Defense Budget Hiked to 2.3 Lakh Crore

[NKVD]

I hate these MODITARDS too, but what is your problem man?

We are Indians and we need t talk abut Indians and Indian defense preparedness; not what the mad whoever is killing each other beyond our border. Let them die, we only wish them to prosper. We can not teach them how to live in peace.

So, do not bother about them, bother about your community, about other communities and above all the whole nation.

Money has to be allocated for us to be in safety, because we have very caustic experiences in the past.

Thumps up for you if you able convince this fanatic bot he is to much anti india talking about mascaring hindus in coming decades he is trollp

 

[mujhaidind]

Money has to be allocated for us to be in safety, because we have very caustic experiences in the past

Indian Muslims can't support being enemies with an Islamic country. Goes against our religion. We would like India to settle difference with Pakistan.

he is to much anti india talking about mascaring hindus in coming decades

Dont put words in my mouth.

 

[Arya Desa]

We want in Chandigarh capital of Haryana

Sorry Chandigarth is the capital of Punjab. You are happu to reunite with us if you so desire.

 

[sancho]

The fiscal situation is considerably worse than what it has been made to appear. However your logic on defense outlay baffles me. This is a government that has just come in. They work on the revenues earned by the previous government's budget. Where on earth did you think they would get the additional money in 45 days? The first proper budget for this government will be in 2015. Only then can your complaint be valid.

That's why I don't expect big decisions made within these 45 day, only maybe 6 or 12 months, but the budget is not based on the work they did only in the last 45 days as taken now as an excuse, they were working for it since month, to do changes in policy, changes that they have advertised during the election and they know exactly how the fiscal dept was. Please lets not act like it was somekind of a secret that they only were able to understand in the last few days.
More importantly however is the point, what they actually "want to change within this FY" (not right now after 45 days) and this budget, because that is the key to see their idea of government or their policies, in this case of their defence policies. That also doesn't necessarily mean, budget increase in the way they raised the expectations, but also to use the available budget in the most effective way "according to their policies". But when we look at the budget and compare it with the interim budget, we see a disappointing raise, but also that the only difference in diverting the money is the push for DRDO, or OFB. So without a credible increase, or at least a credible change in diverting the budget, we can't expect much changes in procurement policies.

You might find this interesting:

Not Really An Ideal Budget For Defence – Analysis

Even though the Narendra Modi Government started off with a proverbial military bang, and has received many bouquets for presenting a fairly “balanced budget” overall, for the Defence, however, it does not seem to be an ideal and balanced one. Depending on the perspective that one takes, the Budget proposal hardly provides the desired impetus for the modernisation plan of the defence forces which the Prime Minister and his party were sensitive to during and after the elections.

This “similar to interim Defence Budget” (except for the Rs 5000 crore increase, out of which Rs 1000 crore is for developing the Defence Railways infrastructure network) has a proposal for an outlay of Rs 2.29 lakh crore, a 12.4% increase over the Rs 2.036 lakh crore budget in 2013-14. The capital acquisition budget has increased to Rs 94,588 crore from last year’s Rs 86,740.71 crore. Interestingly, the defence budget grew 17% in 2011-12 and 12% in 2012-13.

However, when you consider the GDP, the current budget is a mere 1.74% of the projected GDP — a far cry from the stated goal of spending 3% of the GDP on Defence. Though this figure was backed by the Parliamentary Committee on Defence, in reality, this was never achieved in any Budget. Contrary to the statements of the government leaders, this Budget’s figure is lesser than even the 1.79% and 1.9% of the last two fiscal years...

India: Not Really An Ideal Budget For Defence - Analysis | Eurasia Review

So yes, there is a deficit problem, but that was not realised only now and the solutions and goals that the new government has shown now to counter it, are even the same as the former government proposed, so nothing new in that either. Taking that as an excuse for the not that impressing budget now, that is contrary to their earlier claims and the rasied expectations, is just a distraction. As I said before, unlike others I never expected 20 to 25% increase, but 15% instead of 12% were possible for sure, so why so much difference between their promises during election and what they now actually want to do in this fiscal year?

Tax reductions given won't amount to much

I always have problems with the conversion of crores to Dollars, so please correct me if I'm wrong! The tax cut is for 22000 crores => (AFAIK) $3.67 billion Dollar. The raise of the defence budget to 15% compared to the former one, would just be $1 billion more.This money would be more than enough to buy at least 145 x M777 howitzers for example. If you take 10000 crore of the tax reductions => you have $1.67 billion, enough for the initial payment of the MMRCA, or additional C130Js...
So even a small part of the tax reductions could indeed had made a difference in the defence budget (not to mention the "currently" wasted money on statues and memorials that could had been build later), IF the government had wanted.

what we need to see is whether or not the government simply squeezes finances being spent on the UPA social spending projects.

