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State of Technology in India & Needed Reforms
State of Technology in India & Needed Reforms
By
Rahul Chaudhry
CEO – Tata Power SED
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Preface
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Issues with Technology in Indian Defence
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Technology is not the “real” issue
• Indian Defence Industry has proved its ability to deliver state-of-the-art
technology against the odd of Global Sanctions
– India’s Strategic Missile Program is completely indigenous
• Dr APJ Abdul Kalam and DRDL indigenously developed a series of missiles Programs
– Agni, Prithvi, Akash, Trishul and Nag from the scratch, after succeeding in SLV 3 and
other Programs at ISRO
– Arihant Submarine Program, launched in 1997, under the peak of sanction
regime, successfully delivered under a PPP (Public-Private Partnership) model
– Samyukta EW System is another successful example of a completely
indigenously developed System under the PPP model
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Technology is not the “real” issue – EW
Samyukta EW System
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Change in Industry Dynamics – “Security” Bogy
• Instead of encouraging PPP, today MoD is avoiding it in the name of
“Security”
• BEL / DRDO did not clear IEWS – MT NC NC trials, however is being nominated for
all EW Programs citing “security” reasons
• L&T which gave the hull for Arihant, is denied the same for conversional Submarine
– Under MAKE Programs such as TCS and Global (Buy) Programs such as
MAFI, 155mm Tracked Gun, Electronic Warfare etc, Indian Companies are
Prime with “Know why” -
• Availability of Source Code, co-development and production is acceptable to major
Defence Contractors such as Raytheon, Ultra, Rockwell Collins, Cassidian (EADS),
Harris, Thales etc.
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Access to Technology is not the “real” issue
• Today, Indian Companies are Global Companies
– In Defence also, these companies are quite capable of buying niche
technology players abroad or create a Global Supply Chain if Indian
Market is opened for Competition
• However, the problem is Market Access, i.e., getting RFPs
– If an Indian Company buys critical IPR abroad and want to field a
Product for use of Indian Defence – its not possible under a “Single
vendor Situation”
– Indian Company creates cannot field a System jointly Developed
abroad for NC NC trial under Buy & Make
– More than 50% of Buy (Indian) Programs of ~ Rs 200,000 Cr in last
three year has been nominated to DPSUs
• Nomination equals channelised Imports
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Impact of Indigenous Defence Production on
Indian GDP
• Defence is a Strategic Industry – more than mere commerce
– Issues of obsolescence, technology denial and restricted trade operate here
• Defence is Monopsony – Government is the Market and the Market Maker
– In a democracy all Strategic Industries like Nuclear, Space and Defence are subject to
probity, public accountability and transparency in Procurement
– Most Executive branches use “Employment Generation” as part of the legislative
approval process. (India no exception – Factory in Nalanda & Kerala)
• Economic impact of reducing Defence imports:
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Importance of Defence Production to GDP Growth
*Source: http://aerospacediary.blogspot.com/2011/10/analysis-projects-one-million-jobs-at.html
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Self Reliance / Indigenization of Indian Defence
• Ample emotional responses towards the cause of “Indigenisation, very few practical
measures
• Our Procurement Procedures, intentionally or unintentionally, conspires to buy
foreign equipment, examples
– Inverted structure in Taxes & Duties: Finished Goods attract Zero Taxes & Duty while Value
addition in India attracts Excise Duty, Service Tax, CST & VAT
– ERV extended to Foreigners and in most cases to DPSUs, but not to Indian Private
Industry
– Foreigners get LC Payments, while Indian Industry is denied the same
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Inverted structure in Taxes & Duties
• Finished Goods attract Zero Customes Duty while Value addition in India attracts Excise Duty,
Service Tax, CST & VAT
– If basic cost of an item is 100, when we purchase it from Foreigner, cost is 125.64 if Private sector
does 30% value add. In case of DUSU (ED Exempt) it is 116 with 70% import but does up to 120
with 30% import.
– Taxes & Duties are kept out of L1 calculations for Global (Buy) RFPs, but for all other Procurements in
Buy (Indian), DPM, DRDO etc. Taxes & Duties are included in L1 calculations
Summary of Cost Increase in various Scenarios in Current Tax Structure
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Discrimination in LC Payments
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Some Other Examples of – I L U Foreign OEM
• There is no procedure that enables a non-DPSU Indian Vendor
to become a Single Vendor Supplier to MoD
– Even if this Vendor gets the technology, creates the entire value chain
and infrastructure, it is not possible to sell Systems to MoD
– If DPP allows an Indian Co. to Prime in Buy (Global), why can’t an Indian
Co. Prime in a Buy & Make Program? Fault lies in the Procedure
• In Global (Buy) Procurements, if NC NC Trials are not possible, MoD accepts
Simulation Trials
– Ex. MRSAM, a G-to-G Development Program, purchased for Rs 10,000 Cr based
on Simulation trial, while the missile is still being developed
• Foreign FAT certificate of OEM is enough.
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Reality Check
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Reality Check - Exports
• Can India keep on importing Defence Equipment?
• Can India sustain just with a Policy of Indigenising Defence Equipment i.e. reverse
the 70:30 Import to 30:70?
• a
• Both India & Israel got independence in 1947 – where are our Defence Exports?
• Given our world-recognised capability in ICT, it is time for India claims its rightful
place in Defence Exports – this will also assist in Global benchmarking
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Need for Indian Defence Products
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Technology Denial
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Modern Warfare & New Defence Industry Model
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Defence Product Strategy & Technology Denial
• Technology Denial is a National and Political issue
– In today’s world, not everything can be done by everybody
• We cannot emulate the Charles de Gaulle’s France
– Need to select long-term Partners
• Need to ensure part of the system made in one country and part being
made in another country
– F-22 Raptor denied to Japan even though the Factory is closing in the US
– Eurofighter – four countries coming together, all having clear Sub-systems
Distribution. What is made in France is not made in Italy or Spain or else where. This
ensures each country has equal power – MAD
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Recommendations
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Recommendations
• “MAKE” to be the 1st choice of Categorisation
• Buy (Indian) should be the 2nd option but with clearly defined Trial Directive
– Trial Directive to be clearly defined in the RFP and development time period of atleast 12-
18 months depending on the complexity of the system to be given to Indian Industry
• Justification: If TEC takes an average of 18-24 months, Development time of 12-18 months is the
minimum required
– Example: TEC for Upgrade Grad BM21 Launcher took 18 months, TEC for 155mm Bofors Gun Upgrade
took 36 months and finally RFP was retracted, TEC for Low Power Jammers took 6 months
• Buy & Make (Indian) 3rd option. But no nomination
• Extend ERV to all participating Vendors
• No exemptions to any Vendor on Taxes & Duties and Basic Customs Duty to be
increased to a minimum of 20%
– For transition, all Taxes & Duties to be kept outside and be paid at actuals without any
exemptions => this makes no difference to the ‘Consolidated Fund of India”, only in
accounting parlance, a small increase in Defence Budget is perceived. Further if the
import – export ratio is reversed, this budget does not go up at all
• Actively leverage on ITES capabilties for Exports
– If Platforms can not be made in India, atleast all upgrades to happen in India
• No Nominations and Full Internal Competition and Facilitation of a PPP model
• Export an equal Priority – This is not about 70% Import to be reduced to 30% import
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PS – The Presentation did not bring up word the “Offset” or “ToT”
All ToT agreements are injurious to the cause of Indigenous Defence Products
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