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30.a.Bhaskar Kanungo -GOCA - Sept 30 2015 v 7

  1. 1. Bhaskar Kanungo Deputy Director – Defence and Aerospace, Federation of Indian Chambers of Commerce and Industry, India 1
  2. 2. India – Attractions  India is the third largest economy in the world in PPP terms  USD 6.7 trillion economy with 6.6% global share  Huge Domestic Demand & Third Party Export  Ability to purchase  Demographic dividends (Youth and working age population)  Huge pool of Talents  Lower manufacturing cost  Opportunity for Co-development and Co-production  Exports Potential  Explore inaccessible markets Through Defence Diplomacy and Strategic Commercial Diplomacy
  3. 3. Indian Defence Sector: Highlights  Indian defence sector is growing at an unprecedented rate  Ranked as one of the largest global investors in defence  Defence Budget amounting to $40 billion and growing at approx 9% CAGR  By 2020 capital outlay in the defence budget would be almost $35 billion  Demand is steady  Geographical and geo=political situation demands highest state of readiness;   Internal security requirements another attraction
  4. 4. Indian Defence Budget Estimate (%) 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Defence Budget Growth (%) 34.19 3.98 11.59 8.57 14.10 12.44 7.74 Revenue Growth (%) 50.85 0.57 9.01 14.40 14.57 7.70 13.2 % Share of Rev Exp 61.3 59.3 57.91 61.02 61.28 58.70 61.7 Capital Growth (%) 14.20 9.44 15.33 0.55 13.36 19.93 0.0 % Share of Cap Exp 38.7 40.7 42.09 38.98 38.73 41.30 38.3 % share of Def Budget in GDP 2.30 2.12 1.83 1.90 1.79 1.81 1.72
  5. 5. Historical Perspective  Modern defence industry in India was set up to serve the interests of the colonial power rather than India’s defence needs.  The First Defence Factory commenced production in March 1802,  Philosophy was Import centric with insignificant domestic manufacturing.  India started ‘Licenced Production’ in 1971.  This helped ‘Public Sector Entities’ in manufacturing of ‘Licensed’ defence products.  Not in tune with National Aspiration of Self Reliance and Greater Indigenisation  Defence Research Development Organisation also picked up speed. Still, heavy dependence on Imports and in few cases Licensed Production only in DPSUs  Defence manufacturing was opened for Private Sector in 2001 with licencing clause.
  6. 6. Evolution of DPP PAC 187th Report 1989 GoM Report 2001 DPP 2002 DPP 2008DPP 2006DPP 2005 DPP 2009 (Amendments) DPP 2011DPP 2011 DPP 2013DPP 2013 Revision of DPP 2013 (Dhirendra Singh Committee)Revision of DPP 2013 (Dhirendra Singh Committee)
  7. 7. Expert Committee – Key Recommendations  Strategic Partnership Model - Selective identification of a few big private players and nurturing them through preferential treatment.  just one or two private players would be identified in each segment,  Priority for MSME Sector. MSMEs can now take part in “MAKE” Projects  Industry Friendly Procurement System  revision of current Technology Perspective Capability Roadmap (TPCR) so as to reflect the type and nature of the equipment required by the armed forces in the next 15 years.  ‘Make’ projects be shared with the industry along with the details of other schemes as contained in the 5-year Services Capital Acquisition Plan (SCAP).  Emphasis on Greater Indigenisation  ‘Make in India’ should not “become assemble in India with no IPR.  For DPP-2015, the ingenious requirement suggested are as:  ‘Buy (Indian) - 30% (current) to 40%(recommended)  Buy and Make (Indian) - 50% (current) to 60% (recommended)  ‘Make (Indian)’ - 30% (current) to 40% (recommended) with option of Flexibility as per requirement.
  8. 8. Expert Committee – Key Recommendations  Prepare a competency map of local capability  Allow foreign companies to discharge offset obligations through subscription to defence specific venture capital funds.  To issue tenders to Indian companies having industrial license (IL) in the relevant domain.  To provide liberalised funding to MSME though the MoD’s proposed Technology Development Fund (TDF).  To set up an independent body to ensure single window clearance for defence exports.  Corporatisation of the Ordinance factories’ and setting up of an export arm of the Defence Research and Development Organisation in the lines of the Antrix Corporation of the Indian Space Research Organisation (ISRO)
  9. 9. Changing Dynamics  Indian industry, especially private sector  witnessed significant growth in indigenous defence production  moving from being suppliers of raw material and parts to developing capabilities in system integration and producing platforms.  Regulatory Change – Government encouraging Private Sector investment and encouraging co-development and co-production with initiatives to bring level- playing amongst the players  Make in India – Opportunity for Investment, Collaboration, Co-Development and Exploration of World Market  Minister had made an statement - Imports will be allowed only in case we cannot make it in India and as a last resot  FDI raised from 26% to 49%,…..upto 100% depending on Technology  Issues regarding control and ownership have been addressed and FII is permitted in defence.
