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In a yet to be released study conducted by the global network of professional services firm, KPMG, and the Confederation of Indian Industries (CII), India’s premier Industry Association, the future of the Indian defence industry ,as well as the means to develop it, have been chalked out. “India needs to manage and fine-tune its policies, regulations, process and fiscal environment in order to ensure strong domestic growth and self-sufficiency”, the report stated.
The study indicates that the areas for focus will be the further development of the defence procurement process, the formulation of a defence industrialisation strategy to maximize the potential use of offsets, the transfer of technology, and the Foreign Direct Investment. As well as changes in the taxation regime and its incentives, the focus on the domestic, private and public defence industries is also needed. India has a complex tax regime and while tax laws make various exemptions and concessions applicable in the defence sector, these are restrictive and seldom defence-sector specific.
The study urges the government to consider further exemptions or concessions to the defence sector, the establishment of dedicated defence-specific SEZs, a tax equalisation subsidy linked to the value of goods and services supplied to the defence sector, and exemptions to offset JVs from Research and Development (R&D) Cess, etc.
The report has also stressed that the transfer of foreign technologies to India is essential to achieve self-sufficiency. At present, the receipt of technology assets under major procurements belongs exclusively to the defence public sector units (DPSUs). However, the report has stated that the Indian industry would instead like to see private sector companies competing with DPSUs for technology assets, and that technology assets should also be eligible for discharging offset obligations.
The report has also identified a support for extending the use of offset credit banking, allowing offset credit trading, and introducing the use of multipliers. The opinion on the introduction offsets seems divided due to the extent of the opportunity and limitations. The study has noted that the most debated issue of the raising of the FDI cap primarily rests on the transfer of foreign technologies and increasing investment.
It has been recommended that the government must ensure a level playing field between the DPSUs and private sector players. The study suggests that the DPSUs must be encouraged to focus on their core capabilities and strengths, and increase the quantum of ancillary business they outsource to the private sector and divestment of non-core capabilities. The greater role for a private sector is needed. The DPSUs continue to dominate domestic defence production and research & development facilities. The role of DPSUs and private sector companies needs to be appraised and aligned for better industry growth.
“On the top of his agenda is to put the sale of Javelin antitank guided missiles and ultra-light howitzers through a foreign military sales route.” said a diplomat at the U.S. Embassy in New Delhi.
Of late, New Delhi has made some reservation to The Pentagon about the rapid sale of military hardware from the United States to Pakistan; which India believes is Islamabad trying to reinforce its conventional capabilities against India.
“In addition, India does not want to be labelled as a sole arms market of American weaponry, as it has closed its military technical pact with Russia and defence cooperation with 45 other countries.” say sources in the Indian defence ministry.
Sources further pointed out that India has been victim to American military sanctions in the past, and that has somewhat blocked indigenous efforts in defence research and development.
In July last year, India and the United States had already decided to finalize a standard text for an end-use monitoring programme of military equipment that the US sells to India. Sources note that Washington now wants New Delhi to sign a Logistics Support Agreement (LSA) and a Communications Interoperability and Security Memorandum of Agreement (CISMOA). Currently India has strong reservations about CISMOA, but the LSA is under examination.
India has already contracted six Lockheed Martin-made C-130J Hercules aircraft for $ 1.1 billion, and six Boeing-made P8I maritime surveillance aircraft at a cost of $2.1 billion.
In addition, the two countries are also discussing the sale of Stryker ground-fighting vehicles. In November, the Indian Army issued requests for information to buy 100 armoured personnel carriers that can be transported in aircraft and by ships. The eight-wheeled Stryker all-terrain vehicles, made by General Dynamics, are estimated to cost upwards of $ 1.3 million each. #
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