India's R&D in Defence DRDO, PSUs and Private Sector

[somnath]

One of the positive network externalities of posting on BRF is the opportunity to brush up on old readings!

A paper that a junior had used in his project on a related topic -

http://www.ifw-members.ifw-kiel.de/publ ... ap1272.pdf

Its a slightly technical econometric strudy, so the important conclusion is here-under:

First, rising payments of royalties (in
percent of production) suggest that FDI companies have increasingly transferred
foreign technologies which may support India’s industrial upgrading. In 1990-
91, such transfers were largely confined to FDI in engineering. They still figure
most prominently in this area, with transport equipment standing out with the
highest ratio of royalties to production by far. However, other industries, notably
the chemical industry, have also drawn increasingly on technologies available
abroad.

second aspect relates to R&D undertaken by FDI companies in
India. Measured as a percentage of production, local R&D has gained in
significance by still more than transfers of foreign technology. This applies to all
industries for which data are available. Yet local R&D is concentrated in exactly
the same industries, namely chemicals and engineering, which stand out in terms
of transfers of foreign technology.15 This strongly suggests that transfers of
foreign technology and local R&D represent complementary means for
industrial upgrading, rather than the former substituting the latter

the problem with the antediluvian mindset of a certain segment of the political/bureaucratic class (they just refuse to change!) is that they dont let data interefere with their ideology!
As Lord Keynes said, "When data changes, I change my views, what do you do sir?"

So we have the following situation:

1. Empirical data across the board - globally, for India and for Asia show out positive network externalities on ITT due to FDI..

2. Empirical and anecdotal evidence galore show up the sheer criminality of DPSU/OFB performance (or the lack of it)...

3. The Indian private sector does not have a legacy of doing anything much with miltech....

4. Our domestic market is now nig enough to attract the world's biggest...

But hey, we still dont want more FDI - we would buy Scorpenes from Armaris (which makes Agostas for Pak BTW), and get MDL to screw driver the whole thing after years of delays...But wont allow them to setup a shipyard in India to build the same sub!???? So MDL "builds" the sub, Armaris does about 99% of all the "value add" stuff, and Indians supply 30% offsets through cutlery, curtains and storage - CCS, as Navymen used to describe the "indigenisation" of the 209s built by MDL!...

[Viv S]

Wow, so the offset has to be judged by "is it perfect" and 100% FDI by, "whats wrong with it"

My argument wasn't about 'the most productive' part that you put in bold, but the part about the foreign contractor making the decisions about allocation of the offsets.

No one is saying that the system is "perfect", but since 2005, the offset policy is being continuously refined by a public private enterprise, with updates in 2006, 2008 and 2010. SO CLEALY the govt has a plan and trying to implement it.

And again for the umpteenth + 1 time, no one's asking for the offsets to be cancelled.

But no, people want that 60 years of systematic neglect be replaced by another 60 years of neglect, since they cant be bothered to actually understand or educate themselves on what GoI is REALLY doing TODAY.

The Commerce Ministry happens to be part of the same GoI.

Somnath has posted some BS without any Indian example. Next he will post data of water on moon in a IWT discussion since they are all about water.

Well, I take it from that statement you have 'relevant' data of your own which conclusively proves allowing FDI will lead to disastrous repercussions. Lets see it then. And while you're at it perhaps you could also tell by when you reckon the offset scheme will allow India to be self sufficient in defence R&D.

Accha, since I am any way doing this, let me introduce you to two new words in the dictionary?
1) Design
2) Develoment?

The Indian private sector doesn't currently have any significant R&D capability nor can you force foreign firms share that through offsets.

Uh if a PSU is manufacturing it (which it is irrespective of your shocking ignorance) where does the manufacture get in the picture?

First plenty of the imports are bought off-the-shelf. Of what is license produced, PSUs rarely manufacture completely in-house especially high end equipment. And what they don't make(which is a lot even for indigenous products) they import. Guess who's not in the picture? The Indian private sector.

Yes it is, the moment you all 100% FDI, offset dies. Period. It is like importing fully made and manufactured products from outside, something which is WORSE than current.

And how did you reach that conclusion? What you have is a foreign firm owning a majority stake in an Indian company. Unlike the present scenario, the foreign firm ends up losing the incentive for manufacturing in their country of origin.

The offset policy is to
1) Broad base the Def manufacturing outside DPSUs in India to private player, i.e. a larger manufacturing base.
3) Force ToT since manufacturing tech would have to be transferred to Indians pvt players.

Like I said before, inspite of license production and ToTs, Indian PSUs still had to start their R&D effort practically from scratch.

2) Keep the money in India

Keep part of the money in India would be more accurate.

Edit: Somnath's posted the desi research you want to see.

[Viv S]

But hey, we still dont want more FDI - we would buy Scorpenes from Armaris (which makes Agostas for Pak BTW), and get MDL to screw driver the whole thing after years of delays...But wont allow them to setup a shipyard in India to build the same sub!???? So MDL "builds" the sub, Armaris does about 99% of all the "value add" stuff, and Indians supply 30% offsets through cutlery, curtains and storage - CCS, as Navymen used to describe the "indigenisation" of the 209s built by MDL!...

I think that should be in bold.

[Sanku]

the problem with the antediluvian mindset of a certain segment of the political/bureaucratic class (they just refuse to change!) is that they dont let data interefere with their ideology!
.

The problem with certain segment of India is that they refuse to let haw haw colour their views, when a snake oil salesman declaims; believe me I have data they ask? Show the data? At which point they sulk call names and castiglate the entire crew with not believing in data.

Meanwhile I am glad you put that report, even you have not been able to understand it, because it says in conclusion.

On the other hand, our results clearly suggest that the currently prevailing
euphoria about FDI in India rests on weak empirical foundations. FDI is
unlikely to work wonders if only remaining regulations were relaxed and still
more industries opened up to FDI. This is not to ignore that policymakers may
contribute to maximizing the benefits of FDI in India. Their contribution has
less to do with specific FDI policies. Rather, the policy challenge is to improve
local conditions that may render FDI more effective. Openness to trade and
32
financial sector development seem to be important in this regard. The same
applies to the promotion of local entrepreneurship and human capital
development.

So the article you posted says this to support FDI tech development correlation

rising payments of royalties (in percent of production) suggest that FDI companies have increasingly transferred foreign technologies which may support India’s industrial upgrading.

This strongly suggests that transfers of foreign technology and local R&D represent complementary means for industrial upgrading, rather than the former substituting the latter

Where as it also says in conclusion

our results clearly suggest that the currently prevailing euphoria about FDI in India rests on weak empirical foundations. FDI is unlikely to work wonders if only remaining regulations were relaxed and still more industries opened up to FDI.

To me all this SUGGESTS that the FDI -- tech development is at best HAWA (hot air) without any single
1) Concrete case examples
2) DOES NOT CLAIM CAUSALITY but AT BEST complementary behavior. So the R&D as a result of FDI did not kill Indian R&D.
3) Clearly says that just opening FDI is not going to help.

And you use this document, clearly of a far higher quality that "if this then that hand waving" to prove your point?

You know what this suggests to me?


