100% FDI in defence - what are we likely to see?

[ldev]

^^
If the assembly line is shifted lock stock and barrel to India,then Pakistan will have to rely on India for spares

[Manish_Sharma]

This is to destroy any big chance of Tejas.

When Tejas Mk 1 is ready and Vivek Ahuja has proven it to be superior to F-16, then why should BRF celebrate at this calamity?

[Cain Marko]

^ ze only fyper zat iz allowed is ze XL - anything else is, how you say it, rubeesh? Actually, F-18s would be far more attractive for a variety of reasons that have been discussed earlier.

[shiv]

The F-16 line will not come to India without commitment to buy. That won't happen. Someone call me out if it does.

The other thing is that if the US was shifting a plastic bags manufacturing facility then it would be easier. The F-16 probably has hundreds of private suppliers who supply Lockheed Martin with ancillary parts. LM is not HAL - having to manufacture clips, rivets and pins for Russian aircraft. No F-16 will get done without getting all those suppliers on board and each of those suppliers will have to do new deals and set their pricing because they won't be shifting their lines to India. Even if brake pads are not supplied the F-16 won't fly. So I wouldn't worry about the F-16

But Parikkar's mystery statement about a twin engine aircraft still intrigues me. OV 10 Bronco? F-4 Phantom II? A-5 Vigilante?

[brar_w]

I think the idea of another twin engined foreign aircraft to be MII is rather a negotiating tactic for the rafale deal. However, on a couple of occasions MP has used the 'twin engined' title, so I think its pretty safe to assume that the F-16 and Gripen are out of contention. This leaves the Rafale, F-18 and the Eurofighter Typhoon (among western fighters). Unless its extremely cost-prohibitive one would find it hard to justify acquiring 36 rafales from france and then procuring XXX of a totally different fighter in the exact same class under MII.

As far as parts suppliers are concerned, those are long term business deals. Suppliers will move over if they feel the long term business case is strong or if supporting subsidy is offered. As aircraft production winds down they are essentially looking to provide LM, Boeing or Dassault a pool of spare parts etc to sustain the global fleet. For smaller orders, naturally just the final assembly and checkout will move which cost wise is still significant. Much like any other industry looking to relocate manufacturing, its the order book and business case that makes all the difference.

[member_29378]

^ Agreed. IMHO the Rafale will becoming in more numbers, with some license-manufacturing involved. The Gripen and Viper threaten the LCA, so unless MP wants to doom it, they are out of contention completely. The Typhoon is as expensive as the Rafale, so that too should be out of running. An American fighter looks very unlikely but maybe the US will get orders for drones, P-8Is and Apaches. I do wish for the Growler.....

[kit]

I guess GOI wants the second aircraft line to be an export oriented one without any commitment from IAF .. time to delink IAF acquisitions from industrial activities

[brar_w]

I guess GOI wants the second aircraft line to be an export oriented one without any commitment from IAF ..

That's not going to happen.

[kit]

well there is a saying .. delay too long in proposing to your chosen one ... !!!

there goes the MRCA love affair !

[kit]

I guess GOI wants the second aircraft line to be an export oriented one without any commitment from IAF ..

That's not going to happen.

why not ?? .. lockheed can set up a 100 % owned subsidiary !!

[kit]

profits will come over a longer time thats all !

[Cosmo_R]

The F-16 line will not come to India without commitment to buy. That won't happen. Someone call me out if it does.

...

LM's CEO even put out a minimum number : 100 a/c is the trigger for the line to be shifted. The TX facilities are 110% depreciated. MP did say he does not expect 100% ToT and that he expects max local sourcing over a number of years.

The two engine thingie is to put pressure on the French: "Boeing will make a pitch for the same thing as LM and we could go with them if your price is not right"

Of course Boeing will be pressured by LM and GE will be pressured by PW unless the Viper is proposed with the GE F-132.

