New defence procurement policy gets thumbs up

The government has notified a new defence procurement policy which comes into effect from June 1. This is essentially to make the process of defence procurement more transparent and also promote the indigenous industry. Baba Kalyani, CMD, Bharat Forge also gave his thumbs up to the new arms procurement policy.

Speaking to CNBC-TV18, Kalyani believes the move will not only fulfill India's defence needs but also create more jobs in the manufacturing sector. He said, “I think there is a lot of talk about that but this will be a good thing provided it creates a manufacturing sector in India and it's not just used for market access. It creates jobs, it creates facilities and it helps India moving up into the manufacturing of defence hardware.” MV Kotwal, director and president, heavy engineering, Larsen and Toubro adds that the move is a positive and will be a big boost to domestic players. Below is the edited transcript of Kotwal's interview with CNBC-TV18 Q: Let me start by asking you about the notification as far as the defence procurement policy is concerned. For the first time, a priority list has been drawn up for the capital acquisition of the defence forces. Buy Indian has been kept at top of the list while buy global has been kept at the very bottom of the list. How do you see this panning out, considering that without 49 percent foreign direct investment (FDI), we perhaps won't see too many defence joint ventures? A: I see it as a very positive sign because apart from the FDI aspect which I will touch upon a little later, there is tremendous capacity within the country which according to me is underutilised. This approach, which gives priority to the indigenous manufacturer will definitely help utilisation of this tremendous capacity. It is not only in manufacturing but also engineering and design. So, I see this as a positive aspect, also combined with the fact that for the first time indigenisation has been defined in much clearer terms. Just making things in India is not sufficient, it is actually seeing that the products offered from India contain Indian content in terms of the imports are excluded from it. So, this really brings out true indigenisation and I think this is a good step. Q: Before I get to the FDI part, let me just take what you said because you are welcoming this move, you made that point of indigenisation which will benefit Indian companies like yours. What will this mean for Larsen and Toubro (L&T) for instance, outline that for us? A: L&T forayed into defence many years back, nearly three decades back through our association with Defence Research and Development Organisation (DRDO) and we could only get into development of prototype systems. We were not at that time allowed to get into the production systems at all. It is only afterwards when beginning with some items we made for the navy that we could get into some element of production systems. The real breakthrough came with the Arihant where we got a major opportunity to involve ourselves in strategic program. So, as far as L&T is concerned what we have done is because we got this introduction we have made investments for very wide nature. From the heaviest of the stuff that can be manufactured in the country we have investments at Hazira, Talegaon, Coimbatore and number of them. So, for us we are poised in a situation where we can take advantage of any opportunity given for real indigenisation. So, I see this as a positive point as for us. Q: I want to talk about the FDI in defence issue. From all accounts it seems to be that the rest of the cabinet is on one side versus the defence minister AK Antony. We understand fresh overtures have been made to break the deadlock. On part of industry also there has been a split on whether or not it is okay with 26 percent or you would like it to go upto 49 percent. Where does L&T stand on this debate? A: When you talk about FDI in defence, one has to look at it from the strategic interest of the nation. What we strongly believe is certainly we should welcome FDI going upto 49 percent, but we should also combine it with real transfer of technology. It should not happen that on the guise of just an FDI increase what comes to India is not real technology. W should not remain after having this kind of a concession given of having 49 percent FDI we should not remain a country which is dependent on the real know how coming from the original equipment manufacturers (OEMs). So, we should get transfer of real technology and I think in that respect we are absolutely clear that we support 49 percent with those conditions. The second part is when 49 percent is given there should be an onus on the OEM to also source these equipments or systems from India for the world markets. So, that is really the sense that we want to make, that is when you have enhanced FDI the first priority is that India should gain and we should become a part of the global supply chain. These are the two things we would like to stress. Q: Like the conditions that you just talked about the defence ministry is also as some would say raised some valid concerns. The Department of Industrial Policy and Promotion (DIPP) has come out with their clarifications trying to allay the concerns raised by defence ministry. Do you believe these restrictions may keep foreign companies away, will it make the environment too restrictive? A: Not really, because India itself offers a huge market for any OEMs. That would be the primary interest that any OEM would have in enhancing the equity to let us say 49%. Coming to exports out of India although I would have liked to see a very elaborate policy which drives export but even so today it is not a hindrance as such. Supposing for example we want to export to a certain country we have to seek permission on a case by case basis and that permission then is given, of course it takes time. So, I don’t think that FDI linkage will make it so liberal that it should be possible for joint ventures to export to any part of the world without restrictions. It will not happen and it can be controlled, that is my opinion.