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

Reminder the goals are (of Indian Govts, in Indian intrests)
1) Develop in India outside the PSUs, Indian skills in Defence production.
2) Ensure that the money spent by India remains in India.
3) Ensure ToT riding on the above.

To achieve this a Offset policy is developed and continued with SUPPORT from Govt and Indian Industry.

Repeated and willful repetition of statements shown to be completely without basis and knockinig down inane strawmen as no merit on any remotely intelligent discussion.


And yes, since MDL cant design Scorpenes, you know what the solution is? Let them not even build it too. So if you cant get 100 % but only 60 the solution is to not appear for the test.

Wow!!!!!

[Sanku]

But hey, we still dont want more FDI - we would buy Scorpenes from Armaris (which makes Agostas for Pak BTW), and get MDL to screw driver the whole thing after years of delays...But wont allow them to setup a shipyard in India to build the same sub!???? So MDL "builds" the sub, Armaris does about 99% of all the "value add" stuff, and Indians supply 30% offsets through cutlery, curtains and storage - CCS, as Navymen used to describe the "indigenisation" of the 209s built by MDL!...

I think that should be in bold.

Absolutely because this is a prime example of the kind of thinking which goes like this.

And yes, since MDL cant design Scorpenes, you know what the solution is? Let them not even build it too. So if you cant get 100 % but only 60 the solution is to not appear for the test.

It makes my point so much easy. Thank you gents.

[Sanku]

My argument wasn't about 'the most productive' part that you put in bold, but the part about the foreign contractor making the decisions about allocation of the offsets.

Which is nonsense as seen by details on the 2008 Offset policy reports.

And again for the umpteenth + 1 time, no one's asking for the offsets to be cancelled.

No merely throwing the entire policy out of the window. But no let the offsets happen, only throw away the policy developed after so much pain.

The Commerce Ministry happens to be part of the same GoI.

Commerce ministry should focus on commerce then dont you think? What next, health ministry talking about what should be the standard for entry in IA?

Well, I take it from that statement you have 'relevant' data of your own which conclusively proves allowing FDI will lead to disastrous repercussions.

Hmm can I have data that jumping from 100th floor killed me? Not unless I jump will I have data for that?

Sufficies to say sufficient issues have been laid out which clearly point the sucidal nature of such attempt.

Meanwhile, the question is NOT

allowing FDI will lead to disastrous repercussions.

the question is WHAT is needed to meet the goals

Reminder the goals are (of Indian Govts, in Indian intrests)
1) Develop in India outside the PSUs, Indian skills in Defence production.
2) Ensure that the money spent by India remains in India.
3) Ensure ToT riding on the above.

Evey thing else is a dangerous distraction.

As I have said before, you guys are looking at the WRONG QUESTION. Which is not surprising, since you only have one fixed answer, thus all questions must be tailored so the mugged up answers make sense.

The Indian private sector doesn't currently have any significant R&D capability nor can you force foreign firms share that through offsets.

Well thank god the entire CII-GoI disagrees with you then.

First plenty of the imports are bought off-the-shelf. Of what is license produced, PSUs rarely manufacture completely in-house especially high end equipment. And what they don't make(which is a lot even for indigenous products) they import. Guess who's not in the picture? The Indian private sector.

Really, I would have guessed that was obvious from what I have been posting for ages.


Obviously obvious, why do you think folks have been talking about the offset policy.

And how did you reach that conclusion?

Because I read what I posted as well.

What you have is a foreign firm owning a majority stake in an Indian company. Unlike the present scenario, the foreign firm ends up losing the incentive for manufacturing in their country of origin.

Let me tell you a small thing ONCE MORE, NO ONE is looking for MERELY manufacturing coolie shops in country of origin. THAT IS NOT THE GOAL. WHAT YOU ARE SAYING ALREADY HAPPENS

The goal is to have Indian companies at a level where they can do it.

SAVVY!!!

Whose solution is offset policy!!!

Like I said before, inspite of license production and ToTs, Indian PSUs still had to start their R&D effort practically from scratch.

Ah but werent you just above weeping copiously about need to manufacture in country of origin.

Now you dont like it when PSUs do it?

Strange?

On ToT Read what the offset policy is about please?

Edit: Somnath's posted the desi research you want to see.

Thank heavens he did, it would be very nice now if you guys also read it in addition to posting it.

[somnath]

Sanku,

Given the disagreeable nature (there is difference between disagreeing and being disagreeable) of your posts, you are on my ignore mode..But since most readers do not read full texts of studies, just to debunk the selective conclusion you are quoting..

I am quoting the "conclusions" section in full (apologies to admins), given your inability/unwillingness to understand econometric studies:

Inward FDI has boomed in post-reform India. At the same time, the composition
and type of FDI has changed considerably. Even though manufacturing
industries, too, have attracted rising FDI, the services sector accounted for a
steeply rising share of FDI stocks in India since the mid-1990s. While FDI in
India continues to be local-market seeking in the first place, its world-market
orientation has clearly increased in the aftermath of economic reforms. It is
against this backdrop that we assess the growth implications of FDI in India. By
using industry-specific FDI and output data and applying a panel cointegration
28 For instance, the contribution of communication services was less than five percent in 2000
(RBI online data).
30
framework that integrates long-run and short-run dynamics of the FDI-growth
relationship, we address important gaps in the earlier literature.
For the Indian economy as a whole, we find that FDI stocks and output are
cointegrated in the long run. At the aggregate level, Granger causality tests point
to feedback effects between FDI and output both in the short and the long run.
However, the impact of output growth in attracting FDI is relatively stronger
than that of FDI in inducing economic growth. In other words, causation is
mainly running from output growth to FDI stocks.
At the sector level, it turns out that favorable growth effects of FDI in India
are largely restricted to the manufacturing sector, where FDI stocks and output
are mutually reinforcing in the long run. By contrast, there is no evidence at all
of any causal relationship between the two variables in the primary sector. Most
interestingly, and contrary to the widespread view that booming FDI in the
services sector is driving growth in India, feedback effects between FDI and
output turn out to be transitory in this sector. If at all, causality in the services
sector runs from output to FDI in the long run.
It may be tempting to conclude from the sector-specific results that the prereform
approach to FDI in India was not so bad after all. Traditionally, selective
approval procedures and performance requirements were meant to promote FDI
in technologically advanced and more export-oriented manufacturing industries,
and to discourage FDI in the tertiary sector where foreign investors might
replace local service providers. However, such a conclusion would be
31
misconceived. Our results do support the view that the quality of FDI matters at
least as much as the volume of FDI for the growth implications in host
economies. More specifically, our results are in line with findings of crosscountry
analyses according to which the growth implications depend on various
factors, including absorptive capacity and local skills, technological spillovers
and linkages between foreign and local firms, and export orientation – all of
which may differ across industries and sectors in the host economy. Yet all this
does not speak in favor of selective FDI policies and policymakers attempting to
target preferred types of FDI in specific industries. For such an approach to be
successful in attracting growth-promoting FDI, policymakers would have to
know exactly about the quality of each FDI proposal and its effects on the local
economy. This appears to be an overly heroic assumption. Otherwise, it would
be difficult to explain why earlier studies on the FDI-growth nexus in India, the
results of which should be shaped more strongly by pre-reform selectivity and
targeting, do not produce “better” results than the present study.
On the other hand, our results clearly suggest that the currently prevailing
euphoria about FDI in India rests on weak empirical foundations. FDI is
unlikely to work wonders if only remaining regulations were relaxed and still
more industries opened up to FDI. This is not to ignore that policymakers may
contribute to maximizing the benefits of FDI in India. Their contribution has
less to do with specific FDI policies. Rather, the policy challenge is to improve
local conditions that may render FDI more effective. Openness to trade and
32
financial sector development seem to be important in this regard. The same
applies to the promotion of local entrepreneurship and human capital
development. This is even though India is widely acclaimed for its
entrepreneurship and highly skilled workforce. However, these undisputable
achievements seem to be highly concentrated in a few clusters, both region-wise
and industry-wise, whereas large parts of the economy provide by far less
favorable conditions for FDI to have stronger growth effects.

