Government initiates exercise to raise FDI in defence sector to 100%

[godofwar]

Can you explain the though process that went through your brain to state this point?

 

[skysthelimit]

Heard that the Defense Ministry is opposing 100% FDI - does anyone know why?

 

[HariPrasad]

Can somebody explain how this will help our defence sector ?

When foreign come to India and make a partnership, they transfer technology but they can not get a share of more than 26% from profit (As government as put a limit of 26% for foreign firms). Now they can have 100% share in defense sector, they will be willing to transfer technology and make production. Country may benefit from
1) Local production (May be Cheap)
2) Skill development.
3) Employment generation etc.

Members may correct me or add something to my post.

 

[sancho]

They (Indian companies) will have to watch and learn. Some how make inroads into this field. If they have done so in much more competitive fields like cars and mobiles, hopefully they would do so for defence too.

Buddy, since years we hear Indians complain about not getting enough through ToT and that it didn't benefitted us enough to develop own core techs like engines or radars, because the foreign companies didn't shared critical techs. The recent years had changed that, because of changes in our procurement policies, which demanded not only higher ToT, but transfer of critical technology. So are you suggesting to go back again and just watch and see for decades till we might have learned to develop an engine or radar on our own?

And no they haven't done so, why do you think Tata bought Jaguar and Range Rover? Because they couldn't develop similar cars on their own! But taking those companies over, got them access to the techs and know how and we saw Indian companies doing the same in the defence / aero field now too. Mahindra took over an Australian aircraft manufacturer, the Kalyani group took over an howitzer manufacturer and both are now developing their own products, based on the know how they gained, not buy waiting and watching.
This once again shows the importance of getting critical techs to improve our development capabilities for the future, be it by taking over foreign companies, by forming co-developments or JV's with critical ToT.

 

[sancho]

sancho you should stick to and I say this respectfully to defense equipment and not policy.

Funny when sombody tries to lecture others, without propperly reading or even understanding what they mean.

A. just because it allows up to 100% does not mean every company will come in at 100%...
...besides investment in defense could yield a high percentage of exports for indian companies

The point is not if it's 100 or only 55%, the point is, that we can't allow to give foreign companies control over these JV's otherwise our industry won't gain knowledge!

HAL for example produces airframe parts for the F18SH, does that make them technically better to develop fighters on their own? Does IAF or IN have any benefit from that productions?
TATA builds parts of Sikorsky helicopters, which mostly are not interesting for our forces, but can TATA develop an own helicopter now?

In both cases the answer is a simple no, because all they do is basic manufacturing, which benefits mainly the foreign vendor, because they can reduce the production costs for these parts. There is no denial that this creates jobs at the low end, but contrary to what was claimed in the article, IT DOESN'T make our industry more capable, nor make our forces less dependent on imports!
To change that, we need credible infusions of critical techs to our industry and close the knowledge gap that we have in India, just like we need developments (of the indigenous industry with partners) for our forces, not just outsourced production for others!

On the other side, TATA has teamed up with Denel for the self propelled howitzer and get the howitzer production under ToT, while they not only integrated it on one of their platforms, but also build own custom systems for it. That's only possible because TATA is the lead partner in the JV, otherwise Denel would had insisted on their own systems, which obviously gets them more benefits in return and let TATA just take over minor parts of the production and integration.

B. No foreign company or most of them wanted to invest in India at even 49% in the defense sector.

That's plain wrong, so far the limit was at 26% which obviously didn't helped much, but still made numerous companies to team up with Indian partners for defence JV's, be it in the FICV competition, the howitzer competitions, the naval sector...

Several of them has even openly requested an increase to 49% (Saab, BAE...), to make it more interesting for them, but that would still give the Indian partner the upper hand and would be more than enough.

 

[JayAtl]

Funny when sombody tries to lecture others, without propperly reading or even understanding what they mean.



The point is not if it's 100 or only 55%, the point is, that we can't allow to give foreign companies control over these JV's otherwise our industry won't gain knowledge!

HAL for example produces airframe parts for the F18SH, does that make them technically better to develop fighters on their own? Does IAF or IN have any benefit from that productions?
TATA builds parts of Sikorsky helicopters, which mostly are not interesting for our forces, but can TATA develop an own helicopter now?

In both cases the answer is a simple no, because all they do is basic manufacturing, which benefits mainly the foreign vendor, because they can reduce the production costs for these parts. There is no denial that this creates jobs at the low end, but contrary to what was claimed in the article, IT DOESN'T make our industry more capable, nor make our forces less dependent on imports!
To change that, we need credible infusions of critical techs to our industry and close the knowledge gap that we have in India, just like we need developments (of the indigenous industry with partners) for our forces, not just outsourced production for others!

