51 pc FDI in defence will be a game changer for India'

Raising foreign direct investment cap to at least 51 per cent in the defence sector will help India become a major manufacturing and export hub, reducing dependency on imported equipment.

"India can be a game-changer only by allowing at least 51 per cent FDI in the sector. With access to critical technology, the domestic companies will be able to manufacture products indigenously and make India a global defence manufacturing and export hub," said a government source.

India imports defence equipment worth over USD 8 billion annually. It is one of the largest defence importers in the world with only a minuscule component of exports.

Allaying concerns of few domestic industries, the sources said that the proposal mooted in the draft note has enough safeguards to protect this sensitive sector.

"Giving controlling stake to a foreign player will be an incentive for them to bring modern technologies in India. Besides making India as their manufacturing centre, they will also export from here. It would lead to creation of jobs," said a source.

While the government is holding inter-ministerial consultations, intense lobbying is being witnessed within the major industry chambers, the sources said.

A section of the domestic industry, with less than 1 per cent share in the sector, holds a view that the FDI should be restricted to 49 per cent, while another view is that without a majority stake why would the global investor invest in India, they added.

They said that caping FDI to 49 per cent is not going to help. It would be a status-quo type situation.

"India should not lose this chance. To become self-reliant in defence sector, 51 per cent FDI must be allowed. Between 2001 and August 2013, 49 per cent foreign investment (26 per cent FDI + 23 per cent FII) was allowed. During this time, India has attracted only USD 5 million investments, which is lowest in any sector," the source said.

Between 2001 and 2013, India has received about USD 320 billion in foreign investment. The figures clearly reflect that India has not received any investment when the cap was 49 per cent.

The sources also argued that due to sagging economies in the West, multi-national companies want to expand their manufacturing base in Asia and India can become a major centre for that.

"Now the country cannot afford to miss the bus. Fixing foreign investment cap to 49 per cent will not help in getting modern technologies. Figures are clearly reflecting that 49 per cent foreign investment has not changed anything. It will be a game spoiler," they added.

The Department of Industrial Policy and Promotion has circulated a draft Cabinet note to relax foreign investment policy in defence sector.

They have proposed up to 100 per cent FDI in case of state-of-the-art technology and 74 per cent (FDI + FII) in case of technology transfer.

The sources further said that defence PSUs too are not able to meet India’s requirement.

"Currently, over 70 per cent of India’s defence requirement is done though imports. The government can reverse this trend by permitting 51 per cent FDI in the sector, they added.

Several Indian companies including Mahindra and Mahindra, Tata and Ashok Leyland have interest in the sector. Further liberalisation of the FDI policy would help them in joining hands with foreign firms to produce equipment.

India is expected to spend over USD 250 billion in the next 6-7 years in procurement of defence equipment for homeland security. Indian private and public sector firms would not be able to provide equipment so the country will end up importing all the requirement.

"Countries like China and Mexico have emerged as a major hub for defence manufacturing, why can’t India move the step towards that direction.

India can become a very important place for foreign firms to set up manufacturing units here. They can also export to whole of Asia from here," said a source.

In the discussion paper, the DIPP has said that the bulk of the domestic production is met either through the Ordnance Factories or the Defence PSUs.