What you quoted was a small aprt of the conclusion where the author was saying that selective, targeted, limited FDI policies do not help..And the fact that a host of other things (like domestic capital, infrastructure etc) need to be changed...And no one's doubting that...the report also finds out how the impact of FDI on ITT has been greatest in the manufacturing sector....

This is my last post to any of your rants, that usually across-the-board dont make sense...

[Sanku]

Sanku,

Given the disagreeable nature (there is difference between disagreeing and being disagreeable) of your posts, you are on my ignore mode..But since most readers do not read full texts of studies, just to debunk the selective conclusion you are quoting..

Dear Somnath, we are talking about being disagreeable?

Anyway I like the way you use ignore. Just like rest of your other definitions. Convenient I must say.

I am quoting the "conclusions" section in full (apologies to admins), given your inability/unwillingness to understand econometric studies:

What you quoted was a small aprt of the conclusion where the author was saying that selective, targeted, limited FDI policies do not help..And the fact that a host of other things (like domestic capital, infrastructure etc) need to be changed...And no one's doubting that...the report also finds out how the impact of FDI on ITT has been greatest in the manufacturing sector....

Which is all discussed in the offset policy including what should be the choice of % for FDI?

Yet that does not stop you from ignoring ALL that effort by GoI-CII combine and jumping up in rah rah support when the words "100% FDI" appear even without "host of other things" being mentioned in the mention of 100% FDI.

You did not ask, why 100% FDI when Offset policy says 26%?

You did not ask, what are the problems that will come and what are the solutions?

You did not ask, what are host of other things which are needed first.

You did not ask, why defence, why now, why not wait till other far less sensitive sectors are dealt with.

What YOU DID DO was
"100% 100% OMG 100%, cant you see that we have the Mahdi, you reactionary folks, look the light as been shown, the problems will be all sorted out 100%, liberalization good, DPSUs bad, 100%"

And proceeded to calculate the value add of GoI funded, GoI supplied, GoI sourced, GoI planned strategic entity on the lines of a private company supplying cars?


And ignore that the offset policy is still evolving in 2008-2010 time frame and already shows a massive ramp up in numbers?

Nice, very nice!

[Viv S]

Which is nonsense as seen by details on the 2008 Offset policy reports.

So the government allocates the 30% to private sector huh?

No merely throwing the entire policy out of the window. But no let the offsets happen, only throw away the policy developed after so much pain.

As before the money is still allocated to domestic sector.

Commerce ministry should focus on commerce then dont you think? What next, health ministry talking about what should be the standard for entry in IA?

This one took the cake. So this doesn't have anything to do with commerce. The defence sector and $50 billion in imports is now out of the commerce ministry's purview?

Hmm can I have data that jumping from 100th floor killed me? Not unless I jump will I have data for that?

Sufficies to say sufficient issues have been laid out which clearly point the sucidal nature of such attempt.

So bottom-line, its okay to demand data when Somnath says it'll give the local industry a fillip. 'Sufficient issues have been laid out' not applicable. But ofcourse your claim that it'll impede the domestic industry doesn't need to be back up with data. 'Sufficient issues' have been laid out. Sanku has spoken.

FDI is not just a question of getting funds, but access to the latest technologies. FDI pre-supposes a long term commitment and lasting relationship between the foreign and local enterprise. FDI sets in motion a chain reaction wherein FDI upgrades local technology which, in turn, attracts more FDI with higher technology and the cycle goes on. This is of vital importance to the defence sector which is highly capital intensive and undergoes rapid obsolescence of technology.
http://www.indiandefencereview.com/2007 ... ustry.html

The policy makers need to factor in the very logic that led to opening up of defence production to private sector with an added instrument of FDI.
If the logic was in recognition of the private sectors’ potential to contribute meaningfully to the materiel cause of Armed Forces, the government must ensure that the ability is not handicapped. Bear in mind that the private sector, unlike the public sector, does not have the luxury of state protection.
Only the returns from investments can guarantee its survival.
Because the defence industry is high capital intensive and primarily sole consumer-driven, the private sector is at a greater risk. The risk is compounded in the face of private sector’s lack of experience in technological knowhow that goes into defence production.
Arguably, the contribution from international defence majors in the form of both capital and technology has the potential to enhance the ability of private sector which in turn would contribute to India’s defence industrial capability. The present policy of FDI for defence sector does not allow this to happen.
It may be noted that high technology companies like Lockheed Martin, Boeing, EADS and Sikorsky etc. have also indicated major proposals for investments in India.
http://www.indiastrategic.in/topstories258.htm

Well thank god the entire CII-GoI disagrees with you then.

For some reason the CII has been asking for the FDI cap to be raised over 51% allowing foreign companies to have a stake in the domestic industry.

Let me tell you a small thing ONCE MORE, NO ONE is looking for MERELY manufacturing coolie shops in country of origin. THAT IS NOT THE GOAL. WHAT YOU ARE SAYING ALREADY HAPPENS

No it doesn't. We're still buying billions of dollars worth equipment off-the-shelf. A lot of which can be shifted to India if the companies were allowed to invest here.

The goal is to have Indian companies at a level where they can do it.

SAVVY!!!

Whose solution is offset policy!!!

Like Somnath's being repeating there is no value addition being made to the chain via offsets.

Ah but werent you just above weeping copiously about need to manufacture in country of origin.

Now you dont like it when PSUs do it?

Strange?

You've missed the point altogether which was license production and even ToT didn't make PSUs indigenous arms developers, its not going to somehow enable the private sector do the very same. And from all indications, the MoD isn't in any hurry to downsize its PSUs in favour of the local industry.

Thank heavens he did, it would be very nice now if you guys also read it in addition to posting it.

Perhaps you too should read the entire article before lecturing us.

[Sanku]

Like Somnath's being repeated there is no value addition being made to the chain via offsets.

Which is , just like the rest of the points in the discussion.

Actually discussion on this is quite pointless but what to do, some truths must always be explored, what?

How do you start a discussion on planetary motion with people who believe earth is flat?

---------

Meanwhile can you show how the following is true? Now?

No it doesn't. We're still buying billions of dollars worth equipment off-the-shelf. A lot of which can be shifted to India if the companies were allowed to invest here.

What %? Of total purchases?