Finally IMHO, the F-16s could simply be a way to buy time (replace some 250 MiGs/Jaguars due for retirement by 2018 in double quick time?) for the AMCA/FGFA. We'd be replacing 50 year old designs with a 40 year old one but the F-16 Block 60+ or whatever is still relevant and come pretty cheap (LM sees JSF at $80MM so the Viper has got to be a lot less given full R&D amortization)

The subtext seems to be less concern about the IAF's light/medium/heavy/plus size wish list and more with practical numbers and building up an industrial base of people skills as well as a supply chain for the long haul.

[brar_w]

why not?? Lockheeed can set up a 100% owned subsidiary!! … profits will come over a longer time that’s all!

Profits cannot come without sales, and so far the F-16 has been trickling along at pretty much the smallest production quantity that is economically sustainable. In order to ship the current Fort Worth setup to a new place, acquire capacity to produce in India, train and equip the workforce, and then look to slowly absorb local Indian manufacturing to supplement or replace the US or other western suppliers requires time, and a steady stream of orders. On that program there is a lot of sustainment and upgrade work to be done, but little in terms of prospective sales beyond a few years worth of production.



The same applies to the F/A-18 post 2020 (Boeing should have enough local and international demand for the next 4-5 years) although there is more potential on that program.

Finally IMHO, the F-16s could simply be a way to buy time (replace some 250 MiGs/Jaguars due for retirement by 2018 in double quick time?) for the AMCA/FGFA. We'd be replacing 50 year old designs with a 40 year old one but the F-16 Block 60+ or whatever is still relevant and come pretty cheap (LM sees JSF at $80MM so the Viper has got to be a lot less given full R&D amortization)

The subtext seems to be less concern about the IAF's light/medium/heavy/plus size wish list and more with practical numbers and building up an industrial base of people skills as well as a supply chain for the long haul.

The block 60 F-16 is no doubt capable, but at this point in time its an unnecessary capability given that the LCA can be developed, over the next decade to do a lot of that work at a lower cost. The F/A-18E/F still opens up capability since it’s a medium class fighter with lots of room to grow (CFT’s, newer sensors and more room for avionics etc). The F16 is a dead end and as far as LCA is concerned equally as dangerous as the Gripen.



Viper vs JSF cost is subject to production run, supplier base, how that base views the program (affecting their cost) and orders for the future. A 2018 JSF will be much cheaper given the rate involved (deliveries next batch will touch 50, and over the next few years increase significantly) than the F-16 which is most likely seeing a drawing down of supplier base, shrinking of the existing supplier production facilities (dedicated to the F-16), and an inability of LMA to negotiate long term contracts with its suppliers given lack of demand. Things are the opposite on the JSF with nearly every component being competed for since you can’t rely on one component supplier when your production and assembly line is setup for eventual 1 a day assembly. They all compete for contracts, and for a lot of components lockeed has been able to negotiate long term contracts. Starting FY19 acquisition the F-35 will itself enter into a block buy phase (US joins in FY20 given its acquisition laws) and over the three year block buy they are likely to negotiate 350-500 aircraft in one go. Those are the economies of scale that program is gearing up to deliver.

[Yagnasri]

I thought F16 reached its design end or something like that and has no future. So why we are looking into it after rejecting it in the competition. Will it be cheaper for mass purchase? I do not think so.

So what is the use?

[shiv]

I thought F16 reached its design end or something like that and has no future. So why we are looking into it after rejecting it in the competition. Will it be cheaper for mass purchase? I do not think so.

So what is the use?

Nobody who matters is looking into it AFAIK. However vested interests are creating news that it will happen..

[Will]

What we need to be careful of is that we don't becoming a dumping ground for decades old tech. F-16's ? Seriously? Ok they are current as of today but you don't want to be straddled with stuff like that for the next 40 years.

[srin]

The issue is bigger than the MMRCA (or whatever its new avatar). With 100% FDI, a foreign company can open a fully owned subsidiary here to manufacture equipment. For instance, Dassault doesn't need HAL but can assemble Rafales here at Dassault India Pvt Ltd. So new defence acquisitions will necessarily mandate "make in India" instead of direct import unless it is for less numbers.

