In
defense of FDI in Defense
Yesterday
, Government announced 100 % FDI in manufacture of defense equipment
Better
late than never !
But
some politicians / economists / industrialists are upset
They
thinks ,this is some kind of a " Sell Out " to the western
imperialists / capitalists !
On
the other hand , the government says 100 % FDI will create more jobs in
India
Before
taking sides , let us look at the current scenario in defense equipment :
#
India's Military expenditure in 2015................. $ 51.3 Billion ( 2.3% of
GDP )
#
India was No 1 importer of major weapons ( world-wide ) in 2010-14 period
#
India accounts for 14 % of global arms import
#
India imports nearly 60 % of its defense equipment
#
Cost of ex-import defense products is 3 to 5 times the indigenous
equipment
#
In next 7/8 years, India will buy defense equipment worth $ 130 Billion
#
With current FDI level of 49 % , only Rs 6 crore have come in during past 2
years !
Now
, when we import a defense equipment for an import value of Rs 100 / - , what
is its break up ?
My
guess is :
*
Material cost ( incl Bought out Components )..... .... Rs 45
*
Labour cost ( salaries + wages ).......................
....Rs 15
*
Finance cost ( interest on fixed + working capital )....Rs 10
*
Overheads ( Sale / Mgmt / Depreciation etc ).........
Rs 20
*
Distribution / Commissions / Freight / local taxes
....Rs 10
---------------------------------------------------------------------------------------------------------
TOTAL......................................................................
Rs 100
---------------------------------------------------------------------------------------------------------
All
of these costs are incurred by Foreign Suppliers in their OWN countries
For
India , All of these costs , are foreign exchange out-go , enabling those
Foreign Suppliers to keep their ,
*
OWN factories in their OWN countries , humming
*
OWN workers employed
*
OWN local suppliers of components / raw materials busy
*
OWN bankers earning bonuses
*
OWN labour leaders demanding higher wages
*
OWN politicians hanging on to power
*
OWN retail shops crowded with customers.... etc
But
what will happen when these ( so far ) imported equipments start getting
manufactured in India ?
Here
is a partial list :
#
Foreign Companies will readily bring their latest technologies without worrying
about " giving away " secrets !
#
Whatever they produce locally but fail to " sell " to GOI , they will
be forced to export - a big boost to export
earnings . With cost arbitrage , they might even make India , their Global
Export Hub
#
Indian Armed Forces dependence on critical imported " Spares " will
go down and supply reliability will improve
#
Most of the " Costs " mentioned above , will get incurred locally -
boosting Indian economy, not foreign !
#
Government will get same products much cheaper , enabling our Defense Budget to
buy more
#
Thousands of local Component manufacturers will spring up in MSME sector of our
economy
#
Thousands of Indians will get jobs
#
Our negative trade balance will reduce
#
Given our current DPP ( Defense Procurement Policy ), cheaper , locally
manufactured defense equipment will
stand a better chance of competing with the imported equipment . This will
motivate many more of the current
Foreign Suppliers to set up manufacturing bases in India , in order to remain
price-competitive
#
There will be positive fall out effects on DRDO / ISRO / Govt Research
Laboratories
#
Last - but not the least - this will make Indian Defense equipment
manufacturers " Efficient / Competitive " !
But
replacement of the term , " State-of-the-art " technology with "
Modern " technology , may not suffice !
No
doubt Commerce Minister , Madam Nirmala Sitharaman is aware of this since she
was quoted ( Business Line / 21 June ) to say :
"
The thought process behind this was that we are spending too much time in
defining things and understanding what exactly is state-of-the-art.
So,
instead of keeping it verbose and making too many things binding us down, by
using this one word 'Modern', we hope to bring in technology that we
require "
Let
detractors cry hoarse
There
is no need to defend 100 % FDI in Defense !
--------------------------------------------------------------------------------------------------------------------------------
22
June 2016
www.hemenparekh.in / blogs
hemen
parekh
Marol
, Mumbai , India
(
M ) +91 - 98,67,55,08,08
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