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 !
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22 June 2016
www.hemenparekh.in / blogs
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