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

[shiv]

100% FDI in defence.

Personally I think it is a good move, but there is likely to be many a slip 'twixt cup and lip - so to speak. I will come to that later. But assuming that it gets going with few hitches, what are we likely to see? Judging from discussions we have had here and snippets of discussions - here are a few guesses.

First a general ramble. I have just finished reading Tavleen Singh's excellent second book "Indian broken Tryst" and what struck me was her descriptions of states like UP and Bihar. Those states have metamorphosed from ill fed dhoti clad and poor villagers to jeans clad cellphone carrying youngsters with degrees (BA/MA!!) no jobs. Joblessness is rampant and judging from the Biharis, Bengalis and Assamese who come to Bangalore for jobs as security men, cooks, construction workers etc - the effort to create jobs has not come too soon.

Jobs can be created by setting up factories and 100% FDI is a welcome step.

So what sort of manufacture will we get to see - from companies looking to export from India and make profits? Special fabric makers for uniforms and parachutes. Possibly small arms. Communication equipment. Ammunition? Aircraft parts. Ancillaries like actuators, LRUs. Transport aircraft? Helos? Missiles?

As always the states that are quickest off the mark to provide land, electricity, water and skilled labour and infratsurcture for investing companies will see the biggest benefits. I see states like Haryana, GJ, MH, KA, TN, AP and Telengana jumping to provide all this. UP in the NCR will score. Not sure about Punjab and Rajasthan. Rest of UP and Bihar I despair..don't know if they have the leadership to jump at the opportunities that may come. WB and KL don't know. Would love to see Assam's name there among states that set up 100% FDI manuf units. Uttarkhand? Chattisgarh? Orissa? MP? Arunachal? Doubtful about infra in Mizoram? Meghalaya? Would again love to see something in Meghalaya - it is almost as well connected as Assam

Any guesses about what the future will hold?

[Abhay_S]

It will be interesting to watch MP. Piyush Goyal has promised power @ rs 4 a unit for any Make in India project to Shiv Raj singh. wonder if the same was offered to other states.

[Cosmo_R]

Any guesses about what the future will hold?

No but a lot of hope. Preferably some real change within the remaining 5-6 years of my life.

[shiv]

LOL that is a pretty pessimistic post but yes - we are unlikely to see any major changes for a few years. We might possibly see a few agreements signed over the next year or so and I was hoping to get some feedback on what people feel may be the types of industries that will come and invest when offered the 100% ownership pie.

Every time we read about a system made in India we also read about some component or two that account for 60% of the cost, but 2% of the volume/weight. I suspect that the companies who might want to come in are those who are being squeezed in their countries of origin by competition - or those who are looking to expand. I think India offers huge scope and I would dismiss concerns of national security. National security is not going to be affected if Colt or some such company (Does Colt even exist now?) sets up a 100% export unit in India - unless they are supplying Shitistan at cut rate prices

[NRao]

This is very big deal for a nation that was seen as a socialistic lean.

I suspect, after plenty of discussions, on Modi's trips, he has delivered his end of the bargain. The time is up for the businesses to deliver their end: job creation and investments in India.

But, this will, without a doubt, transform India in many ways, many that Indians will not be used to and may not like. But jobs are the need of the day and that is what Modi has delivered.

Multinationals, your turn.


Personally, bitter-sweet. Like the fact it will generate jobs - short term goals are met, but not convinced it is good for India in the longer run. And, there are plenty of wolves that will try and put a brake on this momentum. Cards need to be played right.



Also, wonder what happens on the corruption front.

[ShauryaT]

Shiv ji: There is a strategic rationale to target defense manufacturing as the EU and US both have not outsourced these to China due to the ban post Tiananmen. It can be a starting point of high tech manufacturing across many different areas acting as a catalyst for high tech manufacturing in other industries. Components and sub assemblies should indeed be the target and this can have spin off effects across multiple industries.

If this policy is co-joined with radical reforms to get the OFB's, DPSU's and DRDO divested to Indian entities then that will spur Indian entities to compete and become part of the supply chain.

Does this policy have strategic costs you bet? But as all policies go, execution will determine its success.

[manjgu]

IMHO FDI in defence is a good thing.. + side ... job creation, manufacturing, less outflow of USD, timely modernisation ( hopefully), some infusion of tech, - ve ...can impact growth of local/indigenous def industry. Govt should provide equal impetus to local def manufacturing, creation of IPR by indian firms.

[Yagnasri]

With 100% FDI, we may see some of the US companies to open shop for spares, etc. in India. Particularly for the old systems which need spares and consumables more frequently.

[shiv]

One possible side effect (high hopes??) is that "low cost manufacture" that China uses to compete against other western nations will bite China if the affected companies can be enticed to set up lines in India. Nations like Myanmar, Sri Lanka, Nigeria etc need to buy Chinese is the quality and price are right.