I am getting tired of these claims

Meanwhile, you still have not gotten it. This discussion is NOT about bean counting. Sorry you dont like it, but it is not.

[Katare]

Where/how did you get the 2% figure for HAL? It is paying more than 3% of its sales as dividend on net profit margin of 16.7%?

What's the need for calculating "value add" when HAL itself provides that data for the company and also as per employee in its quarterly finance reports?

Well, HAL's numbers are inflated by the "Other Income" - in fact almost all their EBITDA (Earnings Before Interest Tax, Depreciaion and Amortisation - for the uninitiated) is just Other Income...And if you see the notes to the accounts, the Other income is primarily interest on Fixed deposits and asset sales..

the key parameter that people (analysts, econimists etc) therefore look for is "operating" margins..Because that is what gives the "efficiency" of the company..And that for HAL, taking their "operating" EBITDA-to-Sales ratio, is less than 2%..You do need to look a little beyond the headlines

For companies like HAL, this does not just reflect the efficiency of operations, it also reflects how much "value add" its doing on the products its assembling - at 2%, its not adding too much, is it?That is because all the "value" is going to the foreign OEM from which we are importing the key materials, raw and finished...

Therefore the analysis is not just about the "financial efficiency" of HAL - which should BTW anyways be judged - but importantly its about how much value is being added in India by the license manufacturing process..shows the extent of "expertise" that license production has generated after 40 years..

Those who think that ToT and control are "independent" issues should simply read the two documents I posted above..There are very strong empirical evidence of ITT (international tech transfer) being driven by FDI..The reason? A third of global trade now happens "intra firm" - like Hyundai Europe buying from Hyundai India - hence global firms transfer tech to the "best" location where they have "control"....Unfortunately, a lack of reading and comprehension aptitude cannot be rectified in a blog, but there is enough data and analyses in the two papers...Linking them again..

http://www.atpsnet.org/pubs/specialpaper/SPS%2016.pdf

http://econweb.tamu.edu/aglass/DevHandbook.pdf

Of course the quality of tech diffusion depends on a host of other factors as well, primarily, the capacity of the recepient country to absorb the technology and so on...Fortunately in India, we are blessed with the smartest set of people around, and some really high quality higher education institutions...Plus, there is no longer any dearth of capital and entrepreneurship..All of this together makes India one of the most "FDI propitious" countries...

And making a point once more - the question is NOT what CII, or Indian industry thinks is good..What is good for CII is NOT necessarily good for India...(the jokers in CII started the Bombay Club in the '90s, remember?)..These guys would actually want a restricted FDI (minority stake) initially - as that would force the international OEM to get into JVs with them in case they wanted to set up facilities in India...When these JVs attain critical size, the same jokers from CII will lobby for a higher FDI in order to sell-off their stakes to the same foreigners at high(er) valuation...(exactly the same story as telecom, or media, or a plethora of other sectors played out) In the meantime however, the JVs set up (with minority foreign OEM stake) will be nothing but either "HAL-clone" license manufacturing entities, or producers of relatively non-critical tech..So when BAE systems now does a 26% JV with M&M, it only means that the quality of tech transfer will be concomitantly lesser than in a "majority control" JV..

As Ajai Shukla's report on offset data (which I posted somehwere above) shows, there is a big pickup in offset contracts, but almost nothing has gone into "critical" ares like R&D - precisely for this reason..there is enough "dollar value" in non-critical items in defence, but really with our size there is not point working only at creating more efficient versions of HAL or making nuts and bolts..

For most businessmen (not all though), whether India develops the cutting edge miltech eco-system or a more efficient version of HAL, it really doesnt matter - but it matters for India...


Added later: For all those who fear "decimation" of domestic effort due to FDI, some evidence to chew upon..In the last 20 years, the only major industry to have been completely rid of domestic players is the Cola industry!!!In every other sector - autos, telecoms, IT, electronics - Indian companies have prospered and thrived with foreign competition, even as the older fuddy duddies have disappeared (the Walchandnagars, the Modis, the BPLs)...

Somnath,

I asked you to show me how/where did you get your 2% figure? Also show me the fixed deposit and interest income
TIA

[sunilUpa]

Somnath,

I asked you to show me how/where did you get your 2% figure? Also show me the fixed deposit and interest income
TIA

Page 29 of Annual report

Other income (Schedule 17) - 2199 crore
Gross profit - 2335 crore
Other income as a % of Gross profit - 94%

Page 36, Other income -

Interest on short term deposits - 1732 crore.

Interest as a % of gross profit - 74%

[somnath]

I asked you to show me how/where did you get your 2% figure? Also show me the fixed deposit and interest income

Katareji, I did - in an earlier post.....

Well, HAL's numbers are inflated by the "Other Income" - in fact almost all their EBITDA (Earnings Before Interest Tax, Depreciaion and Amortisation - for the uninitiated) is just Other Income...And if you see the notes to the accounts, the Other income is primarily interest on Fixed deposits and asset sales..

the key parameter that people (analysts, econimists etc) therefore look for is "operating" margins..Because that is what gives the "efficiency" of the company..And that for HAL, taking their "operating" EBITDA-to-Sales ratio, is less than 2%..You do need to look a little beyond the headlines

Just exclude Other Income from HAL's EBITDA - the ratio of (net of OI)-EBITDA to sales will be less than 2%...And definitions of Other Income is given in schedules (17) below, which would give you the composition - mostly interest on FDs and asset sales..

Added later - I see SunilUpa has already done the heavy lifting - thanks Sunil!

[somnath]

Laxman Behera on the FDI policy, with specific reference to the Mahindra-BAE deal..

http://www.indiastrategic.in/topstories258.htm

Key point:

Indications though also are that some of the leading industries in India were also opposed to foreign companies holding more than 26 per cent in defence ventures.

But obviously...If I am Taneja Aerospace (just taking a name, not picking on the Taneja group) with extensive relationships with the GOI, I would rather not have foreigners come in and set up controlling "shops" in such a huge industry (but one where I have limited capabilities)..I would rather that I get in a junior foreign partner, who transfer "screw driver" tech to me..I grow the business to a scale (2-3 billion dollars), and then get the foreign partner to pay a premium to buy it off me...(as I lobby for a 51 and 74 and 100% FDI then!)...It also means that India does not build the tech ecosystem, but how do I care?

Also an interesting case study of FDI in Spain:

http://www.csdr.org/2001Book/schmieder.htm

Given the number of times we referred to the auto sector - experience of the Indian auto sector in FDI (inward and outward)..
http://isid.org.in/pdf/WP0810.PDF

[dinesha]

Laser-guided bombs tested successfully
http://www.expressbuzz.com/edition/stor ... kuKw=&SEO=

[Sanku]

I get in a junior foreign partner, who transfer "screw driver" tech to me..I grow the business to a scale (2-3 billion dollars), and then get the foreign partner to pay a premium to buy it off me...

Hain jee, really? How jee? How does the junior foreign partner buy you off at 26%?

More Madarassa math? On the lines of computing the operating margins for GoI owned, GoI managed, with GoI as the sole customer Industry?