  10. 10. Changing Dynamics  Press Note No. 10 (2015 Series) - Industrial License  The initial validity is revised to 15 years, further expandable up to 18 years for existing as well as future licenses from current 7 years.  Licensees are now allowed to sell defence items to government entities like police and paramilitary forces without approval of Department of Defence Production.  Trimming of items requiring Defence license.  Zero Defence Industrial License Application Pending  310 defence Industrial licenses issued  Flexibility to select / change IOPs  Exports to Countries other than in Negative list  Expert Committee has recommended for Innovative funding mechanism   FICCI is actively preparing a mechanism to absorb funds and allow/facilitate discharge of Offsets  obligations.
  11. 11. Offsets Fostering development of  internationally competitive  enterprises  Augmenting capacity for Research,  Design and Development related to  defence products and services To Leverage Capital Acquisitions to Develop Indian Defence Industry 
  12. 12. Offset Obligations as per Guidelines Applicability • Buy Global Contracts > Rs 300 Crs • Buy Global with Indigenous Component < 50% • Buy and Make with TOT: 30% of FE component • Not for Option Clause when not included in original contract • 30 % by Value or as prescribed  by DAC Discharge Options • Direct Purchase of Products and Services/Executing Export Orders • Direct Foreign Investment  in Industry / R & D • Investment in Kind – ToT • Investment in Kind  ‐ Non Equity for (i) Industry   (ii) Institutions • Tot to DRDO  • Banking  and Offset Credits Main Clauses • Eligible Products and Services: Multipliers • Contract + 2 Years • Offset Partners : Choice and Change: Multipliers • Value Addition: Component only eligible • Buy back for ToT Offsets • Implementation and Monitoring
  13. 13. How Indian Industry Perceives  OEM abroad feels “losing” out the money paid to Offset Partner. This is not so.  OEM actually obtains sub-units / products at a lesser rate.  Also developing a prospective manufacturing partner in the ever expanding Indian Market.  Indian IOP expects Partnership  It is good to have a representative from OEM in the initial stages to be placed at IOP’s location, till the processes are stabilized and meet OEM’s standards.  Both IOP, its personnel & OEM’s project team should work as one team, with periodic Reviews and visits to each other’s plants.  Dilution of Offsets a concern of Indian industry
  14. 14. Issue of ToT  Most of the Offsets being undertaken to-day by OEMs & IOPs together, pertain to Build-to-Print manufacture / production / test / qualification & dispatches.  This is quite straight forward and in such operations, no formal ToT is included, except to the extent that training by OEM to IOP is provided free of cost.  DPP recognizes ToT (to DRDO / IOP) as one of the “Offsettable” routes,.  ToT as an offset discharge – introduced in Aug 2012.  Till date Government of India has signed 25 contracts.  ToT not considered as these contracts were prior to issuance of Revised Offsets Guideline 2012.  DOMW is currently evaluating the proposals for discharge of offsets based on ToT, and will decide on the basis of merit.  Currently two Technology Acquisition is actively under consideration
  15. 15. Joint Ventures  Historically Global Major OEMs most of the time prefer to have JVCs / Collaborations with Big Indian Industries (both in Public & Private Sectors)  Global Majors (OEMs) should also consider MSMEs for establishing JVCs in specific core areas, since, in India (as elsewhere in the world), it is only MSMEs which have the “core” technologies, and India has no dearth of niche MSMEs  Besides, DPP 2011 encourages selection of MSMEs as IOP (multiplier of 1.5 as incentives)  Global Majors (OEMs) in order to ensure success of their own JVS should also handhold/ help in building JVCs / Collaborations between their Tier-2 & Tier-3 suppliers with Indian MSMEs.
  16. 16. India – Investment Destination  Make in India – Flagship initiative of Prime Minister Narendra Modi  Global investors has responded positively, flying example - Establishment of India Rapid Reaction Cell by US government!  Government of India is leaving no stones unturned to make India an Investment friendly country  Dedicated Investment Body: Invest India  Country’s official agency dedicated to investment promotion and facilitation.   A joint venture between FICCI, DIPP and State Governments   Mandated to be the first reference point for the global investment community Come, Manufacture in India…..for the World 
  17. 17. Thank You  Bhaskar Kanungo +91-9910996161 bhaskar.kanungo@ficci.com bhaskar.kanungo@gmail.com 17