I mean - let Beretta set up a line here and export every damn weapon elsewhere and none for India - so long as Indians are employed and paid. That is no different from what a company like "Dreamworks Animation" does.

[Manish_Sharma]

^ Yes thats good idea, anyway our home industrialists have never shown interest in producing small arms.

So Beretta producing here not only employs our people give Beretta a much cheaper workforce and raw materials plus also brings sophisticated tooling machines here.

I think Walther has done this in pakistan from almost 3 decades ago.

[abhik]

We have had FDI in defence (even up to 100%) for quite some time. How much investment has taken place till now? How many jobs created? How much has been exported?

[maitya]

100% FDI in defence.
<snip>
...
.. what struck me was her descriptions of states like UP and Bihar. Those states have metamorphosed from ill fed dhoti clad and poor villagers to jeans clad cellphone carrying youngsters with degrees (BA/MA!!) no jobs. Joblessness is rampant and judging from the Biharis, Bengalis and Assamese who come to Bangalore for jobs as security men, cooks, construction workers etc - the effort to create jobs has not come too soon.
<snip>

That's true but how many are actually employable?

Actually, the over-liberalization (with absolutely no control whatsoever - AICTE and UGC are the biggest joke on modern India anyway) has ensure we have over-supply of piirravate enjuneering colleges, who have ensured another over-supply of "jeans clad cellphone carrying youngsters with engineering degrees" (with some pretty exotic sounding disciplines as well) - who anyway would struggle the BR-acid-test of "how many micro-meter makes a millimeter" test.

You need to be some position in the corporate world in India who would have some chance of interacting a minuscule cross-section of this population, to have some appreciation of the rot.

But that's for another thread I guess!!


Bottom line is, simply increasing the FDI cap (did anybody read the fine-print, I'm sure there'll be some catch somewhere - baboons wouldn't let go of their turf so easily) does diddly squat - yes, it will be boon to the recent-ex HAL/DPSU employees who will land fat-pay contractual tenures etc, but beyond that nothing much.


Many^n moons back we got told (in our respective madrassas) that land, water, electricity, raw material, capital, market and human resources are essential pillars of Industrial growth etc ... all of these can be made available but where is the necessary "human resource" to use these and make something economically useful out of these factors and FDI-cap related enablers.

Once somebody gets a degree, an eng-degree, simple machine fitter/welder/operator job becomes "beneath contempt" - in the same class of "achchut" work-areas like sweeping, cleaning etc ... left for the lower "class" people, right?

If manufacturing is the core of the "Make" part of MII in defense industry, then it's these trades where most demand would be - but there'll be no supply from these "jeans clad cellphone carrying youngsters with an engineering degree" population. Companies (like for e.g. Maruti), if they take the bait in first place, will do what is required - i.e. target the "next class level l" of youngsters, train them (and pay them well enough) and make them skilled in these trades and create a good life-cycle.

So, ironically the old Soviet-style planning is required for the private players willing to enter this defense-manufacturing sector - build huge campuses in god-forsaken places, replete with large ITI and maybe even diploma institutes, and make arrangement for the actual manufacturing-level skilled man-power supply.
Ofcourse each will have extra-shiny "design centers" where you'll find PYT and Munnas busily ferreting around (before they slink into their cubicles to ... well, some nth iteration of confirmatory testing of foreign-supplied CAD etc).

Don't expect sarkar, this or any one in future, to do anything to resolve such grass-roots issue ... they have done their job, passing a law, after due deliberations over umpteen chai-samosa sessions, archiving it in triplicate and then, going to social-media to tom-tom about it.
Finis ... job done ... ful-Finis!! Taliyan plizz.

Now you, industry, are on your own.

But then these are "hindu-rate-of-growth" days concepts ... outcome will be the same "hindu-rate-of-growth" in this sector as well.


But kya karein ... we are like that onlee!!

Sorry for the rant, pls carry on ...

[Indranil]

As a first, expect "Make in India" F-18s. I have a theory: MP has promised F-18s/F-16s to IAF in lieu of accepting HTT-40s/LCAs.

[member_28397]

^^^ probably 500 american UAVs ..

[ShauryaT]

I mean - let Beretta set up a line here and export every damn weapon elsewhere and none for India - so long as Indians are employed and paid. That is no different from what a company like "Dreamworks Animation" does.

Although that particular outcome is desirable, I consider it highly improbable due to reasons one can well fathom. The only way to increase the probability of that outcome is a resolute national will to build its own MIC, in parallel. If our MIC is owned by foreign powers, it is game over for India's independent pursuit of power for many generations to come. Caveat Emptor.

[brar_w]

As a first, expect "Make in India" F-18s. I have a theory: MP has promised F-18s/F-16s to IAF in lieu of accepting HTT-40s/LCAs.

This over and above the Rafale? That would be an acquisition and operationalization nightmare.