AFAIK subsidies won't be touched and all social programs will remain the same, partially just with a new name.

Why are you happy with the limitation at 49%? My own opinion is that it should have been limited to atleast 51%. There won't be a lot of takers at this level.

Because it's most important for India to retain control of JV's in strategically important fields like defence. unlilke in textile or agriculture. Be it to demand more credible techs, or to route developments in directions that are useful for us, not only useful for the foreign vendor. It doesn't get India anything, if a foreign vendor outsources production of airframe parts like Boeing or Sikorsky does, because they want to benefit from lower production costs in India, while they don't bring production of ceredible techs to India! On the other side, we see Samtel forming JVs with Thales for HMS, electro-optics or IRST, even without 49% let alone 51% shares. Our aim must not only to get more manufacturing to India, but to get manufacturing of techs and systems to India that our forces needs and that improves our industry. And let us not forget that this is only the lowest level, even during the UPA term, foreign vendors were able to get more share if they offered more credible techs in return. So we made a reasonable good move to the foreign vendors, but still give them the option to get more if they offer more in return.[/quote]

 

[Devdas]

The more exciting part is upping FDI to 49%.

 

[Bang Galore]

Because it's most important for India to retain control of JV's in strategically important fields like defence. unlilke in textile or agriculture. Be it to demand more credible techs, or to route developments in directions that are useful for us, not only useful for the foreign vendor. It doesn't get India anything, if a foreign vendor outsources production of airframe parts like Boeing or Sikorsky does, because they want to benefit from lower production costs in India, while they don't bring production of ceredible techs to India! On the other side, we see Samtel forming JVs with Thales for HMS, electro-optics or IRST, even without 49% let alone 51% shares. Our aim must not only to get more manufacturing to India, but to get manufacturing of techs and systems to India that our forces needs and that improves our industry. And let us not forget that this is only the lowest level, even during the UPA term, foreign vendors were able to get more share if they offered more credible techs in return. So we made a reasonable good move to the foreign vendors, but still give them the option to get more if they offer more in return.

We have a disagreement on this, not because I'm against what your intentions are but on its workability. We buy a lot of completely imported stuff, it being made in India (by whatever ownership) is preferable to direct imports. Secondly as we have seen so far, many big companies simply won't come in unless they have absolute control. Actually, unlike agriculture or textiles, where you are replacing indigenous production under Indian ownership with foreign ownership (taking your example), no such thing is happening in defence because you are simply replacing direct imports with manufacture in India. In my opinion, even direct 100/5 foreign ownership helps because we will have Indians working with that technology, all of which has a chance of trickling down. This is apart from cases where we are insisting on technological transfers. I also disagree that India does not benefit if Boeing or Sikorsky outsources part productions to India. It is all a part of the economic growth that we want & as has been seen ion other fields, it only grows from there.

 

[sancho]

We have a disagreement on this, not because I'm against what your intentions are but on its workability. We buy a lot of completely imported stuff, it being made in India (by whatever ownership) is preferable to direct imports.

No denying in that, but the FDI raise, is not limited to the stuff we import for our forces, but also for stuff that will be build in India and then sold to foreign countries / forces. The stuff we buy for our forces will be mainly build in India anyway and thanks to the changes in the last year, will include critical techs for sure. But we also need to make sure that we benefit on the technical level, from the stuff that will be build in India for other countries and that's only possible if the remain with control in the JV's.

Secondly as we have seen so far, many big companies simply won't come in unless they have absolute control.

How did you came to that conclusion? Boeing, Airbus, Sikorsky, LM, AW, Saab, Thales, Safran, Dassault, the Israelis, the Russians..., all have started JV's and set up own facilities in India in the last few years with just 26% FDI, the raise to 49% will only increase the interest.

Actually, unlike agriculture or textiles, where you are replacing indigenous production under Indian ownership with foreign ownership (taking your example), no such thing is happening in defence because you are simply replacing direct imports with manufacture in India.

No, it could not happen so far, because it was not allowed by law. If the limit would be raised to 51% now, Boeing could had formed a new JV with an Indian partner, to produce even more parts of the F18SH, purely for the foreign market, without providing India any critical techs. That would be exactly the same as foreign textile companies producing in India for foreign markets, where also only the base manufacturing is a benefit for India, while the know how remains with the foreign vendor.