How to compress government

By deciding to limit decision-making to four or fewer levels, the government has tried to compress itself vertically. If this is strictly enforced through regular monitoring, preferably by third parties, it would help speed up decisions.
However, this should only be the beginning. This move should be followed up by compressing the government horizontally as well. This can be done not just by reducing the number of ministries and departments, but also by eliminating the often needless inter-ministerial consultations, a stratagem perfected over the years to delay decision-making and apportion the blame for wrong decisions among many partners. The need for such consultations has also arisen because certain ministries have expanded their turfs by putting in place rules and regulations that make prior consultation with them mandatory.
Steering recruitment rules, for example, through this maze of consultations and external approvals can take between two and five years. In many government organisations, key posts remain unfilled because recruitment rules act as an impediment, and amending them would take forever.
The expansion of government has taken place mainly to provide ministerial berths to influential politicians. Many ministries have been split just to find slots for the excessive number of officers who have been empanelled to hold secretary-level posts. Sports and youth affairs, for instance, used to be handled by a single ministry until a few years ago when it was split into two departments to accommodate two officers who were waiting to be posted. The department of land resources and the ministry of panchayati raj were carved out of the ministry of rural development solely due to similar exigencies.
While demarcating some levels is inevitable and may be necessary for the efficient functioning of a ministry or department, the uncontrolled multiplication of levels is mostly for the exclusive benefit of employees and officers, and for their promotions. Each secretary to the government of India now has a principal private secretary and a minimum of four other levels of private assistants and secretaries. Such a template is replicated everywhere. For a file to travel through the levels, it has to be scrutinised by each person in the hierarchy. The time taken in the process is nobody’s concern, nor is the cost of the inevitable delay.
It is common knowledge that a lot of time — in some cases nearly 50 per cent of a department’s time, perhaps more in state governments — is spent managing personnel, transfers, postings, promotions, disciplinary proceedings and court cases.
Consequently, very little quality time is left to attend to matters of public interest. The government has done the right thing by laying down that all decisions must be taken within four levels and not more. But as long as the other levels exist, their occupants will waylay the matter at hand and put a spoke in the wheel, making it impossible to hasten decision-making. Therefore, the four levels in every ministry must be identified and the remaining levels must be merged into them.
There is also an urgent need to revisit the ministries and departments,merge some and abolish a few. Departments like financial services, panchayati raj, land resources, steel and public enterprises have no rationale to exist. For instance, much of what the department of financial services is doing can be accomplished by the RBI and the department of economic affairs.
Similarly, panchayati raj is primarily a state subject and the Union ministry of panchayati raj is not doing much except duplicating what the department of rural development is already doing, namely, distributing Central assistance under various schemes. The ministry of steel oversees the functioning of a slew of PSUs like Sail and NMDC, often interfering in their functioning rather than adding value. These PSUs are supposed to be professionally managed — they have been conferred with the title of Maharatna.
Similarly, the department of public enterprises has no useful role to play except issuing numerous circulars and mediating MoUs between PSUs and their respective ministries — a task that the ministries can easily accomplish on their own. As if creating such a redundant department was not enough of a waste of public resources, there is a Board for Reconstruction of Public Sector Enterprises to advise on how to revive sick PSUs. The list is long.
The quality of governance also depends on the calibre of those who lead the establishment. The next reform must address the manner in which senior positions in all Central government establishments are filled up. The prevailing assumption that almost everyone who joins the civil services is axiomatically fit to rise to the top and hold any office must be eschewed. It is patently wrong. We have been suffering the consequences of this self-perpetuating myth all these years.
Reforms to achieve minimum government must recognise this and devise ways to jettison the dead wood before its weight sinks the rest of the administration, as it is doing at present. Maximum governance will follow.

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New algae species could provide valuable biofuel

The discovery of a new species of macro algae along the coast at south Goa could open up vast reserves of biofuel besides providing raw material for anti-cancer drugs.

A variety of macro algae was last discovered some 45 years back in the coastal region of Chennai.

"Such macro algae can be a rich source of biomass," said Felix Bast, principle investigator and scientist at the Centre for Biosciences, Central University of Punjab. "Macro algae or seaweed changes its morphology frequently and hence it is extremely tough to record or find out about various species," Bast said.

Algae larger than 100 micrometre in size is termed a macro algae, or seaweed, in layman's language. The new species has been named Cladophora goensis Bast after the researcher who found it. Green marine algae is responsible for the phenomenon of the massive green tides occurring in Goa, due to the explosive growth of seaweeds.

"This is a rapidly growing algae which cultivates in marine areas only and in water with salinity greater than 30ppm," said Bast. "Apart from the possibility of this being used as a raw material for biofuel, it can be cultivated and used in the production of FDA-approved anti-cancer drugs," he added.

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Putting up a better defence

The NDA government has put in motion the proposal to increase FDI in the defence-industrial sector from the existing limit of 26 per cent to maybe even 100 per cent. This is breathtakingly bold and quick, but may not be the only measure required to galvanise our defence industry.
We must simultaneously address other equally important reforms to achieve our objective of adequate self-reliance.
The first major reform introduced to galvanise the domestic defence industry was in 2001, when then defence minister George Fernandes opened up our defence industry to the private sector and also introduced 26 per cent FDI. The next step was to promulgate a defence offset policy in 2005. Unfortunately, in the implementation of these reforms, the ministry of defence (MoD) faltered gravely.
Our private sector greeted the reforms with enthusiasm. A number of companies created new divisions, made investments in manpower and infrastructure, but when they came to the crucial business-end, they hit a solid wall of resistance from the MoD. Generally, orders would only go to the defence PSUs or the foreign defence multinationals. So, the first mission of the new government should be to address the issue of giving the private sector a fair and level playing field. Admittedly, such a measure may impact the business of the defence PSUs. But the government’s primary agenda must be greater indigenisation, and not the profitability and survivability of the PSUs.
The bigger challenge, however, lies in the transformation it must bring about in our Ordnance Factories Board (OFB), defence PSUs and DRDO. These undertakings together produce everything the armed forces require. The problem is with technology, quality as well as cost and delivery schedules.
In terms of real estate, infrastructure and manpower numbers, our defence production establishments can compare with the best in the world. In contrast, our production and efficiency indices would be amongst the worst.
Most problems are fixed by starting at the top. The Department of Defence Production (DDP) controls all defence PSUs and the OFB.
Since the DDP is part of the MoD, we have a situation where the designer (DRDO), manufacturer (PSUs and OFB) and the customer (captive) are all rolled into one entity. The bureaucrats posted to the DDP have no knowledge of the defence sector. Ironically, they choose to learn their trade from the establishments they control and not from the armed forces they are meant to serve. Hence, the first step would be to review the corporate control of the PSUs and the OFB.
Concurrently, the functioning of each defence production establishment must be subjected to close scrutiny. R&D, currently the preserve of the DRDO, must shift in great measure to the production units —a recommendation made many times but not implemented. The OFB requires a serious overhaul.
On the technology induction and assimilation front, we have failed to adequately exploit the benefits of our “offset policy”. We did not fully comprehend the gritty battle we would have to fight to fully extract the benefits of the offset policy. No country or company will easily part with technology. While they seek our business, which is incomparably huge, they also engage in furious lobbying against our offset policy — claiming primarily that our existing industrial base is not yet advanced enough to absorb even 30 per cent business of the large orders we are placing. The irony is that we listen to them and also allow Indian partners to fudge.
In order to derive benefits from our defence offset policy, we have to put in place an effective organisation. The government should consider setting up a “Department of Defence Offset Implementation”, with representatives from the industry, the scientific community (DRDO) and the defence forces, backed by a strong legal and financial team. Perhaps the current DDP could be reorganised to discharge this function.
While we weigh the merits of increasing FDI to boost our defence industry, the aforementioned steps must also be given equal consideration.