On the other side, TATA has teamed up with Denel for the self propelled howitzer and get the howitzer production under ToT, while they not only integrated it on one of their platforms, but also build own custom systems for it. That's only possible because TATA is the lead partner in the JV, otherwise Denel would had insisted on their own systems, which obviously gets them more benefits in return and let TATA just take over minor parts of the production and integration.



That's plain wrong, so far the limit was at 26% which obviously didn't helped much, but still made numerous companies to team up with Indian partners for defence JV's, be it in the FICV competition, the howitzer competitions, the naval sector...

Several of them has even openly requested an increase to 49% (Saab, BAE...), to make it more interesting for them, but that would still give the Indian partner the upper hand and would be more than enough.

I don't know where your claim of indian companies won't learn is coming from...the world over there are 100% FDI allowed ( if approved) on several defense related projects.

your example of HAL assumes that HAL turns into an airframe company for F18SH or TATA for Sikorsky helicopters. Firstly they are private companies ( HAL is offering an IPO- but not sure if they are private)- However, if they choose to be the manufacturing hub for those companies , then it is their right to be one. Frankly you don't need a JV for that , both companies can offer today to be the " manufacturing hub" if they so choose to do so. This would mean more jobs and investment into building the manufacturing infrastructure for India.

On the other hand however, why would TATA or HAL form just that one/single JV? They could have several JV's where they could be the primary shareholders if it makes sense to them.

One thing you are missing from the equation, these foreign companies also need their own govt( foreign) to also approve TOT and JV on sensitive technology.

Then , you are looking at defense JV opportunities from a very narrow view i.e. in terms of large industries like TATA. JV's now ( with up to 100%) means smaller companies that need infusion of cash dealing in technologies that are not attractive to TATA or other such bigger companies, can go out and find investments. In the US we have over thousands and thousands defense related companies... companies that make from small parts to the providing major technologies. They don't have lockheed, boeing, raytheon etc investing in them.

Companies also asked for at least 49% but on/ for very limited projects and because they never dreamed they would be allowed ( again , this is important, if approved by the Indian govt.) a 100% stake.

You are looking at the tree and missing the forest here my man.

A quick example: There is a company in India that has developed a technology that allows you locate sniper fire. they need 100 million dollars in investments to go to mass production. TATA is not interested in that project, indian govt won't give the private industry any money, and banks are wary of the risk... SO boom, here comes a foreign company willing to put up the money but want 51% shares... what do you do? say no, to hell with it-- and rather that indian company goes under or struggles for 20 more years to get investment?

 

[sancho]

This would mean more jobs and investment into building the manufacturing infrastructure for India

Exactly what I said, but only for "manufacturing" and only for low end techs, not for R&D and for joint developments of high end techs. I gave you examples for HAL, TATA and Samtel now and all you have to reply is, it creates jobs (which I never denied) and it is done elsewhere too, but the issue is how to improve Indias technical capabilities to improve Indian industry to a level, where they can offer Indian forces credible weapons and techs. THAT however remains not be possible with basic manufacturing and that's why this approach might help BJPs idea on improving growth and creating jobs at the lower end, but does not help Indian industry, nor Indian forces to be more capable!

One thing you are missing from the equation, these foreign companies also need their own govt( foreign) to also approve TOT and JV on sensitive technology.

Which is only possible, if we make it difficult for them on our market, by increasing competition, ToT/offset demands and also the demands in JV's and co-developments. That's what Antony and the last MoD did (even if nobody wants to give them credit for that), next to inviting foreign companies to use India has a production hub as well. BJP is doing the same policy, but reduces the technical benefit for India and the pressure for foreign companies / countries to give critical techs, by diverting the aim on manufacturing only.
That's why I said, I want Indian defence industry to be as capable as smaller western countries soon, by improving it's technical capability and don't want it just to improve it's manufacturing capacities, to be "only" a low cost production hub like Bangladesh.

In the US we have over thousands and thousands defense related companies...

Because the US spends more on defence than half of the world, that surely is not the aim of India, nor a wise example to follow anyway.
On the otherside, the LCA project for example was aimed to set up the base for indigenous aero industry, not only with ADA, DRDO and HAL, but also to get the needed sub companies, that can supply parts. So that is happening already too, just like the highest offset requirements in the whole world help in this regard as well. Look at the ammount of money that must be re-invested by Boeing into Indian industry, in return for the P8I and C17 deals, although both are not licence productions.

