There is a campaign to prove that Indian Industry cannot deliver and only foreign OEMs can.
There are only two growth areas for defence expenditure in the world – America and India/China. Of these, the Chinese market is closed because of the arms embargo. The Indian market is the only bailout for OEMs. A Jane’s study came to similar conclusions.
How will OEMs ensure that they get a share of the Indian pie – the bigger the better? They can only get it if the abilities of Indian Industry are run down.
They don’t need to get their hands dirty for this. So many Indians are ready to oblige! 67 years after Independence and we can’t get over our you know what.
Also, OEMs don’t fear PSUs, which have acted as pliable conduits for imports, giving away market access for free. Honourable exceptions are PSUs in the Naval sector, BHEL and HAL under Dr. R.K. Tyagi’s leadership. They fear the Indian private sector.
Foreign companies quickly recovered from the shock administered by the adoption of the Preferential Market Access Policy (PMA), which could have helped Indian industry gain just a little domestic market share in their own country in telecom and electronics, forcing backtracking on the PMA.
Now something even more nefarious is going on. Indians are trying to frame the conditions for the bids in such a way that all Indian companies will be eliminated from even bidding. A member of Indian Industry has cried out – how can this happen in our own country?
People, you need to ask the same.
At a think tank meeting, two leading experts actually reportedly concluded that India does not need a defence industrial base!
Every statement made by these manufacturers should be read in this light. Myths being promulgated against Indian industry need to be decisively refuted as they are deeply ingrained in the minds of officials and are reflected in their statements and actions. This is doing incalculable harm to India’s desire to create a high-tech, indigenous defence production base. The eco-system that this will spawn will provide high grade, quality employment to millions of young Indians, who today are wasting their graduate degrees in pitiful employment avenues.
Myths of Sisyphus being spread in the market about Indian Industry:
- Myth 1: Indian industry does not have the capability to undertake hi-tech manufacturing.
- Myth 2: India’s Offsets policy is very strict – 30% direct Offsets is wayyyy….too much.
- Myth 3: Indian Industry lacks the sponge factor-i.e.- it does not have the capacity to absorb Offsets.
- Myth 4: Higher the percentage of FDI, greater the technology transfer! (Jeez, they don’t know the basics, do they now?)
- Myth 5: Multipliers and Indirect Offsets in other sectors must be given.
Let us examine these “Myths of Sisyphus”, which have held back Indian Industry, one by One:
- Indian industry does not have the capability to undertake hi-tech manufacturing!
Fact: India has very strong industrial capacities, and its private and public sector wields great financial power and capabilities. Many Indian firms have won high-tech project contracts abroad and have been praised for their quality, cost effectiveness and on-time performance.
In the nuclear sector, self-reliance was promoted from Day 1. Emphasis was on indigenous design and in-house technology. Public-Private Partnerships were encouraged, with BHEL and L & T allotted core tasks on an equal playing turf. The reactors and core nuclear know-how were under DAE but equipment and systems were built by Indian Industry. After the 1998 tests, India faced unprecedented sanctions. And yet Indian companies delivered the highest level of complex and high-tech systems. The Arihant Submarine Program, launched in 1997, under the peak of the sanctions regime, was successfully delivered under a PPP (Public-Private Partnership) model.
Samyukta Electronic Warfare (EW) System for the Army – was another successful example of a completely indigenously developed system under the PPP model. Dr. Abdul Kalam was the driving force behind putting this technology into Indian hands. He publicly acknowledged Tata’s and CMC’s contribution – which met the challenge of developing real-time command and control software, not for profit.
In the Aerospace industry, many capabilities were built by Indian Industry. User, R & D and Industry moved in unison, thus achieving national capability. Most importantly, faith was kept. ISRO asked L & T to continue making some important components (motor casings) even where there was no demand because it didn’t want India to lose the technology. And sourcing was restricted to Indian players, not to external sources.
Ashok Parathasarthy details in his excellent book “Technology at the Core” numerous example as how the old Indian State supported high-tech Indian companies and helped them win market share.
We succeeded because we believed in ourselves, we believed in our Industry and most of all we even believed in our Private Industry.
This can be replicated in defence.
But what has happened since?
- Complete change!
- I love you OEMs policy has been adopted
- The exclusion of Indian Industry from domestic contracts is a recent phenomenon.
- In the name of ‘Security’ the Indian private sector is being denied participation in the same Electronic Warfare programmes which it created in the first place. L&T which gave the hull for Arihant is denied the same for a conventional Submarine.
- An order from Indian Industry cannot be processed under the current acquisition system. Indian Industry cannot even get an RFP.
- How is giving orders to foreign industry compatible with National Security while Indian Industry is denied the opportunity to contribute on the same security grounds?
- As a result India has become an Import-Oriented Economy which favours only foreign imports! This has benefited foreign companies, deprived India of the multiplier effects of domestic production, opened up the country to an endless outflow of foreign exchange and undermined its capacity for strategic autonomy.