The implications are:
a) The DPSUs will now have more competition. The freebie contracts they used to get as "ToT" offsets would reduce drastically.

b) Anyone can open a subsidiary here, but their nationals won't easily get work visa ! So, those companies will start poaching experienced and good staff of the DPSUs and ISRO.

c) Initially Indians will do screwdriver-giri or coolie-work. Blueprints will be hidden etc (reminds me of those days when Huawei in Leela Palace supposedly had few rooms that no Indians could get into). I expect the trajectory to be similar to the software industry (Indians were initially meant to do cheap Y2K work and now *some* are doing some mind-blowing stuff). I expect us ascend the value chain quite quickly.

d) That means more military tech work for desi jingos. If you have been wanting to be in the mil sector but couldn't wait for the Astra and the rest to grow up, this is a good chance.

e) For the services, they now have more suppliers and not solely dependent upon OFB/DPSU. So happier situation. Also happier situation for the retiring top brass to get into the mgmt/boards !

[Cosmo_R]

@^^^ That's the way a MIC works.

[Kakkaji]

Dr Shiv is right. The main incentive for any foreign company to set up manufacturing in India is that a substantial portion of that plant's production can be sold to the Indian Armed Forces. 100% export-oriented units are not going to be viable initially. Hence no sales in India = no manufacturing in India.

Therefore the MoD orders hold the key to who actually comes in, and who doesn't.

As for the parts suppliers, if either Boeing (F-18) or LockMart (F-16) is chosen, they will open 100% subsidiaries in India, and then it is their problem to negotiate with their suppliers in the US to supply parts to their plant in India. The MoD will only contract for the delivery of the final product.

Like in the case of Japanese/ Korean automobile manufacturers: first they set up only assembly plants in India and import all the components from their home countries. Then, as the volumes increase, their suppliers start setting up plants in India near the assembly plant. Then, down the line, they start exporting finished products and parts from their plants in India.

It will take at least 10-15 years for the entire supply chain to be established in India.

[Cosmo_R]

^^^Kakkaji. Yes. That is the only way it can work. MP himself opines that Tejas has about 40% imported components. Of course, as the production run increases, that figure will come down as it will for any FDI project.

Visas for foreign workers can be navigated partially through the PIO route. Besides, a bidding war for scarce local talent may just shift the tides in the regional Engg colleges towards skilled technician jobs rather than aiming at impossible dreams of competing with IIT types.

[ashthor]

The 2 engine aircraft Make in India could be Rafale.

[shiv]

Besides, a bidding war for scarce local talent may just shift the tides in the regional Engg colleges towards skilled technician jobs rather than aiming at impossible dreams of competing with IIT types.

Not sure if you are out of touch with Indian colleges - there are now dozens which will give IITs a run for their money. IIT always on top ended more than a decade ago.

[Cosmo_R]

Not sure if you are out of touch with Indian colleges - there are now dozens which will give IITs a run for their money. IIT always on top ended more than a decade ago.

Completely out of touch. But the ones I am referring to are:

http://www.businesstoday.in/opinion/dee ... 05041.html

http://timesofindia.indiatimes.com/tech ... 704157.cms

[rajanb]

100% in Defense FDI. OMG.
A convoluted decsion belonging in the real of fiscal prudence.
The same people who screamed against it during their days in oposition?
But this is not about that. Not about politics.
We will get bugger all.
Yes! They will make bits and parts of what they need. Not the tech. that helps us be independent.

[kit]

the more a MIC develops the more wars it support !! ..China here we come

[SwamyG]

As a man fundamentally opposed to International arms and weapons trade; I do not like 100% FDI in defense, let alone in any sector. The asura is in the details; and the deva in the case-to-case situations.

[Cosmo_R]

the more a MIC develops the more wars it support !! ..China here we come

The absence of a MIC is even more provocative to the other side. Weakness perceived or real, invites aggression.

[Cosmo_R]

100% in Defense FDI. OMG.
A convoluted decsion belonging in the real of fiscal prudence.
The same people who screamed against it during their days in oposition?
But this is not about that. Not about politics.
We will get bugger all.
Yes! They will make bits and parts of what they need. Not the tech. that helps us be independent.

The fabled tech part AKA ToT comes much later.

First you create a skilled worker base, next the supply chain and progressively demand (as buyers) an increase in the local components. Together over time, that will be ToT as local companies start creating new product.