In my opinion, even direct 100/5 foreign ownership helps because we will have Indians working with that technology, all of which has a chance of trickling down.

To take the above mentioned example, where would we gain more? By manufacturing airframe parts of the F18SH under basic ToT, or by manufacturing radar, EW or engine parts under critical ToT? In both examples we create jobs, but the real gain for our industry comes with the critical techs, no matter if the final product is aimed at the Indian or a foreign market!

It is all a part of the economic growth that we want & as has been seen ion other fields, it only grows from there.

Economic growth, but not growth of the Indian company! TATA will not learn how to develop and build an own helicopter by manufacturing the cabin for Sikorsky, nor will HAL learn to develop and produce a medium class fighter, by manufacturing F18SH airframe parts. So it ends up on what do you actually want? And if we can get projects that includes critical techs, we will help the economy and the industial improvement at the same time!

 

[Bang Galore]

No denying in that, but the FDI raise, is not limited to the stuff we import for our forces, but also for stuff that will be build in India and then sold to foreign countries / forces. The stuff we buy for our forces will be mainly build in India anyway and thanks to the changes in the last year, will include critical techs for sure. But we also need to make sure that we benefit on the technical level, from the stuff that will be build in India for other countries and that's only possible if the remain with control in the JV's.

How did you came to that conclusion? Boeing, Airbus, Sikorsky, LM, AW, Saab, Thales, Safran, Dassault, the Israelis, the Russians..., all have started JV's and set up own facilities in India in the last few years with just 26% FDI, the raise to 49% will only increase the interest.

That "conclusion" is pretty widely held & even Jaitley when asked did not discount it but actually said that for political reasons, he could not do more immediately (interview with Karan Thapar). Essentially that gives a lie to the argument that this was done on very sound technical grounds.

The argument that there are already companies here at a lower percentage of ownership is misleading. The idea is to get more investment, otherwise 26% should be fine, shouldn't it? These companies are already here at that level, aren't they? There is no extraordinary advantage (there but limited) between 26% & 49% as there is with management control. As long as we are buying from companies 100% foreign owned, the logic to have such companies in India instead of elsewhere is pretty sound.

No, it could not happen so far, because it was not allowed by law. If the limit would be raised to 51% now, Boeing could had formed a new JV with an Indian partner, to produce even more parts of the F18SH, purely for the foreign market, without providing India any critical techs. That would be exactly the same as foreign textile companies producing in India for foreign markets, where also only the base manufacturing is a benefit for India, while the know how remains with the foreign vendor.

That would have benefited us. Boeing(or anyone else) isn't about to transfer any technology to any entity outside its control unless mandated to by a particular order. That is not about to be decided by percentage of ownership, it will still be governed by contract. It is a bit like China asking Apple or anyone else to transfer technology because something is built there. Technological transfer (to the entity) will only happen if there is ownership, otherwise will be guided by contract. Unless mandated otherwise as part of an order where costs will be factored in. Not a particular advantage. Technological know how in such cases is picked up incrementally through manufacturing & outsourcing, that can only happen if you manufacture it here in the first place (knowledge transfers happen regardless of who holds the patents). Again, China would be a good example.

To take the above mentioned example, where would we gain more? By manufacturing airframe parts of the F18SH under basic ToT, or by manufacturing radar, EW or engine parts under critical ToT? In both examples we create jobs, but the real gain for our industry comes with the critical techs, no matter if the final product is aimed at the Indian or a foreign market!

We would gain if we got access to F22's but that's not about to happen, is it? We have to live in the realm of possibility, no company is here to do charity. We start with jobs here and saving foreign exchange. also, if companies are present in india, we are less at risk of being pressured (regardless of ownership, when manufacturing happens here, we have leverage), that won't happen if we continue to buy from abroad.

Economic growth, but not growth of the Indian company! TATA will not learn how to develop and build an own helicopter by manufacturing the cabin for Sikorsky, nor will HAL learn to develop and produce a medium class fighter, by manufacturing F18SH airframe parts. So it ends up on what do you actually want? And if we can get projects that includes critical techs, we will help the economy and the industial improvement at the same time

They will learn, maybe slowly but they will learn. However they have to manufacture it to learn anything. The difference here is you seem to subscribe to the idea that technological transfers (outside of mandated ones) will happen akin to a sprint, I believe it will happen slower, more a marathon than a sprint. What you may want may not be achievable in the manner you believe, I believe it is doable this way.