[wig]

http://www.tribuneindia.com/news/nation ... 54806.html
Minor change opens up new vistas in defence

The decision of the Narendra Modi government to bring in a minor change in the new FDI policy in defence could open it up for manufacturing and job creation, triggering immediate reaction from former Defence Minister AK Antony that the move could lead to Indian defence industry be controlled by NATO and American defence manufacturers.
Tucked in the slew of sectors being opened up by the Centre today, it said while 49 per cent FDI participation in defence would remain under automatic route, beyond the cap “in cases resulting in access to modern technology in the country or for other reasons to be recorded, the condition of access to ‘state-of-the-art’ technology in the country has been done away with.”
FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under the Arms Act, 1959, it was announced.
The government’s move comes in the wake of repeated statements by foreign manufacturers seeking greater control and being less than enthusiastic at 49 per cent cap. By doing away with “state-of-the-art” clause, should give the government greater leeway in determining what modern technology the country is getting. At present, the sector attracted slightly above Rs 1 crore as FDI in last two years.
For instance, there is an effort to speed up development of the long-delayed Light Combat Aircraft “Tejas”. The IAF has grudgingly accepted some 40 aircraft amid reports that talks are on with Swedish SAAB, which could gel with the programme since the next generation of LCA has to be qualitatively different. Recently, there were reports of Air Chief Arup Raha having test-flown one of the Swedish jets.
“What the government has done is to make it easy for it to process FDI rather that resting on state-of-the-art technology. It opens up possibility of manufacturing and job creation,” Amit Cowshis, former Financial Adviser (Acquistion) in the Defence Ministry told The Tribune. He also said the larger issue of creating better eco-systems still hung fire with labour laws and land acquisition as cases in point.
Meanwhile, Antony condemned the move and said it should be withdrawn in national interest. He said the move came immediately after PM Modi’s visit to the US.
“The move poses a big threat to national security and India’s independent foreign policy. Allowing 100 per cent FDI means India's defence sector is thrown mostly into the hands of NATO-American defence manufacturers. Naturally it will affect India’s independent foreign policy too. It will also threaten the national security,” he said.

[kit]

the lower tier manufacturers from the US and some biggies from Europe will come for systems that are required for mass manufacture .. like planes and helicopters . give it time

once they realize the amount of profit they can rake in they others will gate crash as well

for sure India will excel in high tech manufacture .. its in its blood

[shiv]

Looking at the papers - the main change is that the name "state of the art" has been removed for mfr of items by companies that hold over 49% stake. Permission will still be required - unlike those cos with 49% or less which will get "automatic" licence to manufacture. I think smal arms and ammunition have been mentioned apart from components and sub systems

There is a lot of stuff that is not "state of the art" that can come in.

[shiv]

100% FDI in defence.
<snip>
...
.. what struck me was her descriptions of states like UP and Bihar. Those states have metamorphosed from ill fed dhoti clad and poor villagers to jeans clad cellphone carrying youngsters with degrees (BA/MA!!) no jobs. Joblessness is rampant and judging from the Biharis, Bengalis and Assamese who come to Bangalore for jobs as security men, cooks, construction workers etc - the effort to create jobs has not come too soon.
<snip>

That's true but how many are actually employable?

Well only in America is there a caste system in which smart Indian engineers are employed across the board. 90% Indian in Amreka have postgraduate degrees. In India it is 4% or so

These jeans clad cellphone carrying people are not going to the "next level". They will get jobs today as taxi drivers, watchmen, cleaners, chaprasis, cooks, construction workers, waiters, small roadside shopowners etc. The "economic model" that I see developing" at least for now is a Bangalore that has a lot of high level engineers, accountants, architects etc moving into Bangalore who make Bangalore a well known name. Those who are nameless are the Ola and Uber drivers, the waiters and cleaners at hotels, security men at every house, hotel, club, mall, bank, business house, cooks, general dogsbodys who have family in Bihar, Bengal, Assam, Rajasthan - often small farmer families whose income is augmented by the 5 to 15,000 Rupees a month that these men, living as bachelors earn and send home. If they have wives - they are "ayahs" and domestic servants. Not poor - often middle class level in family earnings. If I walk down the road and look at any one of the shiny IT offices - Cognizant or something - there are probably 150-200 people employed at te level of watchmen, driver, cleaner etc. Visit a mall where stylish kids hang out - and that mall again has 200-500 jobs as sales people, security men, restaurant employees, lift service men, etc. The car park of a hospital has 15-20 drivers of doctors simply chatting or playing cricket while they wait for sir or madam. So yes, jobs will be created.

We (on BRF) belong to a crowd of people who have been catapulted (for various reasons) to the absolute top of society in Indian terms and frequently fail to see that the bottom 95% are getting an education but are just looking for some job - not as hi-fi professionals as most of us are. It is another matter that some of our own children may join that latter crowd - and most of us spend our lives trying to ensure that our own children get nowhere near that level and float well above, just as we have lived our lives well above.