- Myth 2: Offsets policy of India is very strict – 30% direct Offsets is too much.
Fact: Most countries have 100% Offsets. But India, 10th industrial power in the world, is considered incapable of absorbing offsets and is extremely apologetic even over seeking 30%.
Indicative list of countries with 100% Offsets: Argentina, Austria, Brazil, Bulgaria, Canada, Chile, Colombia, Croatia, Denmark, Estonia, Greece, Italy, Malaysia, Netherlands, Norway, Peru, Portugal, Slovenia, Switzerland,
- Myth 3: Indian Industry does not have the capacity to absorb offsets.
Fact: Offsets are the key to achieving technological independence and relocating manufacturing activities to developing countries and every country studied is successfully operating Offsets, not FDI, to kickstart indigneous defence production sectors. The US$100 billion Indian defence market should yield US$ 30 billion at least in Offsets under India’s current lax Offset policy over a period of 10-15 years. It is laughable to suggest that Indian industry cannot absorb a paltry US$ 2-3 bn a year.
A medium-sized Indian company achieved turnover of $107 million in 2002 and $1200 million in 2011 in high-tech manufacturing. Exports stood at $25 million in 2002, but reached $800 million in 2011 (70% of production)! This is just one relatively small medium sized Indian company. Why do we talk in such awe of absorbing only $10 bn in 10 years?
A valid question is why is Indian industry never consulted on Offsets, while only baboos, foreign advisors or those in their pay, and armchair experts decide on policy? India has been apologetic over 30 % offsets instead of seeking 100% as other countries do. An EU code of conduct on defence offsets signed by all the EU nations except Romania and Denmark states that its primary purpose is to promote the “European Defence Technological and Industrial Base”. It pleads humbly with member countries to exercise self-restraint and limit the offsets quantity to 100% of the contract value! It includes Multipliers, TOT etc. And we are apologetic on 30% as a nation. Kaan pakro!
- Myth 4: FDI is the only route for India to get technology.
- Access to technology is not an issue at all. Today some of India’s companies are the largest manufacturing employers in advanced countries and have access to all kinds of high technologies. The main issue is that control should not be ceded. Today, we have several tie-ups in which because the Indian firm has control – the global partner has agreed to transfer every aspect of knowhow and know why.
- Experience shows that when market access has been routed through indigenous firms – global partners have agreed to transfer every aspect of knowhow.In the 1990s when we had C-DOT, India got much better prices on exchanges than did China. Without CDOT we would have been ripped off. A lot of companies came in for manufacturing partnerships in India, but they all moved out since we have not encouraged or leveraged the market to create a telecom manufacturing sector or a single Huawei.The minute market access is denied, the foreigners’ behaviour changes completely. Till the offset dilution on Lockheed Martin was approved, the foreign party was going through the Indian partners for ToT and creation of capabilities.
- ToT does not flow from FDI necessarily. For example, the GE centre in India has 100% FDI, but they cannot part with even one drawing to any Indian party without seeking US permission. India has 100s of R & D centres of MNCs but none of them share technology with Indian firms or Indians. China realised this years ago and that is why they started to focus on Indigenous Innovation.
- No country allows high FDI in defence. The most restricted place for defence manufacturing is the US, yet they want 100% in India!
- Indian Defence Industry has proved its ability to deliver state-of-the-art technology against the odds of global sanctions when allowed to (above).
- If FDI is considered necessary, for local manufacturing of state of the art weapons, we must have control by Indian companies, strong local sourcing, skill development and employment obligations.
- Myth 5: Multipliers and Indirect Offsets in other sectors must be given.
Fact: Since we have advocated 100% Offsets, we are in favour of applying Offsets in areas related to Defence Production. However, there is huge potential for more scams through these provisions. Only if India puts in place robust and credible monitoring mechanisms can these be agreed to, as other countries have benefited from indirect offsets. Till then, these can be kept in abeyance.
India has come a long way since 1991. Indian Industry is seeking global leadership and has the capability to deliver. It just has to be given a chance. It has performed well whenever it has had a level-playing field.
What it can’t do is provide post-retirement scholarships and sinecures remunerated in US dollars on the Boards of MNCs to every selfish little soul who puts his interest above that of the country. All such appointments should be examined for conflict of interest regarding decisions taken and articles written against Indian Industry.
If Indian Industry can produce world class products in some sectors, why not in defence?
Indian Industry has to engage with the political class and the bureaucracy. Foreign officials got high level access whereas senior Indian Industrialists in the manufacturing sector were unable to secure meetings with decision makers. The classified LTIPP was known to foreign vendors but not to Indian industry.
The leadership has to promote Indian industry. The heads of government of 4 countries visited India to lobby for the MMRCA. India has to get into a pro Indian industry mode and promote the expansion, indeed the explosion of domestic capabilities. Every country id pursuing a defence industrialisation strategy to promote employment and national welfare. We can too!