[biswas]

http://www.dailyindia.com/show/367647.php

Ludhiana businessman designs 'half scale' UAV

[somnath]

I would like to believe that policy-makers read BRF

Government for 100% FDI in defence

http://www.hindu.com/2010/03/25/stories ... 000100.htm

In true Hindu style - a gazette type report with lots of important nuggets of facts (and no opinion):

“There need not be any commitment on procurement and these enterprises would have to participate in the RFP [request for proposal] to technologically qualify and also succeed in financial bidding. In case of such firms, we should permit 100 per cent FDI under the FIPB/CCEA approval route,'' the proposal says.

Taking note of concern over availability or reliability of supply during war, the note says that conditions could be imposed that the Government of India has the right to expropriate a manufacturing facility in case of need for reasons of national security by paying suitable compensation.

“There can be concerns about passing of the equipment, designs or source code to enemy countries. Such a possibility exists even in the case of imported equipment. In fact, in the case of indigenous equipment, we can control the production mechanism in a much better manner. The government could also reserve the right to inspect or control the production and dispatches in these facilities through deployment of necessary security agencies. Export to enemy countries could be banned through a negative list,'' it states.

and it given goes beyond:

There need not be any commitment on procurement and these enterprises would have to participate in the RFP [request for proposal] to technologically qualify and also succeed in financial bidding. In case of such firms, we should permit 100 per cent FDI under the FIPB/CCEA approval route,'' the proposal says.

This is even beyond what the KPMG report was suggesting...Some of this seems straight "picks" from what some people have been advoctaing here!

But proof of the pudding for GOI is always in the supper(!) - and a lot of time between dinner planning and supper in the GOI context....Lets see how it pans out...

We should selectively allow 100% FDI for imports in the most critical systems - the Arty systems, MRCA maybe...I would get Armaris to set up a shipyard here to deliver the Scopenes on time!

[Sanku]

^^^
Interesting, so the PMO appears to be ready to shaft the MoD once again, perhaps I should brush up the EUMA thread, it may come handy.

Oh the headline is typical distortion that al Hundi is using these days, it should actually read.

PMO bypasses MoD on defence matters once again.

or

MM Singh's PMO decides to ignore MK Antony's ministry

[Surya]

in this case the shafting may be justified

[tejas]

I say shaft away

[somnath]

A primer on UK's aerospace industry...

http://www.publications.parliament.uk/p ... 51/151.pdf

Ironic, some of the biggest "UK-names" are "foreign owned" or majority-foreign owned in any case - Airbus, Bombardier...

[somnath]

I say shaft away

Well, its the same MMS "shafted" away the shibboleths (supported in the govt only, and only by the PMO ) of the past in 1991...People talked about "East India Co" etc....The result today is not a "foreign take-over" of India, but an Indian take-over of the world (the latest "take-over" deal in the global media right now is Bharti's takeover of Zain! )...

Who knows, in 10 years time, we might be talking about Tata SED's take-over of Raytheon!!

[Sanku]

I say shaft away

Well, its the same MMS "shafted" away the shibboleths (supported in the govt only, and only by the PMO ) of the past in 1991...People talked about "East India Co" etc....The result today is not a "foreign take-over" of India, but an Indian take-over of the world (the latest "take-over" deal in the global media right now is Bharti's takeover of Zain! )...

Who knows, in 10 years time, we might be talking about Tata SED's take-over of Raytheon!!

Yaar, at least chose examples which don't discredit yourself.

Telecom 100% FDI when Bharati came first?

And btw, it was not MMS but PVNR HUGE DIFFERENCE.

I dont expect 51 == 100 type of folks to get it though.

Meanwhile keep repeating the untruths, you will fool some people some of the time.

[Sanku]

A primer on UK's aerospace industry...

http://www.publications.parliament.uk/p ... 51/151.pdf

Ironic, some of the biggest "UK-names" are "foreign owned" or majority-foreign owned in any case - Airbus, Bombardier...

You know Somnath, in this (actually any) debate you are my biggest asset. You bring up SUCH JUICY EXAMPLES.

I am sure folks will be jumping at joy at your eminently desirable examples, yes we all want India to be where the Great Britian is TODAY?

Meanwhile care to see the ownership patterns when UQ was still at least a second rate power (let alone first rate?)

[Craig Alpert]

Karkare's bullet-proof vest not meant to shield from AK-47: Police to Court

MUMBAI: The bullet-proof jacket worn by slain Maharashtra ATS chief Hemant Karkare during the 26/11 attacks was not meant for protection from AK-47 bullets, police told the Bombay High Court on Wednesday.

The order for such jackets was placed way back in 2001, when the 26/11-like situation was not anticipated, says an affidavit filed by Deputy Commissioner of Police Vijaysingh Jadhav.

The jackets were meant for protection from nine mm pistol and carbine, and "not for AK-47 rifle and 7.62 SLR", according to the affidavit.

Similar jackets are still used even by the "military forces", police said.
Karkare, along with fellow IPS officer Ashok Kamte and Inspector Vijay Salaskar, fell to the bullets fired by Pakistani gunmen Ajmal Kasab and Abu Ismail from their AK-47 rifles on November 26, 2008.

A PIL filed by Santosh Daundkar, an activist, has alleged that Karkare died because of sub-standard jackets, and there was corruption in their purchase.

A total of 110 jackets were actually supplied by Machinery Sales Corporation and Ganesh Yarntext in 2004, though the tender was floated in 2001, police said.

"Parameters of the threat perception perceived by (Mumbai) Crime Branch then could not be equated with the threat perception which has arisen after November 26 incident," the affidavit by Jadhav said.

The petitioner may criticise the choice of vests "with the benefit of hindsight" but "none had anticipated in March 2001 that a situation like November 26 will arise," it said.

Karkare's post-mortem report says he did not die because of substandard jackets, the affidavit said, adding the "standard design" of the vest which he wore did not cover the neck and shoulder.

Petitioner's lawyer Y P Singh had argued at earlier hearing that the senior police officer died because his bullet -proof jacket left neck and shoulder areas exposed.

Hearing of the PIL will continue next month.

[arnab]

I think the 100% FDI is a trial baloon floated in the light of two factors:

1. The Thirteenth Finance Commission Report (Chair Vijay Kelkar: ex Finance Secy 1998-99)

6.27 For defence expenditure, the Ministry of
Finance has projected a growth rate of 7 per cent
per annum for defence revenue expenditure.
Capital expenditure is projected to grow at 10 per
cent per annum. The Ministry of Defence has
emphasised the need to provide adequately for
enhanced force multipliers. We also recognise the
need to provide for some real growth in defence
revenue expenditure, to allow for adequate
depreciation and maintenance. We are of the view
that the Finance Ministry’s projections address
these needs and have, therefore, adopted them.
The resultant projection for the overall annual
growth rate of defence expenditure works out to
8.33 per cent. Further, we are of the view that there
exists considerable scope to improve the quality
and efficiency of defence expenditure through
increased private sector engagement, import
substitution and indigenisation; improvements in
procedures and practices and better project
management, within the parameters of
Government of India’s policy. Efforts in this
direction will further expand the fiscal space
available for defence spending.

