By Ajai
Shukla
Business Standard, 25th June 14
The
Confederation of Indian Industry (CII) has overruled some of its
own defence committee members in recommending that foreign direct investment
(FDI) in defence should be capped at 49 per cent.
At a stormy
meeting in New Delhi on Tuesday, a near-plenary session of CII’s defence
committee, chaired by Bharat Forge chief, Baba Kalyani, overruled co-chairman,
Nikhil Gandhi of Sea King Infrastructure Ltd (SKIL), who wants foreign
companies to be automatically permitted majority stakes in Indian defence firms.
The
controversy has been boiling within CII since a meeting on Saturday between
senior ministry of defence (MoD) officials and industry bodies, where Gandhi
had recommended on behalf of CII that 51 per cent FDI should be allowed through
the automatic route, with higher FDI permissible in cases where high-technology
was being brought into India.
This led to
defence majors like L&T and Bharat Forge expressing their ire to CII
president, Ajay Shriram. Today, the CII defence committee overruled Gandhi,
recommending that no more than 49 per cent FDI should be allowed through the
automatic route, with higher FDI permissible “only on a case-by-case basis.”
Several CII
defence committee members confirm that this is now the official CII position,
which conforms to that of industry bodies, Ficci and Assocham.
CII’s
defence committee noted today that defence was a strategic sector where governments
control technology, not companies; and that a government could legitimately refuse
to release high technology even to a fully owned subsidiary in India.
Industry
sources who attended today’s meeting tell Business Standard that some defence
company owners are arguing for higher FDI simply in order to divest their
holdings later for a hefty profit to foreign vendors.
Nikhil
Gandhi flatly rejects such motivation on the part of SKIL. He points out that
his shipbuilding facility, Pipavav Shipyard, has an order book position of Rs
2,000 crore and world-class infrastructure for warship building. “What is the
problem with allowing foreign majority holding if that brings in technology,
creates jobs and develops infrastructure in the country?” asks Gandhi.
Even so,
the CII meeting on Tuesday flatly rejected the notion that raising FDI in
defence would create manufacturing jobs. Noting that defence production did not
yet provide a level playing field for India’s private companies, CII demanded
that defence be fully opened for the private sector before allowing in global
vendors.
“In
1991-92, hundreds of SMEs were killed off when the economy was liberalised.
Before such a liberalisation in defence, Indian defence companies should get at
least a decade to build their capabilities and ready themselves to face global
competition,” says a senior defence industry executive who was present at the
meeting.
The debate
over FDI in defence has been resumed after the Department of Industrial Policy
& Promotion (DIPP) has floated a proposal to raise the current 26 per cent
FDI cap in defence, mooting alternative caps of 49, 74 and 100 per cent.
The MoD
internally holds that defence industry must be protected with a 49 per cent
cap. Consensus between all the major industry bodies would make it almost
certain that the DIPP proposal would be capped at 49 per cent.
Agreed. The FDI MUST be capped at 49%. More than 49% FDI lobby is clearly indicating their distrust of Indian defence PSU scientific prowess, which might actually be true. As a proud Indian, I feel Indians do have what it takes to build world class systems ourselves, all we need is deregulation of defence from being a Govt. Monopoly. Allow Indian private sector participation at par with defence PSU for projects.
ReplyDeletetdblog@yahoo.com:
ReplyDelete49% fdi should only be allowed if the other 51% is held singly by a DPSU. Basically the formulae should be simple 49% fdi cannot be held by a single company...or subsidiary or a single country's consortium of companies. Fdi route should be to facilitate defence production and growth in tech transfers and speedy delivery to armed forces. If at all ever found that this provision is detrimental to India's defence goals...it should have an inbuilt automatic ceasure clause to forfeit it and bring back fdi norms back to not more than an X% for e.g.: say 21% etc.
Assigning appropriate priorities and sequencing of activities for allowing FDI in Defence Sector is very important. First of all, PSUs like HAL, Mazgaon Dock Limited, BDL etc. need to listed in stock exchange. This will improve their performance and make them more transparent. Equally important is commercialisation of small batches of factories of OFB for above reasons. These organisations must be converted to commercial organisations and in turn they must assign appropriate importance to generating turnover and profit.
ReplyDeleteDefence PSUs and OFB can contribute hugely through implementation of appropriate policies.
P.K.Chaudhuri.
Noida.
Shri. Nikhil Gandhi spake thus, and I quote:
ReplyDeleteNikhil Gandhi flatly rejects such motivation on the part of SKIL. He points out that his shipbuilding facility, Pipavav Shipyard, has an order book position of Rs 2,000 crore and world-class infrastructure for warship building. “What is the problem with allowing foreign majority holding if that brings in technology, creates jobs and develops infrastructure in the country?” asks Gandhi.
Where Shri. Nikhil Gandhi is mistaken is in assuming that the technology he'll get as crumbs, will be used in his other projects -- without strict permission, controls and profit stake from his foreign benefactor.
He doesn't know, that he'll be a puppet in the hands of his foreign stakeholder, and the foreign govt. will monitor his factory floor to see whether the tech. being used is used only for "approved" products and not sneaked out elsewhere.
Shri. Gandhi will be able to spread his wings with his new found tech. only 20 years from now -- by which time, it shall already be dated and available everywhere.
Tut, tut Shri. Nikhil Gandhi. Where did you do your MBA from ?
Pipapav has a horrible rep in the business. Two bigwigs from indian industry flatly asked why it was pipapav and hot established private firms which got into tieup with a lucrative Govt order book full shipyard.
ReplyDeleteLogic that the Govts control technologies, not companies is not valid. Once company is controlled, all aspects relating to the company are with the Board, including production, size/type of production, batch priority, intl marketing/domestic sales, etc.
ReplyDeleteIt is in long term interest of India that it holds majority in a Defence/strategic Companies; 49% may be too high for a company to induce M & A by acquiring addl 2-3 % dubiously from the market.
Commerce versus security is to be measured.
Move with care!
Brigadier(Retired) Sukhwindar Singh
www.IndianDefenceIndustry.com
Anonymous said:
ReplyDelete"Agreed. The FDI MUST be capped at 49%. More than 49% FDI lobby is clearly indicating their distrust of Indian defence PSU scientific prowess, which might actually be true. As a proud Indian, I feel Indians do have what it takes to build world class systems ourselves, all we need is deregulation of defence from being a Govt. Monopoly. Allow Indian private sector participation at par with defence PSU for projects."
Anonymous,of course Indians have what it takes to build world class systems - LCA, Arjun, Akash, etc. Of course, your overall point is well taken, as opening up to the private sector will be an improvement.