 

[HariPrasad]

This is bcz india is a poor,illiterate linguistically riotic country

I am very surprised that why other lunatics likes you have not pressed Thanks button on your idiotic post.

 

[sancho]

That "conclusion" is pretty widely held

I meant that big companies would not come to India, which easily can be countered by looking at the facts or even the statements that the officials of these companies stated in the last few years. What the FM said, as you pointed out yourself, is a political statement and is mainly because he gets a lot of criticism now, especially from foreign vendors, but not because of the FDI limitation, but because he didn't scrapped the retrospective tax laws, as he claimed earlier and as he should had to increase FDI, because the foreign vendors don't need to be scared about such tax anymore. But the FM might just want to benefit if these taxation gets him revenues and if not he still can blaim the former FM for it.

The argument that there are already companies here at a lower percentage of ownership is misleading. The idea is to get more investment, otherwise 26% should be fine, shouldn't it?

No it isn't, because the increase is meant to create "more" FDI than we already got so far and not to create FDI "at all", because it's plain wrong to say that we wouldn't have got FDI in the last few years. In fact FDI at 26% were created by NDA not UPA, but it was the policy changes of the last defence minister, that focused on competitions with ToT and offsets, that increased the interests in investing to India by foreign vendors, because they simply had to if they wanted to seal deals on the Indian defence market. The MMRCA alone "forced" Boeing, Saab, or EADS to create new JV's or facilities in India. So the figure of the FDI limit is not a game changer as such, but is the next logical step in our aim to improve the Indian defence industry and that aim is followed by all Indian governments. Even if UPA had won the elections, it was more than likely that they had increased FDI to the same figure.

That would have benefited us. Boeing(or anyone else) isn't about to transfer any technology to any entity outside its control unless mandated to by a particular order.

No company wants to share their technology of course, that's why you have to force them to via competitions for our demand to via limitations in the laws for JV's, that increases their share if they provide more important techs. That's why we have these variation withing the FDI laws. And as said earlier, it's also not only just ToT, but also to get critical ToT that we need and here again, we have to put pressure on the foreign vendors, otherwise they will obviously act only in their interests and not in ours.

It is a bit like China asking Apple or anyone else to transfer technology because something is built there. Technological transfer (to the entity) will only happen if there is ownership, otherwise will be guided by contract.

Even China needs ToT to build the foreign products according to the foreign quality limits doesn't they? The difference is, if you share techs on how to build the cover or the display of the Iphone and let them just assemble the core techs that might be produced somewhere else, you don't have to divert critical ToT!
Similarly, if HAL manufactures parts of the F18SH under basic ToT like they do today, they won't get the critical ToT of the engine, radar or EW. Even if the F18SH had won the MMRCA, they would just had got more basic ToT and Boeing would had shown them how to assemble the radar and EW parts, that would be produced in the US to the airframes build here.
I said it in an other thread on FDI before too, I want India to get a capable aero industry, that improves itselfs via JV's or co-developments to a level where we will be less dependent on imported arms. But basic manufacturing doesn't get us there and that's what we can see in China too! They are the masters of basic manufacturing, but even with that capability and the huge ammounts of money they spend on defence developments, they struggle to develop modern radars and engines so far. So following that way and giving away control of such an strategic fiel to foreign companies is not a solution for India.

We would gain if we got access to F22's but that's not about to happen, is it?

Again, that depends on what techs? If we get access on know how of the wings, what will it get us? Is that the key for 5th gen capability? Of course not, that's why we need access to the design level, to latest radar and engine techs and only then we will gain credible know how. That's why we chose not to simply buy F35s as an export customer with next to no industrial gain, but to partner for the FGFA instead.

We start with jobs here and saving foreign exchange. also, if companies are present in india, we are less at risk of being pressured (regardless of ownership, when manufacturing happens here, we have leverage), that won't happen if we continue to buy from abroad.

You still limit this FDI issue only with the demand of Indian forces, but that is not the point, since the manufacturing part can be products that will be build here, but for the demand of other countries and forces!
Saab for example is offering the complete production line of the Saab 2000 to India and would also divert the manufacturing of a lot of spares to us, which then will be sold to Saab 2000 customers all over the world. So they benefit from the low production costs in India, even to sell the spares to PAF for example. So yes, we create jobs and the companies get some revenue by exporting these parts manufactured in India, but they don't gain on know how to develop the whole aircraft for a later demand of Indian forces for example, but that is the important part to be self reliant.
So you either aim only on jobs and growth only (which as shown will be created in India anyway), then you don't care about Indian control or critical techs.
Or you look at the long term benefits for the Indian industry and self reliance, that's where critical know how is most important!