2. The KPMG-CII report which showed that the 26% cap on FDI in Defence since 2001 has so far yielded a grand total of Rs. 70 lakhs in FDI in the last 8 years

[somnath]

^^^As also the offsets data that shows absolutely no investment in R&D, despite a pickup in the level of offsets business..

As a matter of fact, the 26% FDI rule is only restricted to the private sector...The public sector already has 49% allowed on a selective basis - Brahmos Corp being one example of it...But even there MoD does some unconscionable wranglings over approavls - the MTA is one instance, its being hanging fire because the Russians want a greater stake and MoD doesnt want it...the stupidity is but obvious - HAL knows nothing about making a transport aircraft on its own, but MoD wont allow Irkutsk to set up a majority-owned facility in India!

the Brahmos example is also indicative of the difference between 49 and 51, as also the sheer incompetence of the public sector in enetering into contracts...Both reasons were responsible for the mess where the Russians didnt transfer the seeker tech, and we are buying it now at ever-icreasing prices...

[somnath]

One of the big drawback of the Indian defence R&D setup has been the near-complete divorce of "R&D" to manufacturing..None of the DPSU/OFBs have any meaningful R&D capablity, while the R&D institutions (DRDO primarily) do not have any manufacturing linkages...This is another of the anachronisms of Nehruvian policy (the same ones that created the useless behemoth of CSIR, at the expense of universities)..

Hence, we have bizarre scenarios of a "society" (or an "authority") being created to develop a combat aircraft (ADA was a society structure to start with, wasnt it?)...The manufacturer (HAL) knows nothing about it for years..Ditto for a range of systems - SYs depend on NDB for ship design, and after so many years, even MDL hasnt the slightest clue on how to manufacture a frigate grounds up...Inevitably, it leads to delays and excesive trouble-shooting requirements....Arjun would be a perfect case study in this anomalous situation...

Barring strategic systems, where costs are less (relativeky speaking) of a factor, and "mass production" not a necessity, the DRDO structure is passe, in fact it was always stupid to start with...They should be attaching the relevant units of DRDO with their manufacturing PSUs (for LRDE should be attached to BEL, CVRDE maybe to Avadi and so on)...WEapons manufacturing is finally "manufacturing", and in most cases, in fact in all cases, we are simply either re-inventing the wheel and catching up with the rest of the world - companies need to (and should be oriented to) do that job as effeiciently as possible...It would also rid the services of the spectre of a "DRDO veto" over every system...As part of a corporate entity, the R&D establishment will decide on the most efficient way forward - if there is something that can quickly achieved by imports, they will take that call...Today, DRDO's pavlovian response is "we will do it"...

This is less relevant for strategic systems like ballistic missiles..but even there, given the rate of missile production (less than Paki production of their missiles!), I am not so sure...

The issue on the flip side however is that most DPSU/OFBs are hopelessly inefficient, and pretty much beyond redemption...So merging DRDO units with them would only result in mediocre(sometimes good)-research-meeting-shoddy-manufacturing..But at least a start can be made with some of the "better" DPSUs - HAL, BEL, BEML....

[somnath]

somewhat urelated, but confirmation of a familiar nugget of info..

http://www.indianexpress.com/news/hotsu ... ny/598727/

we want to build naval ships indigenously and we must involve private shipyards. We cannot go back to the old days of depending on foreign shipyards to fulfill our needs."

Should have also quoted its been too long that MDL has been screw drivering around and little else..

[Sanku]

Madarassa Math 102

Not buying from friangi shipyards == Govt shipyards are crap

[ramana]

One of the big drawback of the Indian defence R&D setup has been the near-complete divorce of "R&D" to manufacturing..None of the DPSU/OFBs have any meaningful R&D capablity, while the R&D institutions (DRDO primarily) do not have any manufacturing linkages...This is another of the anachronisms of Nehruvian policy (the same ones that created the useless behemoth of CSIR, at the expense of universities)..

Hence, we have bizarre scenarios of a "society" (or an "authority") being created to develop a combat aircraft (ADA was a society structure to start with, wasnt it?)...The manufacturer (HAL) knows nothing about it for years..Ditto for a range of systems - SYs depend on NDB for ship design, and after so many years, even MDL hasnt the slightest clue on how to manufacture a frigate grounds up...Inevitably, it leads to delays and excesive trouble-shooting requirements....Arjun would be a perfect case study in this anomalous situation...

Barring strategic systems, where costs are less (relativeky speaking) of a factor, and "mass production" not a necessity, the DRDO structure is passe, in fact it was always stupid to start with...They should be attaching the relevant units of DRDO with their manufacturing PSUs (for LRDE should be attached to BEL, CVRDE maybe to Avadi and so on)...WEapons manufacturing is finally "manufacturing", and in most cases, in fact in all cases, we are simply either re-inventing the wheel and catching up with the rest of the world - companies need to (and should be oriented to) do that job as effeiciently as possible...It would also rid the services of the spectre of a "DRDO veto" over every system...As part of a corporate entity, the R&D establishment will decide on the most efficient way forward - if there is something that can quickly achieved by imports, they will take that call...Today, DRDO's pavlovian response is "we will do it"...

This is less relevant for strategic systems like ballistic missiles..but even there, given the rate of missile production (less than Paki production of their missiles!), I am not so sure...

The issue on the flip side however is that most DPSU/OFBs are hopelessly inefficient, and pretty much beyond redemption...So merging DRDO units with them would only result in mediocre(sometimes good)-research-meeting-shoddy-manufacturing..But at least a start can be made with some of the "better" DPSUs - HAL, BEL, BEML....

In massa land it was also found in the fifties that R&D labs need to be linked to mfg entities. And the DDR&E has military presence to ensure force requirements are flowed down throughout the military-industrial complex. The military assigned is a different kind of scientist/engineer-soldier who ensures that the forces requirements are always at the forefront of every activity in the MIC. Somehow in India this type is sidelined and put away. These types are the ones who ensures the Vishwakarmas work on militarily relevant items.

[somnath]

^^^ The American system is arguably the "best"..It has all programmes being competitively bid for by multiple vendors at the R&D stage itself - and the "best option" wins the manufacturing mandate at the end...Now it is neither feasible (to be funding two/multiple separate R&D efforts for the same project) nor required (given that most of our requirements do not aim to push the "knowledge frontier", its only reiventing wheels) in India's context...

But at some stage, for a vast majority of equipment, companies (DPSUs, pvt sector and foreign) should be developing, collaborating and manufacturing the products..DRDO should be ideally concentrating at the really strategic ed of the spectrum - baillistic/cruise missiles, BMD and the like, where there are unknown frontiers to be conquered, as no country will willingly share tech..

[sathyaC]

Somnath-ji and Mrinal ji this is Indian Naval Discussion
pliz use dpuc defense R&D thread

[Karan M]

Somnathji,

I just lost my entire post to a server error, so I will make this short.

Let me start with your concluding remark..

Clearly, the "system", whatever it is, has not delivered on tactical systems...APJ Abdul Kalam spoke of a 70% indigenisation rate about two decades back, the ratio still remains 70% imports, and virtually all major projects we are talking about today are also imports..

