Saturday, March 30, 2013

FDI in defence sector would be an effective catalyst for self-reliance

March 30, 2013

BAE Systems, a defence, aerospace and security company, employs 93,500 people worldwide. Its wide-ranging products and services cover air, land and naval forces, as well as advanced electronics, security, information technology, and support services.

With a presence that goes back over 60 years, BAE Systems has developed India as a home market with a strategic vision to become a major and integral part of the domestic Indian defence and security industry, leveraging its global expertise to develop technologies and solutions in India for both the Indian market and for export.

It has a joint venture in India with Hindustan Aeronautics – BaeHA. Based in Bangalore, it is focused on providing engineering and business solutions services. BAE Systems has a long-standing association with HAL on aircraft programmes such as Jaguar, Harrier, and now, the Hawk Advanced Jet Trainer which HAL manufactures under licence for the Indian Air Force and Navy.

The board of BAE Systems, led by its global chairman Dick Olver, visited India for the first time. In this e-mail interview to The Hindu, he outlines the company's plans for India.

What is the Board's overall impression of the market in India?

BAE Systems has a long association with India in many areas of aerospace and defence, with all three of the Indian Armed services — dating back to pre-independence times. I have personally had an opportunity to visit India many times — most recently in February as part of Prime Minister Cameron's delegation. And, I am thrilled to lead the visit of the BAE Systems plc Board here this week. India is an incredible country. It is a key market for our company. So, I was keen that my fellow directors had the opportunity to see and experience that first hand. We have a solid team here, who are privileged to work with some exceptional people across the customer community and through our relationships with Indian companies. The Board has been impressed with what we have seen and experienced during our visit.

The Indian market holds considerable opportunities for us, and I and the other directors are very excited and energised by the potential that exists here, illustrated by the steady trend in defence expenditure at around 2 per cent of GDP, a stated intent of $100 billion worth of acquisitions over the next five years, and the focus on self-reliance in defence.

A personal highlight was the launch of the mobile mini hospital called 'Smile on Wheels' that will provide primary healthcare services to underserved communities in Bangalore. The mini hospital is part of the company's corporate social responsibility programme in India through which we support development programmes in the areas of primary education and healthcare in rural and urban communities across seven states of India. .

BAE has had a longstanding association with HAL on the India Hawk and even has a JV with the aerospace major. How do you view the future of the relationship?

Our relationship with HAL for the Indian Hawk programme is the cornerstone of our operations in India today. We are privileged to enjoy a strong relationship with HAL, and our latest collaboration is for the licence to build Hawk Advanced Jet Trainer. India has ordered a quantity of 123 aircraft with another 20 in negotiation.

Having the experience of working together to create advanced fast jets built in India, both HAL and BAE Systems would like to progress the relationship and broaden the collaboration between our respective organisations. We also have an engineering services and business solutions joint venture with HAL called BAeHAL. Although relatively small in size, we believe this is strategically important, and both partners have ambitions to grow the JV over time.

Building domestic capabilities in partnership with Indian companies will remain a cornerstone of our strategy in India.

BAE Systems has been an advocate for the relaxation of the FDI rules in defence. But it hasn't happened so far. Recently Raghuram Rajan, Chief Economic Advisor to the Government, has suggested liberalisation of FDI norms in the sector. Does that make you hopeful that the voice of companies such as yours will be heard soon?

I have noted that there has been increased emphasis in recent weeks in India on the growing importance of more rapid indigenisation of the defence sector. In addition to the economic benefits, increased jobs, improved capability and the development of critical technology , indigenisation would ensure India has ready access to the best available defence equipment.

In support of that objective, in my view, an appropriate increase in FDI in the defence sector would be the most effective catalyst for self-reliance, and, for that reason, I am hopeful that liberalisation in FDI will occur. We understand and respect the Government's position, and we are here for the long-term regardless of changes in FDI to fully support a more rapid development of a vibrant, indigenous defence sector in this country.

What should India be doing to develop a strong domestic aerospace and defence industry?

The FDI issue we just discussed is obviously a part of that equation. I also think international companies need to be cognizant of and able to address the complexities of technology transfer, and we need the Indian industrial base to work with us on this.

I am also a strong believer in the importance of education and the investment that is needed in order to sustain a country's ability to grow and remain competitive. For India, this is a fascinating opportunity and challenge given its young population and its fast-growing economy.

A strong domestic aerospace and defence industry needs to be underpinned by world-class productivity and powered by high-value engineering skills and education. To do this, you need the right skills in the right places at the right time and in the right quantities.

Getting all that right is not easy. But when you do, the effect is electrifying. Look at Silicon Valley in the U.S. or the U.K.'s high-tech and biotech cluster around Cambridge. Closer to home, the Indian IT services sector is a world-class example of skill development, training and education coming together to provide competitive advantage to the country.

How does the Indian market compare to other markets for BAE Systems? What are your expectations from India in the next 5-8 years?

India's ambitious plans for modernisation, expansion and indigenisation are the market's core drivers, setting it apart from the mature markets, where budgets are either flat or declining. However, this is a market which requires a long-term perspective. We have set ourselves a target one billion pound of order intake across 2012 and 2013, and are making good progress on this.

Our long term vision for our business in India is to be an integral part of the country's defence, aerospace and security industry by supporting the country's goal of creating a domestic industrial base.
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