They will learn, maybe slowly but they will learn.

That's what we both hope, but looking at our aero industry and what was achieved in the last 2 decades, I would not want to rely on hope only. Especially if now is the time for India to reach out and take any benefit we can get!
The world is in financial and economical trouble, India is the solution because we have the demand, so we must not only buy things now, but take this situation as the leverage to demand as much as possible in return. That's why MMRCA is such an important project, not as a fighter replacement, but since we can get so much out of the deal in return for our money!
And yes, we will learn even if we do it alone, but we will learn faster and can offer our forces far more capable arms and techs, if we use our advantages on JV's and co-developments!

- we are learning how to develop a 4th gen fighter and it's techs => we can get access to 5th gen ToT via FGFA
- we are learning how to develop a cruise missile => we can get access to NG hypersonic cruise missiles via Brahmos
- we are developing a current gen ATGM => we now get offers to co-develop a NG ATGM
- we are learning on how to develop basic transport arcrafts => while we get propper access to design and development of MTA
...
...
...


So why limit us to a slow and risky way for basics, when we have the access to a faster way with far better outcome for the industry and the forces?[/quote]

 

[Rahul9090]

 

[sancho]

Great title

Why Finance Minister Jaitley disappointed Defence Minister Jaitley

The finance minister hiked the total defence expenditure from Rs 203,672 crore in FY 2013-2014 to Rs 229,000 crore for FY 2014-2015. Though the increase appears substantial, it is insufficient to undertake the military modernisation necessary to meet the emerging threats, feels Brigadier Gurmeet Kanwal (retd).

In the first Budget presented by Prime Minister Narendra Modi's National Democratic Alliance government, Union Finance Minister Arun Jaitley -- who also happens to be India's defence minister -- increased the allocation for defence by about 12.5 per cent over the revised estimates figures for the previous financial year, including a hike of Rs 5,000 crore on the capital account for military modernisation.

He also announced the government's intention to raise the Foreign Direct Investment limit for defence manufacture from 26 to 49 per cent. Though both of these are welcome developments, they fall short of the high expectations that had been generated as the Modi government was perceived to be more concerned about national security and about making India militarily strong than its predecessor...

...the increase appears to be substantial, it is insufficient to undertake the military modernisation that is necessary to meet the emerging threats and challenges and address the issues of 'critical hollowness' in defence preparedness raised by then army chief General V K Singh in March 2012 in a letter to the then prime minister.
Also, the 12.5 per cent increase will be partially neutralised by the high annual inflation rate that hovers between eight and nine per cent (8.28 per cent in May 2014). Similarly, the steep fall in the value of the rupee against the US dollar and the inflation in the prices of weapons and defence equipment -- that is normally between 12 to 15 per cent per annum -- together erode the value of any increase in the defence budget on the capital account.

The net effect is that the defence budget, which now stands at a low 1.74 per cent of India's projected GDP for FY 2014-2015 and 12.75 per cent of the country's total government expenditure, has been stagnating in real terms in recent years, even if it has not actually declined...

Why Finance Minister Jaitley disappointed Defence Minister Jaitley - Rediff.com India News

 

[Bang Galore]

I meant that big companies would not come to India, which easily can be countered by looking at the facts or even the statements that the officials of these companies stated in the last few years. What the FM said, as you pointed out yourself, is a political statement and is mainly because he gets a lot of criticism now, especially from foreign vendors, but not because of the FDI limitation, but because he didn't scrapped the retrospective tax laws, as he claimed earlier and as he should had to increase FDI, because the foreign vendors don't need to be scared about such tax anymore. But the FM might just want to benefit if these taxation gets him revenues and if not he still can blaim the former FM for it.

The fact that the question was asked & the FM seemed to indicate that political pressure was the reason for limiting FDI in defence to 49% indicates that the position expressed by me is held by many others too including by major manufacturers.

No it isn't, because the increase is meant to create "more" FDI than we already got so far and not to create FDI "at all", because it's plain wrong to say that we wouldn't have got FDI in the last few years. In fact FDI at 26% were created by NDA not UPA, but it was the policy changes of the last defence minister, that focused on competitions with ToT and offsets, that increased the interests in investing to India by foreign vendors, because they simply had to if they wanted to seal deals on the Indian defence market. The MMRCA alone "forced" Boeing, Saab, or EADS to create new JV's or facilities in India. So the figure of the FDI limit is not a game changer as such, but is the next logical step in our aim to improve the Indian defence industry and that aim is followed by all Indian governments. Even if UPA had won the elections, it was more than likely that they had increased FDI to the same figure.