Kalam spoke of a lot of things to motivate people, including speaking of a developed India, a superppwer by 2020. Suffice to say, mere desire does not translate to changing things on the ground where indigenization is dependent not just on DRDO but the services and overall investment. Take a look at the number of systems that are in the IAF alone, and tell me if 70% is possible. For a decade to come, in fact a couple, we will be relying on a mix of imported and local, otherwise we can always head the FSU way, going bankrupt.

But fundamentally, you are making DRDO and DPSU fungible..While DRDO has had a mixed record (widely docuemnted), the gripe is really about the DPSUs...The latter might be spending some monies, a little more now, on R&D, but then ruggedising a product for Indian conditions, or making incremental improvements in imported tech without having the capability to even replicate the same tech within the same generation - these are hardly examples of "R&D", at best there is some "D", certainly not any "R"..

Sorry you are making the same old discredited arguement that since a DPSU is bad, all DPSUs must be. The case was and is that a DPSU like BEL has a track record of successful R&D and has delivered. We have gone program by program and such is clearly the case.

kindly look at the Capex GM had in its auto division for a year, and compare it to whichever auto company you wish to pick in India. Is it similar


http://ir.tatamotors.com/pdf/2009/Confe ... Q3FY10.pdf

Tata Motors will be, and has been having capex of 700-800 million dollars every year - thats about 4-5% of a turnover of 16-17 billion dollars...

And this, despite the 3 billion they spent on JLR acquisition, which was clearly expensive..

GM is a very bad example - it just came out of a Chapter 11 process..Take Ford Motor Company, which came out well from the crisis..

GM is not a bad example, you missed my point again, by a mile and a quarter. You seem to be under the impression that high Capex, R&D expenditure are what determine leadership. The case of GM shows that your thesis is badly flawed. Here is a firm which has constantly spent huge amounts like there was no tomorrow, and is currently recovering.
The TATA motors comparison also misses the point. TATAs overall spends are much lesser than those of some firms abroad, so clearly does that make them incompetent? I think not.

http://www.ford.com/doc/2009_annual_report.pdf

They will spend about 5 billion dollars on a turnover of 105 - again about 4-5%...

So you see, even while scales are different, Indian private sector companies are trying to keep up...At least those that want to keep up with the global joneses...It would be similar if you lookeda the SMEs in the sector as well...The point is not only on "absolute dollar numbers", but with stuff like R&D intensity and results...

Again, you cite Ford. To any serious observer, Ford was not in much better shape than GM in several respects. The difference was that it had Mullaly and a good team to back him up. Again, not an example of how heavy expenditure automatically translates into success.

The key determiner, which you have so far missed entirely, is that R&D spend and Capex support a firms strategy, its understanding of the market and enable it to execute on it. In this respect BEL has clearly delivered.

You note that TATA has 4-5% of R&D spend, BEL has 5% and intends to double it to 10% as clearly linked above. So again, nothing earth shattering here that discriminates against it.

You sure? Wasnt NAMICA being prodiced by Tata SED?

Absolutely sure. The pvt partner could not deliver (lets leave out who it was) and BEL did.

About the point on production, there is no cherry picking...Its evident across a range of projects/products...NDB seems to have a fine capability in ship design, but MDL's incompetence/lack of initiative means that they churn out frigates in 8 years! And are merely talking of modular construction now, the world has moved on

It is cherry picking because you are taking the DPSUs with problems that are widely recognised as legion and saying that automatically translates to a DPSU which has a history of prudent management and delivery. The comparison is without merit.

...The data on missiles is not a piece of "guesswork" - Bharat Karnad quotes it extensively in his book, written in 2009, so the data too is quite recent.

It is guesswork. I am aware of Bharat Karnads work and while his work on strategy and similar aspects is quite respectable, his grasp of tactical systems and the indian defence industry leaves a lot to be desired. In the past, I have noticed his statements to make no distinction between LSP and series manufacture, or even correlate the subsystem development and where it was at. By no means is he infallible. Gurmeet Kanwal of IDSA is generally more credible but even he has issues in this respect. The point was and is that no chap aside from the core stakeholders has any overarching view of our missile inventory, and claims that Pak outmatches India are ludicrous, given how far behind they are in key systems. They have and will attempt to sidestep this via import and assembly a la M11 missiles but that is not a sustainable enterprise.

..Ajai Shukla spoke of "ramping up" Arjun's production to 62 only by 2013 - the article was written a few weeks back..

Fail to see how that is Avadhis fault in anywhich way, with the Army having no firm idea of what it wants and by when it wants, why will ancillary suppliers keep their lines idling to meet surge demands from Avadhi? And with limited runs, forget making those in India as well.

Last, and probably OT, on BHEL..

Not true at all, dividends paid by BHEL, or any other PSU, is broadly in line with levels of their pvt sector peers, in case they manage to make money...There has certainyl not been any profit gouging from any PSU ever by the GOI...In fact the Left sometimes suggests somethign on those lines as an alternative to the GOI selling its shares in PSUs to raise money..

You missed the point again and have misunderstood what I said again. When did I ever suggest profit gouging. I noted that GOI control comes with a lot of riders attached and which does not allow the aforesaid company to chart its own path in terms of functional independence. All this talk of comparison to Siemens etc falls flat on that ground, when BHEL has to even convince the GOI that it actually needs to invest in R&D, and which case it has made with effort, whereas Siemens's scent for business and how to get it, make even other German players surprised.

Quite frankly, whatever the reason, and GOI ownership can be a big one too, the current DPSU setup has simply not generated enough confidence by example...And thats the crux of the matter...In another thread, I attempted to calculate the "value add" that selected DPSUs (HAL and MDL) generated - the numbers came in at abysmal levels...Soemhow I had expected that..

That value add calculation, using estimates on margins, was unfortunately also flawed in entirety and would not pass muster. It for instance took no account of the level of savings the MOD, and by extension, the MOF, and India achieve by having HAL make even a license manufactured product and take ownership of its sustainment. Furthermore, you used HAL margins as some sort of comparator, which is fairly untenable to anyone who has observed this sector, as HAL transitioned from a cost plus model many years back, and being part of the same apparatus (MOD and GOI) has to keep its margins at reasonable levels lest it arouse service ire. Of late, this factor has been understood by the MOD, which now understands that exports and foreign orders are required for HAL to achieved decent markups, but this continues to run up against opposition from some who want HAL to actually keep the domestic market as the #1 (read only) priority and also from significant sections, who oppose India getting into the arms export business. As things stand, HAL is essential to Indian defence industry. I could go into what HAL is currently doing for local programs and where it fits in, but somehow, I wonder whether the effort would be worth it, as you would take a rough number, divide it by another and declare that it just didnt matter!

[Bheem]

A low Capital expenditure on R&D and high revenue expenditure normally indicates account fudging where normal salaries for hundred of babus lazying around is put under R&D head. If actually few hundred crores are spent it would show up in lot of labs, prototypes and some news exposure.

[Karan M]

1.A low Capital expenditure on R&D and high revenue expenditure normally indicates account fudging where normal salaries for hundred of babus lazying around is put under R&D head. 2. If actually few hundred crores are spent it would show up in lot of labs, prototypes and some news exposure.

Fair points, so lets look at them.