No shortcuts. Now, if we had started in the 1960s...

We will need a DARPA like institution.

[Aditya G]

The beauty of 100% FDI in defense is that you need not import fully built hardware. Isnt that better than having 49% FDI limit but no real takers for it?

Let the likes of Boeing establish fully owned factories here. What do we loose? There were similar concerns about automobile industry previously but as of today you have several manufacturers with shop setup in India with <20% import content on many makes

[Cosmo_R]

The beauty of 100% FDI in defense is that you need not import fully built hardware. Isnt that better than having 49% FDI limit but no real takers for it?

Let the likes of Boeing establish fully owned factories here. What do we loose? There were similar concerns about automobile industry previously but as of today you have several manufacturers with shop setup in India with <20% import content on many makes

Exactly! That is what I argued in the now unlocatable original FDI thread. For example, 36 off the shelf Rafales plus accessories is the same as 100% FDI in a profit sense but without any creation of a trained workforce in India. Now if they had 100% ownership in India and even if they imported 100% from France in the first year, they would still have to pay and train workers, pay for infrastructure, contribute to community projects etc. In the 100% FDI scenario, they still have to sell the IAF (before they invest) so they will be mindful of Boeing/LM competition on price/quality.

IMHO, the new directives are an admission that ToT is not accomplished by signing agreements. Else, we would have been building the FH77Bs and U-212s with our own improvements. Why is it that we have not built a Silent SU-30MKI like the Silent Eagle/Hornet alone a SU-35 despite 'deep ToT'?

One other side effect of the directives is that IMHO, the 36 Rafale deal is dead unless it is reconstituted as buy 36 and we build the rest in India with 100% Dassault FDI.

In short the MMRCA competition part deux.

[shiv]

Here are a couple of other things I would like to see - they are not entire mega systems like aircraft
1. Lightweight thermal fabric for use in the Himalayas
2. NVGs in numbers

[csaurabh]

MNC manufacturing outsourcing. Let's see a couple of examples that already exist..

A well known German car electronics manufacturer has a plant in Bangalore. Most of the jobs are done by robots, and all the robots are imported. There is a congo-line of robots, like the first one cuts the board, the second etches the PCB, the next adds resistors and capacitors, and so on. Everything is automated. All the designs come from abroad. All software and programming for robots are done abroad. All components like microchips and so on come from abroad. What you really have in this plant are about 200 technicians to do some work that hasn't been automated yet ( like some types of fitting and screwing ) and 20 'engineers' ( so called ) to manage the workers and do some quality checks and such like. The end product ( electronic control unit for automobiles ) is exported, and we finally import the finished product (automobile ) under names like Volvo or Skoda.

Aerospace manufacturing company on outskirts of Bangalore. Again, everything is automatically done by robots. All materials ( aerospace grade steels, etc. ) are imported. Cad models of small washers and valves and such like are used. CNC lathes, etc. ( all imported ) machine and finish the product. Again about 200 workers and some 'engineers' are needed to supervise the process and do the things the machines haven't done yet. Sometimes you need to reprogram the robots to produce a new type of part and that's about it. We import the final product under the brand of Airbus, Boeing.

The senior management at these companies typically don't know jack shit about any technology. They have been brainwashed by American MBAs to be like accountants and try to cut costs. They don't realize that engineering companies need to add value by constant R&D and innovation, not 'management'.

I don't see these kind of firms taking it to the next level because they are not really technology companies per se. Unless the top end engineering work ( machine tooling, design, software etc. ) gets in our hands, it is not going anywhere.

Ok, we do get some employment and the employees do get some experience in hi tech manufacturing but in modern factories the number of employees is really really low. In fact the whole concept of outsourcing low cost labor is facing its sunset era, because most of the jobs can be and have been automated. A factory needing 3000 workers can now run with just 100. With advanced robotics and AI, this trend is likely to continue. Parasonic produces 2 million TVs per year in one plant in Japan with just 25 employees. Ironically, assembling high tech TVs is a much easier thing for robots to do than cleaning a room. We could see manufacturing moving back to the USA in a few years, because the USA excels at high tech/automation and the govt. has always been big business friendly. It costs the same money to run a robot in the USA as in China.