What you are talking about (with a couple of exceptions) are of cases where the contracts mandate the manufacturers to produce locally or reach offset targets. The UPA may have raised to the same percentage but I'm arguing that this government should have moved it to atleast 51%.

No company wants to share their technology of course, that's why you have to force them to via competitions for our demand to via limitations in the laws for JV's, that increases their share if they provide more important techs. That's why we have these variation withing the FDI laws. And as said earlier, it's also not only just ToT, but also to get critical ToT that we need and here again, we have to put pressure on the foreign vendors, otherwise they will obviously act only in their interests and not in ours.

That's fine but limited by the fact that forcing can only happen when & only if a substantial domestic order exists, not as a general manufacturing hub. Who would give management control to a 3rd party if there is interest only in taking advantage of cheaper overheads?

Even China needs ToT to build the foreign products according to the foreign quality limits doesn't they? The difference is, if you share techs on how to build the cover or the display of the Iphone and let them just assemble the core techs that might be produced somewhere else, you don't have to divert critical ToT!
Similarly, if HAL manufactures parts of the F18SH under basic ToT like they do today, they won't get the critical ToT of the engine, radar or EW. Even if the F18SH had won the MMRCA, they would just had got more basic ToT and Boeing would had shown them how to assemble the radar and EW parts, that would be produced in the US to the airframes build here.
I said it in an other thread on FDI before too, I want India to get a capable aero industry, that improves itselfs via JV's or co-developments to a level where we will be less dependent on imported arms. But basic manufacturing doesn't get us there and that's what we can see in China too! They are the masters of basic manufacturing, but even with that capability and the huge ammounts of money they spend on defence developments, they struggle to develop modern radars and engines so far. So following that way and giving away control of such an strategic fiel to foreign companies is not a solution for India.

I agree but these things won't happen because you insist on management control. The only thing that will happen then is that only those manufacturers who are "forced" to do so, will. Others won't.

Again, that depends on what techs? If we get access on know how of the wings, what will it get us? Is that the key for 5th gen capability? Of course not, that's why we need access to the design level, to latest radar and engine techs and only then we will gain credible know how. That's why we chose not to simply buy F35s as an export customer with next to no industrial gain, but to partner for the FGFA instead.

If we get nothing, how will that help us? You need companies to start investing, then hope that economic sense will push them to invest more. In any case, you are discounting the economic benefits of manufacturing per se as well as the leverage that such manufacturing within India will create.

You still limit this FDI issue only with the demand of Indian forces, but that is not the point, since the manufacturing part can be products that will be build here, but for the demand of other countries and forces!
Saab for example is offering the complete production line of the Saab 2000 to India and would also divert the manufacturing of a lot of spares to us, which then will be sold to Saab 2000 customers all over the world. So they benefit from the low production costs in India, even to sell the spares to PAF for example. So yes, we create jobs and the companies get some revenue by exporting these parts manufactured in India, but they don't gain on know how to develop the whole aircraft for a later demand of Indian forces for example, but that is the important part to be self reliant.
So you either aim only on jobs and growth only (which as shown will be created in India anyway), then you don't care about Indian control or critical techs.
Or you look at the long term benefits for the Indian industry and self reliance, that's where critical know how is most important!

That's my point, you (and I agree completely) want to increase manufacturing to a level where exports from India makes up a substantial part of sales of such companies. However, you are not about to get a whole lot of interest if such companies have management control vested with Indians. In which case, the Indian entity will only be one of many other entities & will offer the main supplier much less in returns than supplying through a 100% owned unit elsewhere. That would almost automatically limit exports from such units. Who wants 49% when they can get 100%?

That's what we both hope, but looking at our aero industry and what was achieved in the last 2 decades, I would not want to rely on hope only. Especially if now is the time for India to reach out and take any benefit we can get!
The world is in financial and economical trouble, India is the solution because we have the demand, so we must not only buy things now, but take this situation as the leverage to demand as much as possible in return. That's why MMRCA is such an important project, not as a fighter replacement, but since we can get so much out of the deal in return for our money!
And yes, we will learn even if we do it alone, but we will learn faster and can offer our forces far more capable arms and techs, if we use our advantages on JV's and co-developments!

