Bangalore, February 18, 2015
Prime Minister Narendra Modi said on Wednesday that it would no longer be enough for India to buy defence equipment from abroad and simply assemble them in the country and made it clear that the public sector needed to improve its performance in this sector.
Modi inaugurates Aero India-2015, says India reforming defence policies
Prime Minister Narendra Modi today said it would no longer be enough for India to buy defence equipment from abroad and simply assemble them in the country and made it clear that the public sector needed to improve its performance in this sector.
"We have been doing this in the past, without absorbing any technology or developing our own capabilities. In some areas, we are where we were three decades ago," he said in his inaugural address at the 10th edition of Aero India, the international air show here.
"Frankly, our public sector needs to do much better than they are doing now. We have to exploit their huge assets and a vast potential. At the same time, we have to make them accountable," he said.
Mr Modi said his government was focusing on developing the defence industry with a sense of mission in view of the impact it could have on the creation of jobs directly and in the related sectors and of the possible spin-off benefits on other sectors in terms of advanced materials and technologies.
"This is why it is at the heart of our Make in India programme," he said.
"We are reforming our defence procurement policies and procedures. There would be a clear preference for equipment manufactured in India. Our procurement procedures will ensure simplicity, accountability and speedy decision making," he said.
Mr Modi said the government had raised the permitted level of foreign direct investment (FDI) to 49%. This could go higher, if the project brought state-of-the art technology, he said.
He also said the government had permitted investments upto 24% by foreign institutional investors (FIIs) and there was no longer a need to have a single Indian investor with at least a 51% stake.
"Industrial licensing requirements have been eliminated for a number of items. Where it is needed, the process has been simplified. We are expanding the role of private sector, even for major platforms. Our goal is to provide a level playing field for all. We speak in terms of national capacity, not public sector or private sector," he said.
More than 250 Indian companies and more than 300 foreign firms are participating in Aero India. Defence ministers, senior officials and hundreds of business leaders from around the world are attending the event.
"This is the largest ever Aero India. This reflects a new level of confidence within our country and global interest in India. To many of you, India is a major business opportunity.
"We have the reputation as the largest importer of defence equipment in the world. That may be music to the ears of some of you here. But, this is one area where we would not like to be Number One!" Mr Modi said.
"Our security challenges are well known. Our international responsibilities are evident. We do need to increase our defence preparedness. We do have to modernize our defence forces.
"We have to equip ourselves for the needs of the future, where technology will play a major role. As a nation of one billion people, we also have huge requirements for managing internal security. We are increasingly integrating technology and systems into it. These opportunities make Aero India an important international event," he said.
Mr Modi said Aero India was not just a trade fair for defence equipment but a mega meeting of one of the largest global supply chains, with the most advanced technology and complex equipment
He said it was a platform to launch India's defence manufacturing sector, stressing that a nation with a strong defence industry would not only be more secure but also reap rich economic benefits.
"It can boost investment, expand manufacturing, support enterprise, raise the technology level and increase economic growth in the country," he said.
He said that, in India, the defence industry in the government sector alone employed nearly 200,000 workers and thousands of engineers and scientists. They produce an output of nearly 7 billion dollars annually. It also supports a very large pool of small and medium enterprises.
He said the country's defence industry in private sector wass still small but it already employs thousands of people.
"This is despite the fact that nearly 60% of our defence equipment continues to be imported. And, we are spending tens of billions of dollars on acquisitions from abroad. There are studies that show that even a 20 to 25% reduction in imports could directly create an additional 100,000 to 120,000 highly skilled jobs in India.
"If we could raise the percentage of domestic procurement from 40% to 70% in the next five years, we would double the output in our defence industry. Imagine the impact in terms of jobs created directly and in the related manufacturing and services sector! Think of the spin off benefits on other sectors in terms of advanced materials and technologies!" he said.
