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ViewsArticleFDI: Lessening Govt, Easing Capital Flows, Triggering Innovation

FDI: Lessening Govt, Easing Capital Flows, Triggering Innovation

‘We are a Stalinist state’

An industry veteran commented in May 2014, in a private conversation -‘India is essentially a Stalinist state’. Looking at my perplexed face, he substantiated further, that in name of being benevolent, the State has increasingly tightened the control on the thoughts, press, capital, industries, education, food etc. He jocularly added that he spent more time in government offices than in his own! He was commenting on Modi’s call of ‘minimum government, maximum governance’. At 65, he is one of the distinguished leaders of Indian industry and a member of Lutyen’s elite circles. He identified this call as the key distinguishing aspect of Modi’s campaign and wondered aloud how the entire economic and political ecosystem, which has thrived on the proceeds of a Stalinist body-politic, would permit lessening of government controls.

So, when the government announced 100% FDI in defence, usual suspects were caught on the wrong foot, when they indignantly declared that the nation’s security has been imperiled — only to be reminded that manufacturing in India by a foreigner cannot be more damaging than buying things manufactured in facilities beyond the pale of our national laws.

The crux of the matter

The nub lies elsewhere, revealed in another pregnant observation regularly made by those who know the ‘things’. You buy a Bofors once, but you buy its ammunition every year. Ever wondered how are we the world’s largest defence importer when we don’t buy big weapon systems every year? This is the answer! Same with our aircrafts — we end up spending more on maintenance and overhaul of aircrafts than on capital acquisition over the life of aircraft (an aircraft is essentially an aluminium tube). A GE veteran once explained very succinctly: it’s like the practice of a printer being priced below the cost of its cartridges! Leave aside large weapon systems, good personal arms also need to be imported today. What to talk of needs of regular armed forces, even anti-Maoist operations need substantial imports of weapons and munitions.

Is it all about electronics and sensors?

Note that the crux of TATRA trucks was multi-axle transmission, which, like small arms, do not have any high technology sensors, electronics and software. Could we not make gear drives, small precision machined components?

That ceramics play a crucial role in high technology electronics, automotive, space sectors may come as surprise to many. Interestingly, the basic chemistry is known; the key is in the processes. We clearly lack in specialised materials — not just in research, but also in manufacturing.

Well, having said that, even with, say a manufacturer setting up an assembly plant in India, the excellence demanded out of the various tiers of suppliers would start to unavoidably rub in local industrial hubs. This is the ‘Maruti Effect’; remember how a Suzuki assembly plant in Gurgaon resulted in India emerging as major automotive OEM to the world? Bosch does not make cars, but you can’t find a fuel-fed motor vehicle in the world that does not have a Bosch component. Bosch does its major engineering design in Bengaluru. Same is with companies like Motherson-Sumi that started as a small ancillary to Maruti and now holds a predominant global share in certain automotive components. A domestic industrial base has its silent and substantial impact elsewhere.

People who make and supply to the factory per se (not contributing directly to the final product) would get exposed to the manufacturing processes. That is how excellence in manufacturing would start to seep in and proliferate. Students would get quality internship; a higher level of engagement with academic institutions would spread the knowledge and skills wider and deeper. Flexible manufacturing plants like GE’s in Pune saliently remind students and practitioners about the state-of-the thinking. So an IIT-Kanpur professor who makes a small piece of technology for US-based Boeing to ease their material management would readily find acceptance in hi-tech aerospace factories in India. His team, which used computer vision, can readily supply HR to meet the engineering needs of new factories.


An important lesson, a success story

Today we make our own satellites routinely, but it wasn’t so always. In fact, the entire INSAT-1 series was manufactured by Ford Aerospace of the US to our specifications. The wherewithal of making a spacecraft includes not just electronics and propellants but also an entire ecosystem of materials, fabrication, test, measurement, communications, mathematical tool kit etc. While getting the satellite made to order elsewhere, ISRO worked on operations, applications, rocketry and whole lot of other technologies till we could make our own satellites. By the time we could make our own satellites, the entire hi-tech ecosystem of tracking, telemetry, control stations, application engineering, testing & commissioning was ready. Today, academic network has been primed to deliver quality HR to meet our space needs — our mangal yatra has taken decades of painstaking multi-tier work indeed.

We can be similarly hopeful in internalising high technology in other domains.

Ease of doing business

Ease of doing business is not just simpler rules. What about mobility?

One challenge that India faced while constructing the recently inaugurated Salma dam in Afghanistan was that it could be reached only by a helicopter, which seriously impacted availability of experts on site. So, no matter how hard one works on rules, the imperative of physical connectivity can’t be overlooked.

For a continental-sized country like ours, we need mobility by land, water and air. The NDA government is fixing up surface transport (highways, rail, inland waterways) and now aviation is sought to be fixed.

Aviation in the country is still in its infancy. Smaller aircrafts for sports, recreation, personal use are simply beyond the reach of people whereas in the US one can buy a kit and assemble an aircraft oneself (one such assembler was selling small aircraft in India by assembling a kit from the USA, but regular certification and maintenance costs were quite stiff; though the aircraft was available for cost of a SUV, it couldn’t become popular). India can be better served if civil aviation is given a boost it needs by decluttering regulations. A nation that sees luxury cars galore even in smaller cities can readily afford small aircrafts. Hopefully this happens soon. Today it is easier and faster to transact business in Dubai or Singapore from India than to do business within India. Unless, regional and district connectivity is addressed, we would fall short on realising our dreams. Travelling from one end of Uttar Pradesh to the other takes more than fifteen hours! Regional air connectivity is an economic imperative.

Imagine the kind of ecosystem that would be needed. Small aircrafts have simpler maintenance needs, but still people would be needed to keep them airworthy; pilots would be needed, specialised facilities on district level airfields would also be required. Such employment would spur local economy and better connect the populace with opportunities elsewhere. The aviation industry would create a demand for higher value skills.

One hopes the government now works on a mission mode to get the MRO business in India. Presently all civil aircraft go to countries like Singapore for their routine maintenance. We need to capture the entire value proposition in an incremental manner by building on our credibility. So we won’t just need crew and ground staff at metros, we would need engineering workshops and people to man them. By harmonising fleets, we can create centres for excellence for the upkeep of certain types of aircrafts.

Aviation is a highly structured business globally. Unless we align our laws with accepted norms of business, we can’t tap in to the global experience of meeting regional requirements.

A welcome beginning has been made.

Role for HRD & Skill Development Ministries

If we aspire to be the world’s factory, global skill provider and the provider of intellectual heft to the global industry, FDI in high technology areas like aviation, defence and pharmaceuticals are the sectors to start with. Executing this policy would need major changes in procedures and governance structures and give opportunity to lessen the government in major sectors of economy. This would favourably impact entire industrial ecosystem.

New norms for labour, skill certification, taxation, transport, power supply would get influenced as India attracts big manufacturers. Next level of challenge would be to integrate the academia, which HRD Ministry should immediately work on and imparting internationally benchmarked skills-something Skill Development Ministry to engage in. Launching of India’s own Massively Online Open Courseware (MOOC)-aptly named as SWAYAM is step in the right direction-for which Microsoft would be deploying its heft. SWAYAM along with increasing tele-density, internet to the villages, edX and Coursera would be revolutionising the skill upgrade in the country.

In 1991, we were forced to reform. Today, we chose to reform. A good beginning has been made.

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