Monday, June 29, 2009

Private Companies will no loger be untouchable in Indian defence sector

After getting independence in 1947 India tried to construct a mixed economy and then it slowly move towards a socialist economy. But in the end in 1991 government forced to open up the economy. But even then the key sectors like Defence, Insurance, Retail etc remained with PSU companies. To open the defence sector government took too much time.

But in the end that too happened. Defence sector will no longer be a sacred cow. Government opened it and private players like Tata Motors, M & M, Tata Power, Godrej, L & T, Bharat Forge, Tata Power Strategic Division etc are already taking the advantage of it. Along with this government also allowed 100% investing in Manufacturing sector and 26% FDI both are subjected to licensing. Hope that this licensing factor will not become anothe licence raj.

Reserving Defence sector - which will not be affected by any economic problem as Governments all over the world are more interested in Manufacturing weapons instead of food- for Public sector already done its damage. Defence sector is the one which required a lot of investment and remain strict to its time frame. We cant develop a third generation fighter plane when all others including our neighbours developing a fifth generation fighter plane. But now in this area a lot of deals are signed and many others are in pipeline.

Tata and Sikorsky Aircraft company reaced a deal on developing a S-92 helicoptor cabin in Hyderabad. L & T and EADS reached a deal for manufacturing high end defence electronic products. L & T, Godrej and Tata Advanced Systems already set to build a unmanned Aerial Vehicle called - Drone. M & M acquired 6 acras of land in Faridabad to to build miitary application vehicles. Hero group is there to invest 500 crore in MP and in Gwalior Punj Liyod and STK are investing 200 crore. M & M already have agreements with Lockheed Martin to build a simulator and with BAE systems to build heavy artillery. Now Godrej & Boyce supplies the Vikas Engine for Rockets. L & T is building vessels for Navy and Radar systems with Bharat Electronics.

Lockheed Martin, BAE Systems, Rockwell Collins are also trying to invest more in Indian Defence Sector. What is the advantage of Indian companies is an Offset clause by Government which states that - All foreign companies that get a defence contract of above 300 crore from GOI(Government of India) have to bring back 30% of the contract value back to that country. And Government is to issue contracts worth over a mind blowing 1,50,000 crore. Its 30%; who can shut their eyes towards this huge amount?

But Government have to move fast at the sams time with necessary precaution in awarding projects. It should not be like Pinaka Multi Barrel rocket Launcher. where L & T and Tata Power Strategic Division got the project 20 years ago and business scope materialised only in 2002. It took 4 more years to get the order. The delays like that results only in wasting of Money and time. And when the world advances with superior technologies we will remain in stone age.

Raksha Udyog Ratna(RUR) scheme which earlier freezed due to the opposition from left is also going to see tha sunshine. According to this scheme once a company got a RUR status it will be treated on par with Public Sector Companies which operates on Defence field. The companies will also have the access to Foreign Technologies and will be able to build main systems for defence department. Besides they will get a government financial investment up to 80% for design, develop and Manufacture fighter aircrafts, tanks and warships.

As GOI is no longer depandable on Leftist parties and premier Manmohan Singh have majority in his secon term it will be very easy for the govenment to go on with the new policies and remove the last remains of Licence Raj.


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