Mr Modi said the offsets system was a crucial instrument to develop and upgrade our defence industry.
"We have introduced significant reforms in our offsets policy. I am acutely aware that it still needs a lot of improvements. We will pursue them in consultation with domestic industry and our foreign partners. I want our offsets policy not as a means to export low-end products, but to acquire state-of-the art technology and skills in core areas of priority," he said.
He pointed out that government's support for research and development was essential for defence sector. And, it should also be accompanied by a degree of assurance on purchase.
"We are introducing a scheme to provide up to 80% of funding from the government for development of a prototype in India. And, we are also launching a Technology Development Fund.
"For too long, our research and development has been confined to government laboratories. We must involve our scientists, soldiers, academia, industry and independent experts more closely in research and development," he said.
Mr Modi said that, while it had made its export policies clearer, simpler and predictable, the government would also abide by the highest standards of export controls and international responsibility.
"We will expand our exports, but we will ensure that our equipment and technology do not fall into the wrong hands. India's record in this area has been impeccable and it will remain so," he said.
The Prime Minister said he was pleased with the positive impact of the government's policies and noted that the Indian private corporations had responded with enthusiasm.
"There is new excitement in our small and medium scale sector. Many of the biggest global firms are forming strategic partnerships in India. Some of them have already begun using India as part of their global supply chains or engineering services." he said.
He also expressed happiness that the first set of parts from the joint venture set up in September last year by Dynamatic Technologies and its collaborator Boeing, to manufacture critical parts for a Boeing helicopter that is sold globally, was ready for shipment today.
"But, we still need to do more. We have to further reform our acquisition and approval processes. We must indicate a clear roadmap of our future needs.
This must take into account not only new technology trends, but also the nature of future challenges," he said.
Mr Modi said there was need to pay attention to developing supply chains, with emphasis on innovation and bridge the gap between prototype development and quality of production.
"We must develop a financing system suited to the special needs of this industry. It is a market where buyers are mainly governments, the capital investments are large and the risks are high. We must ensure that our tax system does not discriminate against domestic manufacture in comparison to imports," he said.
Mr Modi said that, more broadly, the defence industry would succeed more if the manufacturing sector were transformed in India.
"We need great infrastructure, sound business climate, clear investment policies, ease of doing business, stable and predictable tax regime, and easy access to inputs. We need a national industry that produces advanced materials, the most sophisticated electronics and the best engineering products. Over the last eight months, we have worked hard to create that environment for you.
"Above all, we need a vast pool of highly skilled and qualified human resources for the defence industry. Our aerospace industry alone would need about 200,000 people in another ten years," he said.
He said the government would set up special universities and skill development centres to cater to the defence industry, just as it had done in atomic energy and space. "I have especially invited the State Governments to come here with package of facilities to attract investments in defence manufacturing," he said.
"We want to develop an industry is dynamic. It should constantly stay at the cutting edge of the global industry. I am confident that India will emerge as a major global centre for defence industry. We have the basic building blocks for it in India; and, a large nation requirement. We will build an industry that will have room for everyone – public sector, private sector and foreign firms.
From sellers, foreign firms must turn into strategic partners," he said.
"We need their technology, skills, systems integration and manufacturing strength. The nature of industry is such that imports will always be there. In turn, they can use India as part of their global supply chain," he said.
He said defence budgets around the world were becoming tighter and India's frugal but sophisticated manufacturing and engineering services sectors could help reduce costs.
"India can also be a base for export to third countries, especially because of India's growing defence partnerships in Asia and beyond.
"A strong Indian defence industry will not only make India more secure. It will also make India more prosperous.
"Aero India can be a catalyst in realizing our goals. That is why I am here today. So, as we look at these wonderful aircraft and enjoy the amazing fly pasts, I also hope we can get some business done. And, sow the seeds of successful new ventures and partnerships – to give our people new opportunities, to make our nations safer, and the world more stable and peaceful," he added.
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