1. In this particular case, Capex has kept apace with increases in R&D and match aims to increase turnover:
http://www.domain-b.com/companies/compa ... onics.html
This can be validated via public reports of modernization of manufacturing facilities and establishment of new facilities (e.g. report given prior of new EW facilities). Others were the establishment of a Shelter based system production facility, a new space project facility, aspheric lens manufacturing facility, and modernizations/additions to existing units.
So the first point does not apply.

2. Viz, the second, reports of product introductions & development, are also publically available.
In FY08 and FY09 both BEL's product introductions were at 20/yr (actually more than 20 for FY09). FY09 product introductions included: High Power HF Communication Sets, Frequency Hopping VHF Transceivers, UHF Radio Relays, Artillery Combat Command Control Systems, Upgraded Fire Control Systems, Fourth Generation Composite Communication Systems for various ships and yards, Radar Warning Receivers, Air Traffic Control Surveillance Radar Element, Thermal Imager based Integrated Observation Equipment, 3D Surveillance Radar Rohini, Shipborne & Airborne Electronic Warfare Systems, Laser Range Finders, Night Vision Binoculars, Satellite based Road & Rail Mobile Communication Systems (skipping the civilian products such as EVMs).

Tracking the above, vast majority of the above are local projects, which again validates the impact of R&D spend.

[Rahul M]

guys, sathyaC has a point, please continue in R&D thread, I'll move thoe above posts in due time.
thanks.

[somnath]

Continuing frm the Naval thread...

Mrinal ji,

In case you want to stick to two PSUs - BHEL, and BEL, thats fine...I was trying to broaden the discussion to a slightly more macro level..

With BHEL, I dont think the case even exists...Here is a firm that has perpetually lived on imported tech, and not surprisingly is today scrounging around for the next gen....You can ascribe any reason to it - govt ownership et al..But the fact of the matter is that BHEL, having grown from a 10 million dollar company to a 6 billion dollar company (primarily on the back of mandated govt contracts), still does not have a clue on how to manufacture the current generation of its "core" tech....In light of our discussion, I spoke to an ex-Director of BHEL (in BRF terms, "uncle/paanwallah" sources ) who retired recently..He identified lack of tech as the key challenge for BHEL..And was quite contemptuous of the "R&D" carried out by BHEL, saying its nothing more than "retooling", as he put it...Mind you, he isnt a cynic - he is otherwise quite proud of BHEL's accomplishments...

GM is not a bad example, you missed my point again, by a mile and a quarter. You seem to be under the impression that high Capex, R&D expenditure are what determine leadership. The case of GM shows that your thesis is badly flawed. Here is a firm which has constantly spent huge amounts like there was no tomorrow, and is currently recovering.
The TATA motors comparison also misses the point. TATAs overall spends are much lesser than those of some firms abroad, so clearly does that make them incompetent? I think not.

I am not, not at all...R&D is one of the elements of success..the limited point is for technology-intensive sectors, it is probably the single-most improtant variable...GM's failure had its origins in different factors - full enumeration will derail this discussion - suffice to say that failure to predict the market preferences (concentrating on SUVs when the market was moving to fuel efficeint cars) and a pension problem were teh big straws...

R&D intensity is key, and "smaller" companies in a tech-intensive sector will typically have greater R&D intensity...Beyond a point of course, markets, affordaibility etc become key...Tata Motors have similar capex intensity as Ford Motors, even if the difference in size defines a lower amount..(But even there, notice how Tata Motors is defining its capex plans for the next 5 years, while Ford is simply talking about the next year)...And it shows, Tatas have in the last 5 years, come out with two game-changing designs - Nano and (the less heralded) Ace - global majors are scrambling to emulate that now!

You note that TATA has 4-5% of R&D spend, BEL has 5% and intends to double it to 10% as clearly linked above. So again, nothing earth shattering here that discriminates against it.

Well, compare like-to-like....Compare BEL - an R&D intensity of <5%, compared to 9% of Elbit (which is 2.5 times bigger BTW)...Results therefore are clear..BEL has nothing to offer that is game-changing - no one's emulating BEL, but ELBIT/Elisra is a partner of choice!

Another of BEL's "indigeneous" efforts..this time in NVDs...

http://ajaishukla.blogspot.com/2007/04/ ... escue.html

Colonel HS Shankar, who was the Chairman of BELOP from 1997-2003, admits that BELOP made no effort was made to improve its NVDs but blames that on BEL’s disinterest in funding R&D.

BEL and the Ordnance Factories formed a JV called BELOP, purchased NVD technology from Delft, a Dutch defence major, and churned out thousands of 2nd Generation (Gen-2) NVDs that became quickly outdated.

The defence R&D and production establishment (the DRDO, 40 ordinance factories and 8 Defence PSUs) have always touted transfer of technology (ToT) as the first step to indigenous development. But without any R&D by BELOP to improve their NVDs beyond Delft’s Gen-2 technology, the militants soon had a qualitative edge in NVDs.

But the MoD asked BEL no hard questions about R&D. Instead, encouraged by BEL, the MoD initiated in 2005 a new initiative to procure state-of-the-art NVDs, which had by then improved from Gen-2 to SuperGen and HyperGen

Again as you see, Gen 2 tech imported, "license producced", and when it came to the next gen guess what, import again? In the meanwhile, I am sure the incremental tinkering with the gen 2 NVD is marked as "indigeneous R&D"!!

I reiterate, as you say, govt ownership might be the crux of the problem...But then, there is a problem! And that needs to be critiqued!

But this, to me is the most disengenuous..

That value add calculation, using estimates on margins, was unfortunately also flawed in entirety and would not pass muster. It for instance took no account of the level of savings the MOD, and by extension, the MOF, and India achieve by having HAL make even a license manufactured product and take ownership of its sustainment. Furthermore, you used HAL margins as some sort of comparator, which is fairly untenable to anyone who has observed this sector, as HAL transitioned from a cost plus model many years back, and being part of the same apparatus (MOD and GOI) has to keep its margins at reasonable levels lest it arouse service ire. Of late, this factor has been understood by the MOD, which now understands that exports and foreign orders are required for HAL to achieved decent markups, but this continues to run up against opposition from some who want HAL to actually keep the domestic market as the #1 (read only) priority and also from significant sections, who oppose India getting into the arms export business.

So are you saying license manufatcured products from HAL are "cheaper", hence resulting in lower margins? Evidence doesnt suggest so - Su30MKI manufactured by HAL is mroe expensive than the one imported from Irkutsk - IAF has said this many times...And the idea was to "gauge" the value addition in technical terms made by the license mannufacturing process..If about 98% of the value of sales is going in salaries and raw materials (largely imported), the vendor is obviously not adding much value to the process! Especially if its finished product is not cheaper in "mandate"..

So I dont know what else to judge DPSUs with..Inability to produce the next gen, or even at least current gen grounds up...Inability to provide any "break through tech" to the world..Inability to even be an efficient "assembly line screw driver"....In between this, you will (and have already) point out instances of successes, qualifications on failures etc - but this is the macro picture...

[somnath]

Mrinal ji,

reply here - SathyaC has a point..

http://forums.bharat-rakshak.com/viewto ... 30#p850030