Modi of course comes from a stratum of society that the last 5 generations of my family have never seen and understands that there are a thousand layers of jobs underneath doctor and engineer that people will gladly take, if they are available

[maitya]

100% FDI in defence.
<snip>
...
.. what struck me was her descriptions of states like UP and Bihar. Those states have metamorphosed from ill fed dhoti clad and poor villagers to jeans clad cellphone carrying youngsters with degrees (BA/MA!!) no jobs. Joblessness is rampant and judging from the Biharis, Bengalis and Assamese who come to Bangalore for jobs as security men, cooks, construction workers etc - the effort to create jobs has not come too soon.
<snip>

That's true but how many are actually employable?

Well only in America is there a caste system in which smart Indian engineers are employed across the board. 90% Indian in Amreka have postgraduate degrees. In India it is 4% or so

These jeans clad cellphone carrying people are not going to the "next level". They will get jobs today as taxi drivers, watchmen, cleaners, chaprasis, cooks, construction workers, waiters, small roadside shopowners etc. The "economic model" that I see developing" at least for now is a Bangalore that has a lot of high level engineers, accountants, architects etc moving into Bangalore who make Bangalore a well known name. Those who are nameless are the Ola and Uber drivers, the waiters and cleaners at hotels, security men at every house, hotel, club, mall, bank, business house, cooks, general dogsbodys who have family in Bihar, Bengal, Assam, Rajasthan - often small farmer families whose income is augmented by the 5 to 15,000 Rupees a month that these men, living as bachelors earn and send home. If they have wives - they are "ayahs" and domestic servants. Not poor - often middle class level in family earnings. If I walk down the road and look at any one of the shiny IT offices - Cognizant or something - there are probably 150-200 people employed at te level of watchmen, driver, cleaner etc. Visit a mall where stylish kids hang out - and that mall again has 200-500 jobs as sales people, security men, restaurant employees, lift service men, etc. The car park of a hospital has 15-20 drivers of doctors simply chatting or playing cricket while they wait for sir or madam. So yes, jobs will be created.

We (on BRF) belong to a crowd of people who have been catapulted (for various reasons) to the absolute top of society in Indian terms and frequently fail to see that the bottom 95% are getting an education but are just looking for some job - not as hi-fi professionals as most of us are. It is another matter that some of our own children may join that latter crowd - and most of us spend our lives trying to ensure that our own children get nowhere near that level and float well above, just as we have lived our lives well above.

Modi of course comes from a stratum of society that the last 5 generations of my family have never seen and understands that there are a thousand layers of jobs underneath doctor and engineer that people will gladly take, if they are available

Quoting your post in full ... which I probably shouldn't be doing!!

The issue is not with respect to what is there in Amrica or Queendom-land, issue is wrt value-add of this enabler (supposedly removing a cap - but not actually removing anything) wrt desi defense-manufacturing-sector growth (ok, even from a narrow lens of Job creation etc).

My view is, such enablers means diddly squat wrt depth in desi defense-manufacturing-sector growth (aka building competency layers, one by one, so that one day, just as an example, creating an fully fledged assembly line of say a 4+ Gen fighter is sourced entirely within desh).

Point is, we can all feel proud-and-tall etc when HAL comes and announces "16LCA/year assembly line" is round the corner etc - or the Kalyani group crows about a "indigenous" howitzer line etc - but fact remains, that immediately after that announcement you will see these company production managers making bee-line for shiny brochures from German/US/Swiss/French/Japanese etc etc manufacturing-tool producers to actually achieve that.

e.g. LCA Fin is a co-cured-co-bonded design, that now gets manufactured via an imported autoclave and using various assorted machines and tools for Automated tape laying (ATL), E-bean curing, Resin transfer molding equipment (RTM), Automated tape laying (ATL) etc etc etc.

Question is even if you import that tool, what about the necessary competence to effectively use these machines ... who will do it?

The priivate-injuneering-degree-wallahs who find it difficult to do the conversion between micrometer and millimeter etc.

Nah!! It is the same old same old handful of old-fags from HAL/DPSUs looking either for a golden-handshake or are recently retired.
Good for them ... atleast majority of them will now do something in their lifetime and learn what actually earn-a-keep means.


But the issue is about grassroots defense-manufacturing job-creation ... which is basically the fitters/turners/operators/assemblers - where will they come from? Won't come the engineering-degree-and-cell-phone-wielding-gen ... it's too lowly a job for them, they will rather become a doo, then take up such lowly jobs.

As I've said in the previous post - that crowd will need get prepared by the industry itself - which will take it's own time!!

Oh yes!! There'll be indirect jobs created ... new shiny complexes will come up and semi-skilled people will get job opportunities, no doubt. General upliftment of the society will happen, no doubt.

But how is this indirect job-creations going to strengthen the desi defense-manufacturing-sector that is being tom-tom as a direct result of this FDI cap waiver.

How?

