A recent news report indicates that the Government is keen on allowing 74% Foreign Direct Investment (FDI) in defense production to enable technology transfer and the bringing in of funds.
Let us take a look at some data. India’s defence budget for 2010-11 is over $30billion; India is currently the 2nd largest arms importer (2005-09) behind China. However, according to the SIPRI report, China is well on its way to becoming self-reliant and saw its imports decline to $0.6billion in 2009 from $3.5billion in 2005. During the same period, India increased its defense imports from $1.04billion to $2.1billion. India’s defence imports are currently estimated to be over $8billion. The role of the Indian entrepreneur, thus far, in catering to this huge market is less than negligible. Isn’t there therefore a terrific case for catalyzing entrepreneurship and providing opportunities to homegrown entrepreneurs in this strategic sector? Does the proposed FDI policy take this issue into consideration or will powerful lobbies favouring defence imports not allow local entrepreneurs and locally developed technology to flourish?
A recent article by Gen Shankar Roychowdhury, former Member of Parliament and Chief of Army Staff (http://bit.ly/blDIix) on the development of the indigenous Arjun Main Battle Tank (MBT) fortunately offers a ray of hope. Quote
“However, the sunny side is that the development processes has already stimulated growth in small but very high technology manufacturing agencies even if production lines for prototype models have been quite limited. These agencies are of course capital intensive, but have mainly come up in the medium and small scale private sector which is surely encouraging’
He also makes a case for involving the private sector in improving quality and project execution capabilities.
The situation in telecom is tragic as well. There’s only one, yes just one, Indian telecom equipment “startup” company that designs (owns intellectual property), develops, manufactures, sells and supports active equipment that sits in a telecom network. That company, Tejas Networks, started by 1st generation entrepreneurs is about 10 years old and is about $150m in size. Contrast this to the $24 billion market for telecom equipment that is supplied, directly or indirectly, by foreign players including Chinese companies like Huawei and ZTE which do over $3billion in sales from India alone. The current concerns about security of Indian networks should hopefully nudge policy making in the right direction.
The government can and should be a huge catalyst for the creation of industries that require large capital outlays, have long gestation periods and need highly trained and qualified manpower required to create very valuable intellectual property, manufacturing and project management expertise. Sectors like defense, space, and telecom also provide great opportunities for the government to create appropriate funding mechanisms, regulatory frameworks and business models that enable Indian entrepreneurs to set up great businesses.
It is high time that the government realizes that one doesn’t become a superpower by just having 8+% growth rates and by being a market for others, especially in strategic areas. Ownership of of key assets – intellectual property, markets, financial and socio-cultural – and deployment of those assets around the world is crucial. Else, there’s a real danger that India will remain not just an aspiring superpower but also a perspiring one as it struggles anxiously to make it!
What’s your opinion?
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Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own. The article has been reproduced from his permission.
Excellent piece, can’t agree more. We need to be self-reliant in our national defense. Else we’ll have our western neighbor pin pricking us with a 1000 cuts for another couple of 100 years. While we import EUM/Kill-switch ridden ‘high-tech’ equipment from our ‘ally’, who then uses our money to subsidize or freely gift the same equipment to the our western neighbor in a dubious un-winnable war. Our eastern neighbor continues their environmental warfare against us without as a whimper from us. It wouldn’t be wrong to say our bureaucrats and national leaders are so much behind the curve with regard to our homegrown technical capabilities.
The MI complex needs a massive overhaul in open sourcing and fixing their processes in favor of rapid and not necessarily cheap iterations driven by failures as much as successes. The current system is skewed heavily in favor of billion dollar corporations ( indian or foreign doesn’t matter ) or super-slow government owned defense industry. Arjun MBT is a story of an under-capitalized project with slow failures spread over years.
IMHO the 74% FDI to setup equipment manufacturing will do good to peripheral manufacturing sector as did Arjun. Only difference we don’t have to wait 15-20 years
(Arjun is a competitor to T90 which is from 1994).