- we are learning how to develop a 4th gen fighter and it's techs => we can get access to 5th gen ToT via FGFA
- we are learning how to develop a cruise missile => we can get access to NG hypersonic cruise missiles via Brahmos
- we are developing a current gen ATGM => we now get offers to co-develop a NG ATGM
- we are learning on how to develop basic transport arcrafts => while we get propper access to design and development of MTA
...
...
...


So why limit us to a slow and risky way for basics, when we have the access to a faster way with far better outcome for the industry and the forces?

While I take your point that we haven't been able to do much before, you do agree that private Indian companies are/can be a different proposition that PSU's. Nothing may happen yet but I believe we need to build scale before there is more pressure to transfer more critical technologies. Right now, there is not a whole lot of incentive to do that (excepting where mandated & therefore accounted into). What incentive would there be for foreign companies to give up management control unless they are primarily relying on an already won order? Where our orders don't justify asking for ToT, we still could benefit from significant cost reduction (as also exports) from units in India where management control is held by foreign entities.


This seems to be slightly more deep philosophical difference towards such an option. I doubt we will come to complete agreement. We will just have to agree to disagree till we can revisit this topic with more information.

 

[sancho]

The fact that the question was asked & the FM seemed to indicate that political pressure was the reason for limiting FDI in defence to 49% indicates that the position expressed by me is held by many others too including by major manufacturers.

Of course it's a political point, because the defence field is a strategic one! We have to protect our strategic interests in this area and that's why it's more important to retain with control here, as in the textile area for example. That certain parts of the industry would welcome more FDI is logical too, because they want to gain economically. So it's a matter of the point of view, the greater good for the country or benefits for some companies (mainly foreign vendors) and even several Indian major defence companies welcomed the limit.
The fact however remains, that we had investments of all major foreign companies even at 26% FDI, so raising the limit is only a measure to increase the interest that already was available.

That's fine but limited by the fact that forcing can only happen when & only if a substantial domestic order exists, not as a general manufacturing hub.

That's the point, we have the domestic demand since India is going to be the biggest market for defence orders and that is the reason why foreign companies has interests in India for manufacturing in the first place! We now have to take this advantage not only to get the arms we need, but also to improve our industry by making Indian a defence manufacturing hub. If that demand would not be there, most of the manufacturers would produce the same parts in countries with a better industrial base or even lower production costs.
So when we are at the upper level to demand things, why should we give away the control in JV's just like that?

You need companies to start investing, then hope that economic sense will push them to invest more.

As said, there are already investments into India, so that is not the issue. The key is, are they investing for their own benefits, or do we get something out of it too.
I can give you another example. TATA has formed numerous JV's with foreign vendors for basic airframe manufacturing of products that won't be procured by the Indian forces. So these JV's mainly are economical benefits for them an their foreign partners. India of course gains from jobs and taxes, but that's it!
At the same time, they hesitated to join in the Avro replacement as a partner for the licence production of the winning aircraft (just like most of the Indian privat defence players), because they thought a production of 40 x aircrafts would not be economically benefitting enough for them, which basically leaves HAL as the only option for the licence production again. So here again, the economical benefit of the company is put above the strategic needs of the Indian forces or India in general.
Be it defence, or also the Banking sector, there needs to be a control of either the government or the Indian side in general, because we have to be able to guide things to the benefits of the country and not leave everything in the hands of people that are looking at their own benefits only.

What incentive would there be for foreign companies to give up management control unless they are primarily relying on an already won order?

The fact that the order is bound to be done via a JV, take FICV, where TATA, L&T, or Mahindra has teamed up with foreign vendors, because the MoD has demanded that. Same goes for the howitzer competitions, or the LDP competitions now.
India today is in a much better position to demand things, than we were a few decades ago, when we had to take what limited things were offered to us, under the conditions foreign companies or governments demanded. Today we have the market and the money, therefore can demand competitions, high offset and ToT requirements, just as limit the the FDI control to our benefits and still, the foreign companies will come and accept that, because they can't afford to lose out on this market, when all other major markets are in decline. That's exactly why the US had opened up their defence market towards India in the recent year and offering us today weapons and techs that they won't even provide their long term ally Pakistan, or why they now are reducing export restrictions or ToT laws to comply more with our demands.

So we are in a position of strength and we need to maintain it, to get the maximum out of it for our interests and these interests must be higher than "just" some more low end manufacturing jobs, at least in such strategic fields like the defence!

This seems to be slightly more deep philosophical difference towards such an option. I doubt we will come to complete agreement. We will just have to agree to disagree till we can revisit this topic with more information.

Not surprising, since even our own defence industry has different point of views on that, but several major companies like Samtel for example are happy with the limit to 49%.