[shiv]

But how is this indirect job-creations going to strengthen the desi defense-manufacturing-sector that is being tom-tom as a direct result of this FDI cap waiver.

How?

I'm not sure who is tomtomming it in this manner - maybe the media are. As far as I can tell this is merely about make in India and job creation - with "make in India" being a sort of copy of make in China of 2 decades ago where China took on most of the low end manufacture, and Modi has tried to aim to position India as being a center for defence eqpt manufacture. That is what he has stated.

Desi defence will take its own course - and hopefully job creators will create jobs while desi defence does its thing on its own - lifting stuff from FDI unit owners where possible

[Manish_Sharma]

Beretta will be paying taxes, water, electricity, wages in euros in italy.

Imagine the huge margin they'll have if paying all these taxes, water, electricity, wages in Rupees. And procedure + machinery also doesn't look that impossible for our ITI or private engineering college kids.

They just won huge order for US army pistols, let them make it in Bharat.

Jai Ho

PS: For years I have hated the fact that Walthers are made in porkistan, now its our time.

[Manish_Sharma]

Maitya ji, untill late 90s we were just making NE 118, ambassador, maruti 800, esteem. How now we have almost 50 different models of more than half a dozen companies. How come we get manpower in manufacturing body + engine & other parts suddenly in last 16 years?

How far different can be defence manufacturing for our ITI and private engineer college kids?

[JayS]

This is a short term strategy at best for rapid industrialization and job creation. Even if we succeed in bringing in all the manufacturing that caters to Indian Market only, that would be a great deal. Electronics alone is bleeding us like anything. However we need to pump in a lot of money at grass root level if we have to move up the ladder. There I agree with Maitya. Also I think it will take a long time for this to actually empower desi manufacturing prowess. Not the screwdriver - but knowing how to manufacture something new. And we need to keep our strategic areas in our own hands.

As a side note, I remember to have read an article by an IITB mech engg who was in manufacturing sector from something like 70's till date. He gave an interesting perspective. According to him the 1991 opening of market proved detrimental to whatever innovation we had in machine tools in SMEs particularly. Whereas people used to do innovative things to make do in license raaj, post-1991 everyone just started importing machine tools left right centre. And that almost killed all the innovation in machine tools sector in India. Today our companies buy junk refurbished machines from outside and use them. We are literally nowhere in machine tools design/manufacturing. My college used to have India's best micro machining lab in my days. If some EDM or ECM machine breaks down, it would take 6months for that machine to be repaired since those parts would need to be sent to Singapore!! And these were relatively small - academic types machines. Really basic stuff. I see no particular improvement post-1991 in desi machine tools capabilities - in my limited experience/exposure. I might be totally wrong though.

Whether this decision is good or bad, time will tell. But it would be good for us to be little cynical about it.

Added later: Just a general observation that I have from engineering and my perception of it: During my years in college I used to constantly hear industry people whining about how our freshie crowd is no good for industrial job due to below par education. After coming to industry I see that our industries don't have the capability to provide meaningful engineering jobs for even a handful of good quality grads that are there. The problem is of the mentality - you take up menial projects, hire half baked cheap labour (engineers), put 10 managers to torture them and make them work on boring, repeatative jobs. Big companies want to hire MTech/PhDs to do stupid MS-office work. MTech people do basically tool-specific work. The way I see it is the industry also is the part of the problem why we have bad output from colleges. The jobs they can offer hardly have any premium on them which would warrant students to be really good engineers. Until the absolute useless engineering college students keep getting jobs in IT with far better packages than what they really deserve, we will continue to have junk college output. Because there is no incentive for them to increase their quality. Neither students have incentive to demand quality education from their colleges. Colleges earn money. Students get degrees without much efforts. Companies get cheap labour who is happy doing menial jobs. Everyone is happy.

Sorry for the rant. But I feel, may be incoming foreign manufacturing companies will help improve the situation, but it will be a slow process, and only to a certain extent it will help. I am not expecting quick turn around. But if we really wanna go up the ladder, we need to work at grass root level in all fields. No short cuts there.

[Cosmo_R]

LOL that is a pretty pessimistic post but yes - we are unlikely to see any major changes for a few years. We might possibly see a few agreements signed over the next year or so and I was hoping to get some feedback on what people feel may be the types of industries that will come and invest when offered the 100% ownership pie.
...

Was trying to be mordant and slipped instead into morbid.

[Indranil]

Dhananjay,

Would you have been equally comfortable in an Italian company, namely Beretta would have been allowed 100% FDI during UPA-2 rule?

P.S. I draw this line of thinking from a recently speech by a prominent Utah Republican. While speaking on the Orlando massacre, he noted: "However, there has been something about this tragedy that has very much troubled me. I believe that there is a question, two questions actually, that each of us needs to ask ourselves in our heart of hearts. And I am speaking now to the straight community. How did you feel when you heard that 49 people had been gunned down by a self-proclaimed terrorist? That’s the easy question. Here is the hard one: Did that feeling change when you found out the shooting was at a gay bar at 2 a.m. in the morning? If that feeling changed, then we are doing something wrong."

