT from foreign vendors or DRDO.

Each of these programs is then expected to bring in the entire manufacturing ecosystem along with it and investments as well. The question then becomes if the project cost goes up, who pays for it? There you see wrangling between the services and the DPSU. Eg HAL and IAF squabbling over the LCA and its low rate of production. HAL saying 16/yr not enough to invest in additional line and 8/yr was enough. IAF OTOH, wanted 16/yr and created a stink!

Add the concept of VMI (Vendor Managed Inventory) and the associated costs of stockpiling spares on behalf of the customer and offering assured service and support with the statistical hope of making a profit over the entire lifecycle, and the DPSUs task becomes an even bigger mess.

Its a big mess TBH.

The problem is we have no long term strategy across each cluster owning all the products in that cluster (naval/air etc) forcing the diverse stakeholders to work together for their benefit. Instead of squabbling siblings working at cross purposes. So each tries to maximize its profits/lower its costs, long term delay is baked into decision making, cost increases thanks to the delay eat up any perceived advantages and also impact defence preparedness.

This apart from the lethargy in some DPSUs (OFB being a good example) wherein foreign TOT is guaranteed so why bother with domestic work?

Private sector entry would certainly shake up things there.
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