Breaking PSUs’ monopoly: Defence system eyes private cos

[FOX80]

SOURCE: MONEY CONTROL

While Heavy Industries Minister Praful Patel believes that defence PSUs need to have a level playing field in bidding for contracts like the Rs 14,000 crore deal to replace the vintage Avro transport planes, it is the Indian private sector that has always got a raw deal. But the silver lining is that top government functionaries, including Prime Minister Manmohan Singh, now want monopolies of PSUs to end. CNBC-TV18′s Rituparna Bhuyan and Elan Dutta highlight what experts want.

While PSUs have had privileged access to government contracts, especially in the defence manufacturing sector, the government now realises that this cannot be a sustainable strategy. Speaking at a BRICS conference on Thursday, Prime Minister Manmohan Singh said “Several possible distortions can arise because of the advantages some public sector businesses have due to their government ownership.” But can the private sector step in the shoes of state owned Hindustan Aeronautics Ltd to act as an alternative supplier of combat platforms? Defence experts believe that given the size of India’s defence budget, the solution is to privatise institutions like HAL. In fact, HAL was a private entity that was nationalized in the early 60s. LK Behera, research fellow, IDSA does not see a reason why should government have control and ownership of the industry.

“In the UK, the government has privatised its industry. Unless it is privatised, all the inefficiencies that exist in the government sector will remain,” he added. But Indian Air Force insiders believe that the Indian private sector is capable enough to design and develop air combat platforms. Retired Air Marshal Kapil Kak said that some of the top secret programmes of the Indian defence industry have been taken by the private sector over the past 7-8 years. However, the biggest stumbling block in allowing joint ventures between India and foreign defence contractors is the 26 percent foreign direct investment (FDI) cap. “We want technology through FDI and that can come only if it is increased beyond 49 percent,” added Behera Kak said “When they invest, they invest to get some more amount of return for their business or to generate volume. That cannot happen at 26 percent weightage.” Experts remain hopeful that the government will allow 49 percent FDI in the transport aircraft deal that triggered the Patel-Antony face off.

 

[illusion8]

Wrong strategy overall - it would be better to privatize the PSU's rather than count on a handful of private players to come up with the resources and the finances to not only build capacity but also direct huge funds towards research.

Keeping in mind that private entities are answerable to their shareholders first and foremost and are obligated to show sales and profits annually they will automatically be less inclined towards diverting finances towards long drawn out research and development and will not even consider redeveloping the wheel in most instances and will rather prefer to go for easier options of tying up with other foreign companies in JV's to start producing their systems and generate revenue and profits.

Privatizing PSU's will ably use the already trained workforce and will also have a rich pool of already researched product portfolio's on the other hand bring in accountability towards cost overruns and time tables.

Private players entry has been delayed too much and they have lost their edge in research now which they if allowed could have done decades ago at far lower costs - now their best bet would be to find such defense manufacturers and go in with tie ups and try and market their products as an indigenous venture while on one hand paying the foreign companies high compensations and on the other hand will erode their own research and development in the hope of easy and fast money to safeguard their shareholders interest.

PSU's have unlimited funds and unlimited time which they have misused till date by giving negligible returns, it's time to put the screw on them by making them accountable for the money and the time spent.