Although, it is not directly related, but may be we should also ask: what would our response be had UPA-II taken this decision? Probably that would be a more unbiased opinion.

[Kakkaji]

x-posted from the political thread, where I had posted this on Monday:

Karan M Guru:

Re. the opening up of Defence sector to 100% FDI, your concern is valid that foreign companies may acquire good Indian MSMEs that are their competitors and then shut them down.

But then, to acquire over 49% of an existing Indian company, won't they have to get GOI approval? If they get that approval on false pretences, and then shut the Indian company down after acquisition, the GOI will most likely blacklist that foreign company from the MoD purchases and from further acquisitions.

Also, I have a slightly different take on the likely impact of foreign defence companies setting up manufacturing in India. I request your indulgence for a moment.

Once a foreign defence company starts manufacturing in India, it will gradually hire Indian engineers and managers. After a few years, after they have gained sufficient expertise, I think a number of these Indian engineers and managers will branch out and start their own companies to become ancillaries, suppliers, or competitors to the parent company.

The bottom line is that India is not a Middle East Sheikhdom, where foreigners will continue to run their subsidiaries for ever. Our people are smart. They will quickly learn technology, management, supply chain etc, and soon they will run the Indian subsidiaries, and then eventually the parent company itself.

I am an eternal optimist when it comes to the capabilities of the Indian people. Our people will first learn the game from foreigners, and then they will run the game.

So, let the foreign defence companies come.

[kit]

Hi Tech manufacturing takes everything to a different level ..just check how much aerospace manufacturing contributes to the GDP of USA !! (it is valued not in billions but trillions !) ..[and any surprise why china is gunning for it ?! ]

[Indranil]

It is very interesting that you bring it up. I can share my experience.

I spent time at Indian dharmic institute of chai, and an unkil's university. If you go to the commencement ceremony of the former, you will see bunch of radiant brilliant young kids with their proud parents who know that they have arrived. Over the course of time, they learn to look down upon fellow graduate students as second class chai sippers who couldn't crack JEE, but still want a dharmic chai-sipper's tag. And then after three years of sipping chai at different department canteens, everybody makes a bee-line for the investment banks. Others fly abroad. A committed few try DRDOs/ISROs of the world. Quite a few of my friends trying the latter route are the most frustrated among us. The hierarchy is often rigid, ideas are smashed on the basis of seniority, and everything is slow often for want of funds and/or mismanagement. Select few have been lucky too. Their work, and that of their teams quite frankly makes me jealous. But most quit, and join the private sector, where there is hardly any design research. Graduate students take almost the same route, or become academics.

The scene at unkil's university is a little bit different. Undergraduates are very low on the totem pole. Above them are graduate students, senior grad students, post-docs, assistant profs, associate profs, profs, and senior profs. An undergraduate getting a hearing from a senior prof is an achievement in itself. The industry manufactures what they design, and their manufacturing supports their extremely large design teams. You can pick up any industry you like and do a simple survey to verify what I am saying.

Therefore, in my opinion, opening up 100% FDI is not the solution in itself. Infact, it has been open since UPA-2 as investments bringing "state-of-art" instead of "modern" technology. The difference is the govt. This govt. is much more nimble and wants to remove all the red-tape. And that's why there is hope. If successful, it will generate a lot of jobs in India and save/augment precious foreign exchange. But, what is the counter-balance to support and augment local design expertise. How can we ensure that the precious little we have is at the very least maintained. America is a great designers' and builders' nation which has next to 0 FDI! It is so because it can attract and nurture hundreds of thousands of scientists, designers and builders every year. What are we doing in that respect? Currently, our best high-tech designers are in missiles/space rockets. In these areas, forget FDI, technologies were denied to us! On things that we have been allowed to import/co-manufacture, we lag far behind. So, I am cautious about my optimism with this new policy. I want to see the balance. At the moment, I can't.

[Cain Marko]

Once somebody gets a degree, an eng-degree, simple machine fitter/welder/operator job becomes "beneath contempt" - in the same class of "achchut" work-areas like sweeping, cleaning etc ... left for the lower "class" people, right?

If manufacturing is the core of the "Make" part of MII in defense industry, then it's these trades where most demand would be - but there'll be no supply from these "jeans clad cellphone carrying youngsters with an engineering degree" population.

I wouldn't be so sure about the jeans clad degree touting folks not jumping to get low level jobs in an MNC factory. So long as the pay is decent, the work conditions are nice and it affords them a jump in the income bracket, folks will line up. Have seen engineering types taking up call center jobs in large Cos, what to say of BSc, MSc types. Have money, will work.

Agree with rest of your post. Big issue here is how fast babucracy moves and allows players to set up what is required. Modi has a lot more to do so as to allow pvt players to set up shop at Singapore speed.