Companies also asked for at least 49% but on/ for very limited projects and because they never dreamed they would be allowed

Oh please, we have higher FDI limits in other fields as well, so it's not like it's unusual in India, but this is the defence sector, which can't be taken as any other sector. Increased manufacturing capability is not all, like it might be in other sectors, but the capability to gain more technical capability for our forces is the crucial point!

There is a company in India that has developed a technology that allows you locate sniper fire. they need 100 million dollars in investments to go to mass production.

So with the first scentence your example is already flawed, because the development was already done by the Indian industry, so the technical capability is already available and all that now is needed is the production part.
The point however is, that that no new technical know how is gained, when the JV is only aimed on base manufacturing, be it for the Indian tech in your example or the foreign airframe parts, that HAL, TATA and Co produced, because there is no transfer of critical techs included!
In your example, I would rather ask, why are Indian privat companies not interested in participate in the defence sector, like foreign companies are and that although the huge potential of the Indian defence market is a no brainer? The same question we have to ask, if we see none of them wanting to take over the Avro replacement or the Pilatus trainer prodcution, which then leaves us only with HAL as a manufacturer for the Indian requirements, while the privat Indian industry aims more on production for requirements outside of India!

Both shows, that privatisation alone is not the solution, just like aiming on basic defence manufacturing in India isn't either, because both doesn't make Indian forces less dependent on imports!

 

[l'ingénieur]

Producing your own goods is great for the country as it provides jobs, which is the most important thing after education. Good for you India

 

[JayAtl]

Exactly what I said, but only for "manufacturing" and only for low end techs, not for R&D and for joint developments of high end techs. I gave you examples for HAL, TATA and Samtel now and all you have to reply is, it creates jobs (which I never denied) and it is done elsewhere too, but the issue is how to improve Indias technical capabilities to improve Indian industry to a level, where they can offer Indian forces credible weapons and techs. THAT however remains not be possible with basic manufacturing and that's why this approach might help BJPs idea on improving growth and creating jobs at the lower end, but does not help Indian industry, nor Indian forces to be more capable!




Which is only possible, if we make it difficult for them on our market, by increasing competition, ToT/offset demands and also the demands in JV's and co-developments. That's what Antony and the last MoD did (even if nobody wants to give them credit for that), next to inviting foreign companies to use India has a production hub as well. BJP is doing the same policy, but reduces the technical benefit for India and the pressure for foreign companies / countries to give critical techs, by diverting the aim on manufacturing only.
That's why I said, I want Indian defence industry to be as capable as smaller western countries soon, by improving it's technical capability and don't want it just to improve it's manufacturing capacities, to be "only" a low cost production hub like Bangladesh.



Because the US spends more on defence than half of the world, that surely is not the aim of India, nor a wise example to follow anyway.
On the otherside, the LCA project for example was aimed to set up the base for indigenous aero industry, not only with ADA, DRDO and HAL, but also to get the needed sub companies, that can supply parts. So that is happening already too, just like the highest offset requirements in the whole world help in this regard as well. Look at the ammount of money that must be re-invested by Boeing into Indian industry, in return for the P8I and C17 deals, although both are not licence productions.



Oh please, we have higher FDI limits in other fields as well, so it's not like it's unusual in India, but this is the defence sector, which can't be taken as any other sector. Increased manufacturing capability is not all, like it might be in other sectors, but the capability to gain more technical capability for our forces is the crucial point!



So with the first scentence your example is already flawed, because the development was already done by the Indian industry, so the technical capability is already available and all that now is needed is the production part.
The point however is, that that no new technical know how is gained, when the JV is only aimed on base manufacturing, be it for the Indian tech in your example or the foreign airframe parts, that HAL, TATA and Co produced, because there is no transfer of critical techs included!
In your example, I would rather ask, why are Indian privat companies not interested in participate in the defence sector, like foreign companies are and that although the huge potential of the Indian defence market is a no brainer? The same question we have to ask, if we see none of them wanting to take over the Avro replacement or the Pilatus trainer prodcution, which then leaves us only with HAL as a manufacturer for the Indian requirements, while the privat Indian industry aims more on production for requirements outside of India!

Both shows, that privatisation alone is not the solution, just like aiming on basic defence manufacturing in India isn't either, because both doesn't make Indian forces less dependent on imports!

I think this has become more partisan and a political issue for you. you are not thinking what is good for the country. manufacturing airframes even so is not a low tech job.

you are under this zero sum game of imagining TOT can be forced on companies and only TOT is the end game. and only TOT in defense will benefit india. That shortsighted outlook is not about building an industry, infrasture or economy.

Look at your reply about US having thousand s and thousands defense related companies... 'US is spending more on defense'- . Well, these companies can only get a part of that pie if they exist. US does not fund those companies ...similarly India could have thousands of companies , but if the company has no funding they won't exist.

