Thursday, December 16, 2010

Indian Aerospace Industry Calls For Even Playing Field On Offsets

Aerospace Daily Dec 16

NEW DELHI— As the Indian aerospace industry eyes significant business in defense offsets required of foreign providers to India’s military, there are calls to make the technology licensing policies more flexible.

Indian defense providers are subject to a mandatory industrial license (IL).Among other requirements, ILs mandate that the applicant should be an Indian company/partnership, the majority of the board of directors and the CEO should be resident Indians, and foreign collaborators and domestic promoters should all be cleared through background checks.

Currently, 70% of India’s procurement needs are met by foreign sources. “If the Indian defense forces increase [their] indigenous procurement from the current 30% to the target 70% over the next five years, the output of Indian firms would need to more than double each year,” said Vivek Lall, Vice President, Boeing BDS, at the energizing aerospace conference organized by the Center for Air Power Studies and the Confederation of Indian Industry.

Foreign direct investment (FDI) in defense joint ventures brings capabilities into India, argues Krishnadas Nair, former chairman of Hindustan Aeronautics Ltd. “If you want technology to flow freely, one of the objectives of the Defense Procurement Policy is to enhance the technology base,”he adds.  “There are greater
opportunities for Indian defense industry to work with partnerships or in collaboration with foreign companies ....... [that] will likely continue to supply defense armaments and transfer of technology.”

However, not everybody is gung-ho for such partnerships. From the standpoint of the companies,“there is no guarantee that the technology you get will not be state controlled,” says V. Siddhartha, an analyst with the Center for Air Power Studies think tank.

Former Air Chief S.P. Tyagi says it would be good to see the market open up for FDI, which is limited to a  26% stake by foreign companies in defense joint ventures. Many have argued that this gives no incentive to a foreign company to transfer technology to such entities, in which they have such a small equity stake and no say in board decisions.

According to Air Vice Marshal M.Matheswaran, assistant chief of the air staff, India is in a position to leverage defense contracts like the Medium Multi-Role Combat Aircraft “to get what we want and get [vendors] to part with technology.”

India’s domestic defense sector, which will benefit from increasing requirements to “buy local,” as well as taxation arrangements that benefit domestic firms, also will likely require specialized inputs into both platform and systems development that can be met by foreign firms, Lall says.

- Neelam Mathews

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