Chinese takeaway: Panchsheel Blues

Vice President Hamid Ansari is travelling to Beijing this week to join the official celebrations of the five principles of peaceful existence, or Panchsheel, unveiled 60 years ago. A discerning observer, however, might ask why the celebrations are all in Beijing and barely any in New Delhi. The answer, put simply, is that India has long been ambivalent about Panchsheel. Many Indians view Panchsheel as a remarkable “discovery” of new principles of international relations — non-intervention in internal affairs of nations and peaceful coexistence. For some others, Panchsheel is the best example of Jawaharlal Nehru’s idealist folly.
The five principles first made their appearance in Indian diplomacy as a preamble to an agreement that Delhi signed with Beijing in April 1954 on transborder trade and cultural engagement between India and the Tibet region of China. For its part, India had to come to terms with the changed political conditions in Tibet. In the decades before China gained control over Tibet, it was the British Raj that exercised primacy in the region. For centuries before the Raj, India and Tibet were bound by a shared culture and commerce.
The 1954 agreement came at the peak of the “Hindi-Chini Bhai-Bhai” phase in bilateral relations. Five years later, Delhi and Beijing began to squabble over Tibet and fought a brief war in late 1962. Nehru was unwilling to renew the 1954 agreement, which lapsed after eight years in early 1962. Speaking a few years after Nehru’s death, his close confidant and defence minister Krishna Menon criticised the deification of the five principles. He insisted that Panchsheel “was not a revelation. It was not a creed or part of the formulation of our foreign policy”.
Beijing’s Five
If Panchsheel, in Menon’s words, became “a mantra, slogan and a prop” for India, it was very central to communist China’s worldview. The essence of the five principles figured prominently in Mao Zedong’s proclamation of the new republic on October 1, 1949. Mao was cautioning the West against intervention and reassuring them that the new China would not destabilise Asia.
When it came to India, the five principles had great salience, for Mao had no reason to accept Delhi’s special relationship with Tibet and the multiple privileges that the government of India had inherited from the Raj. For Mao and his able premier, Zhou Enlai, the Panchsheel was about getting India to accept Chinese sovereignty in Tibet. So long as Tibet remains restive, China will put Panchsheel at the heart of its diplomacy towards India. The latest celebrations in Beijing are a mere reflection of that.
Himalayan Bridge
Ironically, China and India may have adhered to Panchsheel more in breach rather than in observance. Beijing has often accused Delhi of meddling in Tibet and Delhi frequently fulminated at Beijing’s support to secessionist movements in the Northeast and beyond.

other’s internal affairs today is political prudence and not high principle. Delhi and Beijing know they can hurt each other by playing the secessionist card; therefore, both of them have the incentive to keep their involvement below the other’s threshold of tolerance.
While rhetoric is common in diplomacy, Ansari might want to look beyond Panchsheel formalism and explore the prospects for expanding overland commerce and contact with China. After all, the 1954 agreement allowed customary transborder intercourse between India and Tibet. It permitted local traders and pilgrims to travel across the border without passports and visas. Those positive elements of the 1954 agreement have long been forgotten amidst the hype on Panchsheel.
To its credit, China today is proposing substantive transborder cooperation with India under new conditions. Beijing’s ambassador in Delhi, Wei Wei, has called this week for a “Trans-Himalaya Economic Growth Region”, powered by China and India. Instead of being defensive, Delhi must seek more details on this very interesting idea and offer a vision of its own for a productive engagement with Beijing all across the Tibetan frontier.
For one, Delhi and Beijing could agree to modernise the infrastructure at the Nathu La pass connecting Tibet and Sikkim and initiate full-fledged trade. They could also find ways to expand the current limited opportunities for Hindu and Buddhist pilgrims who want to visit places of worship on both sides of the border. The Narendra Modi government should be particularly interested in a significant expansion of Indian access to the holy sites of Kailash Manasarovar.