Wednesday, 2 December 2020

Diluting the definition of indian vendors A deadly blow to indian defence industry

By Ashwani Mahajan
Updated: September 9, 2020 11:09 am

Respected Shri Narendra Modi ji,

First of all Swadeshi Jagran Manch congratulates you for having initiated wonderful measures to move towards self-reliant India, including self-reliance in defence sector. Announcement of banning import of 101 defence goods (the list is expected to expand more and more with time), is a great initiative, which may go a long way to supporting indigenous defence industry including MSME defence manufacturing.

It was also noticed that the Government has decided to allow FDI in defence under ‘Automatic Route’ to 74 percent as against 49 percent earlier.

With this letter we wish to draw your kind attention to the clarification of Secretary, Defence Production, given during the Q&A at Atmanirbhar Bharat – Defence Webinar on 27 August 2020, where he stated that any foreign company registered in India is an ‘Indian Vendor’, is destined to take away the gains for domestic defence industry from the previous policy initiatives like Buy (Indian-IDDM) and banning of 101 items from imports.

The draft of the Defence Acquisition Procedure (DAP) 2020, issued in the month of January 2020 was being read in the context of the then FDI Policy wherein FDI under ‘Automatic route’ was restricted to 49 percent.

We feel that with the change in FDI Policy allowing FDI up to 74 percent under  Automatic Route, the definition of ‘Indian vendor’ has been diluted significantly to such an extent that any foreign company can register itself in India and can acquire 74% equity and still continue to be called “Indian Vendor”.

Swadeshi Jagran Manch is of the considered opinion that ‘Indian vendor’ should only means an entity in which majority ownership and control is retained by Indian Resident Citizens. Diluting the definition of ‘Indian vendor’ will be a deadly blow to Indian Defence Industry. It would cause a severe blow to the existence of the domestic defence industry, both big and small which has developed indigenously, as foreign companies would start getting same treatment, which domestic industry gets especially under ‘Buy Indian (IDDM)’ and ‘Buy Indian’ categories where special preferences are given to the ‘Indian Vendor’.

More importantly, dream of self-reliance in defence production, which is so close to your heart, itself will die down. We shouldn’t forget that if a foreign company is registered in India, and has started making in India, its technology policy is not governed by Indian laws, they are governed by the laws of country of their origin.

All the gains, which were expected by banning of imports of 101 defence items would be squandered away, as foreign companies establishing their units, would be covered by procurement by the government as a domestic company.

We are of the considered opinion that procurement from companies registered in India, where majority shareholding is that of foreigners, is no different from imports, as they would be either importing their components from foreign destinations or would be contracting with companies of their choice, with little chance of developing domestic capabilities.

We understand that the intent of the Government, so far has been that first preference be given to Indian IDDM, that is, Buy Indian IDDM. Therefore, by any chance companies registered in India but owned by foreigners, shouldn’t be included in this category. Second preference in government procurement should be to Indian companies, namely companies having Indian shareholding of 51 per cent or above.

However, if ‘clarification’ is to be believed, in both these categories, foreigners will gain dominance and ‘Self Reliance’ in defence will be a distant dream.

It appears that negative impact of subsequent decision of allowing FDI in defence sector up to 74 percent under ‘Automatic route’, on Defence Acquisition Procedure, 2020, as explained above, has escaped attention.

Swadeshi Jagran Manch, therefore, appeals you to instruct the concerned office to revise the definition of ‘Indian Vendor’ in DAP, 2020 in very clear terms so that under ‘BUY’ and ‘BUY and MAKE’ categories, foreign entities do not get any advantage over entities owned and promoted by Indian resident citizens.

(The article is based on a letter by the writer, who is Swadeshi Jagaran Manch’s  All India Co Convenor, to PM Narendra Modi)

 

By Ashwani Mahajan

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