Modi govt seems to be banking on the idea that FDI will create jobs through outsourcing manufacturing. This would have been a good strategy 30 years back, like China did. The problem is that new technology simply doesn't rely much on labor any more. Infact they will displace millions of Americans from their jobs , and the resulting technological unemployment will result in an estimated 45% unemployment in developed countries according to some reports. India doesn't seem to have any strategy to deal with this either..

[Zynda]

CSaurabh,
You are driving correct messages by hitting the right nail on its head.

The extent of automation expands beyond just manufacturing. Newer commercial tools are being developed (at least on the design side to which I have been a witness) to automate some of the tedious but low value adding tasks. Note they won't eliminate human efforts, but reduce the man hours needed by a factor of 10-12x. Many of these softwares have attained maturity for limited deployment in production environment but based on my interactions, them software folks believe in the next 5 years, these software will see huge scale deployment in production environment. What this means to Indian Engineering Services sector, whom were banking on low wage offerings don't need to be explained in detail. If possible, in design, the entire process would like to be kept at OEM/designer if possible. There will always be loss of translation/issues of non-convergence when a complex task is split among different teams, especially in different geographic regions. The idea (apparently driven by huge customer demand) is to bring down costs so that OEMs retain much of the workflows in house.

I really don't know what hardcore EIS companies like Quest etc will do in the next 5 years & beyond. I am sure their business analysists & MBAs are aware of them upcoming tech disruptions and hopefully would have charted a course to keep the company afloat. Already, Engineering staff in most desi companies are saturated and hiring has gone down immensely due to lack of work. With very little to no indigenuous product development (in any industry) going on in our country and no willingness for these EIS folks to get involved in desi projects due to low manhours to revenue conversions, the future sure looks challenging.

I was witness to a demo of one such software and I was surprised to see the final outcome vs the time required. Of course, the software lacks many things compared to existing ones but the company is actively & aggressively developing on adding more features. After the initial amazement disappeared, I was actually concerned. Folks in massa or EU may rejoice since the chances of their jobs at OEMs being secure are higher but employees of Indian/out sourcing EIS should be definitely worried. Later I discovered, that almost all major commercial design & analysis software providers are working on next gen products which offers similar capabilities.

The market forces have to rule and ultimately I think even demand for certain engineering education courses will wane.

Edit: Auto industry seems to have embraced Indian R&D products. Ex: Maruti's Bezzara has supposedly large design inputs from Indian engineers out of India. I hope the trend expands to other industries as well.

[Manish_Sharma]

Saurabh ji, I'm not arguing against your point, but a question arose in me reading your post, why germans went to the length of installing such a robotised unit in Bharat? Surely big profit margine would come from low wages employees, which in the above mentioned factory is missing.

Otherwise what else cost saving factors were their for germans to move it here?

Surely if the factory was in baden baden instead it would've been easier if the robots needed repair for engineers from stuttgart or hamburg to come and repair instead of flying all the way to Bharat.

I want to repeat, I am not arguing against you just want to learn.

[csaurabh]

Saurabh ji, I'm not arguing against your point, but a question arose in me reading your post, why germans went to the length of installing such a robotised unit in Bharat? Surely big profit margine would come from low wages employees, which in the above mentioned factory is missing.

Otherwise what else cost saving factors were their for germans to move it here?

Surely if the factory was in baden baden instead it would've been easier if the robots needed repair for engineers from stuttgart or hamburg to come and repair instead of flying all the way to Bharat.

I want to repeat, I am not arguing against you just want to learn.

I would say that was probably the reason. In fact, almost all outsourcing to India is driven by low cost wages.
The wage difference is not small it is huge, something like 10x ! And it was probably even more previously. The factory still has enough employees for it to matter, I suppose.

This is why MNCs can't make Bharat a developed country. Rising wages in India would lower the wage gap, and then the 'advantage' would disappear.

Edit: another example -Foxconn replaces 50,000 workers with robots.

[Cain Marko]

Will brexit have any impact on ef2000's chances in india under MII? Just wondering...