 

[Bang Galore]

Modi Offer to Foreign Defense Companies Not Enough for Lockheed

Indian Prime Minister Narendra Modi’s move to increase the ownership stake for foreign defense companies to 49 percent isn’t sufficient to lure high-technology investments from Lockheed Martin Corp. (LMT) or Boeing Co.Finance Minister Arun Jaitley last week said the cap on foreign direct investment in India would rise to 49 percent, up from 26 percent, with Indians maintaining control of management. While the move is positive, more is needed to attract big-ticket products, according to Phil Shaw, who heads India operations for Bethesda, Maryland-based Lockheed Martin Corp.“With those items where we have a lot of intellectual property and investment in a particular product, we are not necessarily going to want to send it to India and then not have control over that particular technology,” Shaw said. “Over 50 percent is the key where you are able to control the business a little bit more than at 26 or 49 percent.”Modi faces the challenge of attracting more investment to build up India’s local defense industry as its state-run companies fail to produce weapons the army needs in border conflicts with China and Pakistan. India surpassed China in 2010 to become the world’s largest arms importer and relies on purchases from abroad for 70 percent of its weapons, according to the Stockholm International Peace Research Institute.“I don’t know if many of the larger foreign companies would be interested in coming in without control,” Dhiraj Mathur, an executive director at PricewaterhouseCoopers LLP on Delhi’s outskirts, said by phone. “What is of concern is that we are missing out on an opportunity to leverage our huge spending program to create an industrial base in this sector. That is what is disappointing.”Exports FallIndia’s arms exports fell by about two-thirds over the past decade to $10 million last year, while China’s more than quadrupled in that time to $1.8 billion, according to SIPRI data. In the last 13 years India’s defense industry has drawn about $5 million in foreign investment, less than the amount for glue and gelatin production, government data show.Most global defense companies prefer licensed manufacturing in India because they don’t want to risk losing a “prized innovation,” according to Rahul Madhavan, a senior manager at the Washington-based U.S.-India Business Council, which represents the top 10 American defense manufacturers. While India in theory allows 100 percent FDI for higher technology items on a case by case basis, it’s an “untested option,” he said.“I don’t expect that FDI inflow in the defense sector will rise substantially,” Madhavan said in an e-mail. “If a foreign defense manufacturer were to be able to control 51 percent or more of a joint venture company, you will see tremendous gains and transfer of technology, manufacturing know-how, and innovative R&D development taking place in India.”‘Very Positive’Boeing isn’t ready to tie up with domestic companies, Denis Swanson, vice president of Boeing Defense Space & Security in India, said in a July 15 interview. Boeing would consider a joint venture if the company could make a business case, he said, adding that the move to raise the limit to 49 percent was “very positive.”“We see India as one of the most important markets,” Swanson said.A policy announced last year to favor buying weapons from domestic manufacturers may force foreign companies to create tie-ups with Indian firms to avoid missing out on contracts, according to Gaurav Mehndiratta, who advises defense companies that invest in India.“This means you are going to see a significant increase in joint ventures in the future,” he said. “At the moment the procurement process has been largely on hold so it hasn’t had much impact. Once it speeds up, then it will force foreign defense companies to change their business model.”Defense SpendingIndia increased defense spending by 12 percent to 2.29 trillion rupees ($38 billion) in last week’s budget from a year earlier as the new government seeks to modernize the armed forces to counter China’s rising power.Standing on the deck of India’s biggest warship last month, Modi called for the country to minimize its reliance on imports and become self-sufficient in weaponry.India’s largest business groups are divided on whether to support the measures. Foreign companies will invest at 49 percent because of inexpensive labor available in India, and raising the limit any further would harm domestic manufacturers, according to M.V. Kotwal, chairman of the defense committee at the Federation of Indian Chambers of Commerce and Industry.“We have a huge need for defense equipment and technology, but we are also a country with huge capability in various manufacturing,” Kotwal said by phone. “We can point to certain homegrown technologies, which by no means we can claim to meet the world’s best standards, but have relevant technologies that are quite cost effective.”Ajay Sharma, a senior director at the Associated Chambers of Commerce and Industry of India, disagrees. India should raise the cap to 100 percent to increase employment and attract technology that can help the country end its reliance on costly foreign imports.“We would like to see some more progress being made on this front in the future,” Sharma said, adding that he welcomed the initial step. “We want to see a manufacturing spurt within the country, and raising the cap further will help.”
Modi Offer to Foreign Defense Companies Not Enough for Lockheed - Businessweek

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