[Cain Marko]

x-posted from the political thread, where I had posted this on Monday:

Karan M Guru:

Re. the opening up of Defence sector to 100% FDI, your concern is valid that foreign companies may acquire good Indian MSMEs that are their competitors and then shut them down.

But then, to acquire over 49% of an existing Indian company, won't they have to get GOI approval? If they get that approval on false pretences, and then shut the Indian company down after acquisition, the GOI will most likely blacklist that foreign company from the MoD purchases and from further acquisitions.

Also, I have a slightly different take on the likely impact of foreign defence companies setting up manufacturing in India. I request your indulgence for a moment.

Once a foreign defence company starts manufacturing in India, it will gradually hire Indian engineers and managers. After a few years, after they have gained sufficient expertise, I think a number of these Indian engineers and managers will branch out and start their own companies to become ancillaries, suppliers, or competitors to the parent company.

The bottom line is that India is not a Middle East Sheikhdom, where foreigners will continue to run their subsidiaries for ever. Our people are smart. They will quickly learn technology, management, supply chain etc, and soon they will run the Indian subsidiaries, and then eventually the parent company itself.

I am an eternal optimist when it comes to the capabilities of the Indian people. Our people will first learn the game from foreigners, and then they will run the game.

So, let the foreign defence companies come.

This "smartness" of the Indian employee is quite evident in public sector too. Folks get the experience needed and develop the contacts/networks and then shift into entrepreneurial gear. Sometimes this it done outside the legal domain - and you have corruption. But then again, if there were easier legal ways to prosper, perhaps the corruption would reduce.

[Manish_Sharma]

Dhananjay,

Would you have been equally comfortable in an Italian company, namely Beretta would have been allowed 100% FDI during UPA-2 rule?

Absolutely, I would have been as happy as during NDA rule, but much surprised.

See I'm comfortable if italians manufacture their guns here and export anywhere in the world.

I will be also happy if american 'colt' smith wesson manufacture their guns here and export anywhere.

I would be very much against UPA buying f-16 OR f-18 or jsf from USA for Bharatiya Vayu Sena.

Same I would be very angry disappointed and sad if NaMo govt. bought F-16 OR F-18 OR jsf from USA.

That's why when raksha mantri hinted at f-16 & f-18 I wrote against it using angry language to mygov.in even used my dad and sister's accounts to do so.

Any complicated platform which can be sanctioned or 'made dead' using software message through satellites should not be bought from US specially. Like C-17, C-130, teens etc.

But if american firm Ruger comes here and sets up shop for making pistols and export 1 lakh guns from here anywhere I'm fine with it. Even if the deal includes that we also need to buy 10 thounsand guns for delhi police fine.

So nope I don't change my view according to UPA or NDA. That's why when I saw mota maha CM in cockpit of grippen, I wrote against him.

Years ago in Poona a pakistani had told me that Walther made their guns actually in pakistan, I had such a anger and jealousy against our govt for not doing this.

[Mihir]

As a side note, I remember to have read an article by an IITB mech engg who was in manufacturing sector from something like 70's till date. He gave an interesting perspective. According to him the 1991 opening of market proved detrimental to whatever innovation we had in machine tools in SMEs particularly. Whereas people used to do innovative things to make do in license raaj, post-1991 everyone just started importing machine tools left right centre.

40 Years of "Innovation" in India, By Harshwardhan Gupta

Ever since I graduated from the hallowed portals of IIT Bombay in 1976, I have been designing all sorts of mechanical machines. I designed my first real-life machine for the industry in 1975 when I was still a student (and saw my first IPF in 1978). After IIT, I decided to stay back in India and go on designing machines, as the challenges and opportunities to do original work here were much greater than those the developed world offered.

With stars in my eyes, I sincerely believed that as time passed, we would become a more mature nation, technologically more self-reliant, and achieve the efficiencies and quality of life approaching that of the developed world, which we all could enviously see even in 1976.

In the 70s and 80s and early 90s, as our 'Licence-Permit Raj' Bharat lived behind closed doors, a large amount of real engineering design and innovation went on everywhere, especially in smaller companies; and usually they grew much faster than the then-prevalent so-called 'Hindu' rate of growth. This might be difficult for the younger generation to believe, but it is true!

Admittedly, much of it was copying - mostly from catalogs and machine manuals - but since we could not import or manufacture many crucial components of what we were copying, we had to perforce redesign and innovate. We routinely saw these innovations in various trade fairs like IMTEX, and here in IPF. I myself designed many dozens of high-end machines from first principles in many different fields in that pre-liberalisation period. Every machine-building industry had decent machine-designers and draftsmen who worked on paper on manual drafting machines and slowly but surely created many good albeit old-fashioned and over-designed machines.