In my example , it is not about Indian companies are not interested in participating... indian companies can't afford to participate because they can't scale up due to lack of funding, even when they have their own technology unless they are a TATA etc.

 

[sancho]

I think this has become more partisan and a political issue for you. you are not thinking what is good for the country. manufacturing airframes even so is not a low tech job.

There you can see the differences between you and me, because it never was political for me! I don't care if BJP or Congress is in power, as long as the result is good for India. In this case we are talking about good for India in defence and more jobs to produce parts for foreign vendors and foreign forces is clearly not good for the countries defence!

you are under this zero sum game of imagining TOT can be forced on companies and only TOT is the end game. and only TOT in defense will benefit india.

And once again you are wrong, because I clearly stated that you can't simply get ToT of critical techs, but the more interesting our defence market looks, the more we can demand! In the past we were dependent on what arms and techs foreign countries were ready to provide, which was very limited (we wanted Tornados but got only Jags, we wanted F16s which were denied and even today US techs under licence productions will be denied), which gave us basically only the Russian option, but things had changed!
Today the Europeans are ready to give us anything we want, with increased ToT, while reducing restrictions next to zero, the Russians and Israelis went to co-developments with us on 50:50 bases which includes ToT and even IP rights and even the US are ready to offer us anykind of arms or techs, but still have certain ToT limitations as well as restrictions. All this came because if the increased demand of our forces and the increased competition on the market, with so many different options than ever before and we have to use this situation today and not fall back to the past, by giving the foreign countries and vendors the control again!

 

[JayAtl]

There you can see the differences between you and me, because it never was political for me! I don't care if BJP or Congress is in power, as long as the result is good for India. In this case we are talking about good for India in defence and more jobs to produce parts for foreign vendors and foreign forces is clearly not good for the countries defence!



And once again you are wrong, because I clearly stated that you can't simply get ToT of critical techs, but the more interesting our defence market looks, the more we can demand! In the past we were dependent on what arms and techs foreign countries were ready to provide, which was very limited (we wanted Tornados but got only Jags, we wanted F16s which were denied and even today US techs under licence productions will be denied), which gave us basically only the Russian option, but things had changed!
Today the Europeans are ready to give us anything we want, with increased ToT, while reducing restrictions next to zero, the Russians and Israelis went to co-developments with us on 50:50 bases which includes ToT and even IP rights and even the US are ready to offer us anykind of arms or techs, but still have certain ToT limitations as well as restrictions. All this came because if the increased demand of our forces and the increased competition on the market, with so many different options than ever before and we have to use this situation today and not fall back to the past, by giving the foreign countries and vendors the control again!

dude, you have assumed that companies and only thing coming out of these is manufacturing for foreign companies. You have assumed that they were low tech jobs, and you have assumed that India some how is not capable of walking and chewing gum. That india can't have both existing in the same space.

It is Utter rubbish and frankly borne out of not single example where your theory has proven right. At this point it is obvious you are not aware of how the FDI clauses are structured. where it is clearly is being indicated that certain ' amount of shares' would need TOT while other won't. Nor do you have a clue about how companies in world will give not TOT unless they see a benefit to them...and need for obtaining their govt. clearance.

 

[sherin616]

In weapon 49 share is better than 100
What if indian company cant compete with international compny

 

[Kloitra]

Buddy, since years we hear Indians complain about not getting enough through ToT and that it didn't benefitted us enough to develop own core techs like engines or radars, because the foreign companies didn't shared critical techs. The recent years had changed that, because of changes in our procurement policies, which demanded not only higher ToT, but transfer of critical technology. So are you suggesting to go back again and just watch and see for decades till we might have learned to develop an engine or radar on our own?

And no they haven't done so, why do you think Tata bought Jaguar and Range Rover? Because they couldn't develop similar cars on their own! But taking those companies over, got them access to the techs and know how and we saw Indian companies doing the same in the defence / aero field now too. Mahindra took over an Australian aircraft manufacturer, the Kalyani group took over an howitzer manufacturer and both are now developing their own products, based on the know how they gained, not buy waiting and watching.
This once again shows the importance of getting critical techs to improve our development capabilities for the future, be it by taking over foreign companies, by forming co-developments or JV's with critical ToT.

You misunderstood. I didn't meant ToT part. Rather how to make inroads in defence industry. They would not be able to compete with western firms even for next 30 years if all they do is research. Buy a company and gain the R&D. The way Mahindra and Kalyani did. Or let them make JV's with other companies. All in all, let them struggle. Other option is slow procurement and loosing foreign currency. Both the people and armed forces suffering.