Then the much-dreamed-about, much vaunted Liberalisation (and coincidentally the advent of CAD) came about, and VERY quietly, the bottom fell out of indigenous design and innovation. All these small companies and entrepreneurs rushed to get a foreign name on their letterheads, and on their machines. At the same time, anyone who was not CAD savvy began to be looked down upon as Old School.

[Indranil]

That's why when raksha mantri hinted at f-16 & f-18 I wrote against it using angry language to mygov.in even used my dad and sister's accounts to do so.

That made me laugh

[shiv]

I am an eternal optimist when it comes to the capabilities of the Indian people. Our people will first learn the game from foreigners, and then they will run the game.

So, let the foreign defence companies come.

This "smartness" of the Indian employee is quite evident in public sector too. Folks get the experience needed and develop the contacts/networks and then shift into entrepreneurial gear. Sometimes this it done outside the legal domain - and you have corruption. But then again, if there were easier legal ways to prosper, perhaps the corruption would reduce.

I recall a conversation I had a couple of days ago with a colleague who was asking for advice on buying a laptop. Going back to my own experiences - which include screwdriver assembly of my own PCs to where we are today, I find that every street has several shops that service and repair laptops - including "chip-level" repair where a faulty graphics chip on a motherboard is replaced. This is even more evident when it comes to cellphones. Of course, in India it has always been possible to find ways of getting hardware like cars, engines, motors, etc repaired but I mention computers and cellphones because they are recent entrants and have resulted in the need for new skills.And there is no death of people doing that.

It is east to imagine that our colleges alone are churning out skilled people. Very often colleges are turning out trash and the few smart people are in it for the money and go abroad ASAP - (abroad means west/Europe/USA. Not Africa/ME) . The people who stay and work here are those who have an incentive to stay here and those who don't get fancy college seats but do "courses" in animation, design, electronics repair, "Tally", etc. I grew up in a generation where I was told that good marks in school and a top college were the only routes to success and that others were not as smart. I have rarely heard more worthless bullshit in my life. These attitudes were inculcated in my social class, that's all. I look around me today and in my own line of work - the top young doctors doing "world class" work are rarely from the top 10 colleges of India as listed in the (paid?) media. Education has been big business in India for over 3 decades now - and the entrepreneurial class who built educational institutions now must build factories/businesses to employ those who have an education.

Let the manufacturing units invest. India will find enough young, skilled people to work in them. Hopefully in 15-20 years these young people will form the core of a new generation of confident Indians who will lead the world.

[shiv]

One question that comes to mind wrt to FDI is if India can offer anything extra to an investor who manufactures defence related items that countries like Nigeria, Sri Lanka, the Philippines or Vietnam cannot offer? I am sure those later countries can get skilled labour, land and power.

The one huge advantage India can offer is to be a customer who buys 50% of the product. If someone sets up a factory to produce - say 155 mm shells or 5.56 mm cartridges that are currently imported, India would buy much of that. This is exactly the way Indian automobile companies became exporters and later, innovators. The volumes of sales that a small but specialized foreign company looking to expand will find in India would overshadow anything that most countries in the world can offer.

[Suresh S]

interesting observation shiv but true. A chief of ortho surgery in NY in a county hospital once told me u do not need to go to harvard to be very good. You could do just as well from a county hospital, it all depends on u, how hard u work at it. A german american chief, A extremely good one , tough but very fair and hard working himself, shiv. Rounds started at 6 AM everyday. I was on rotation with him for a month. First day I reach 5 minutes past six, He is in the 2nd room, I joined the round. second day I came at six he is already in the first room with the pt. 3rd day I came 5 minutes before time yet I barely managed to catch him from behind near the elevator as he walked towards the med students and residents. 4th day I finally made it on time before he appeared on the scene.I tell u you you u could absolutely set your watch exactly at 6 AM as the boss reached the first room.

[ldev]

As a first, expect "Make in India" F-18s. I have a theory: MP has promised F-18s/F-16s to IAF in lieu of accepting HTT-40s/LCAs.

And here are your "Make in India F-16s" under the new policy.

‘Made in India’ F-16s on radar, thanks to FDI

At least two senior officials in crucial ministries handling the issue confirmed that the proposal for setting up an assembly line for F-16 fighters in India was discussed during Prime Minister Narendra Modi’s visit to the U.S. earlier this month.

An official said the negotiations with the French government for the purchase of 36 Rafale fighters haven’t succeeded yet in securing a competitive price. “Lockheed Martin, on the other hand, is keen to close down its F16 production facility in the U.S. Talks are on to invite the company to shift its F16 production line, lock, stock and barrel, to India,” he said.

“This will serve the twin purposes: it will be a success story of Prime Minister Narendra Modi’s Make In India initiative plus it will address the Indian defence establishment’s requirement of a new fighter fleet,” the official added.

The second official confirmed that talks were on with Lockheed Martin for the F-16 assembly line in India.

[shiv]

Maybe we can export to Pakistan at reduced prices and reduced quality? Smaller dimensions, less stiff, darker shades.