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Fourth tranche of stimulus focuses on reforms across industry, aviation & space

Steps to indigenise defence production by banning the import of some weapons and platforms while hiking foreign direct investment into the sector were among the highlights of the fourth tranche of the Aatmanirbhar Bharat Abhiyan package, which seemed to focus more on industry reforms than any sort of economic stimulus.

Union Finance Minister Nirmala Sitharaman also announced measures to introduce commercial mining in the coal sector, liberalise the mineral sector, ease airspace restrictions and encourage private involvement in space and atomic energy projects.

Boost for growth

“Many sectors need policy simplification. Once we decongest sectors, we can also provide the necessary boost for growth and employment,” Ms. Sitharaman said, noting that structural reforms were the focus of Saturday’s announcements.

“These sectors with these reforms are going to be the new horizon for growth and, therefore, we see great potential in more investments which can be drawn with the reforms that we are announcing today. More production can be clearly marked, and certainly it will lead to a lot more employment possibilities,” she said.

Most industry groups welcomed the package, although some in the space sector said the measures to boost private participation had to go beyond mere intent. However, labour unions across the ideological spectrum, including the RSS-based Bharatiya Mazdoor Sangh, slammed the reform measures.

“This was less of a stimulus and more of industrial reforms, which could have been announced at any time. They have used this crisis time to utilise the ordinance route or other ways to fast-track industrial reforms, which would have faced resistance otherwise,” said Ernst and Young’s chief policy adviser D.K. Srivastava, who is also a member of the Advisory Council to the 15th Finance Commission.

“The sectors covered are of strategic importance but these policies will be rolled out over a 3-6 month period, and any implication for supporting or reviving the economy as it comes out of lockdown is missing,” he said.

Govt. to bring out negative import list for weapons and military platforms

Defence mode: Jaguar aircraft during the dress rehearsal for Republic day in New Delhi in January. Shiv Kumar Pushpakar Shiv Kumar Pushpakar

The government would make a separate budgetary provision for domestic defence procurements and bring out a negative import list for weapons and military platforms, Finance Minister Nirmala Sitharaman announced on Saturday as part of efforts to promote indigenous manufacturing and reduce the defence import bill.

“We shall notify a list of weapons and platforms not allowed for import. They will have to be bought in India. Every year, this list will be increased as the capacity to make weapons that meet the necessary standards grows. Indigenisation of some imported spares will also be given priority,” she said, while stressing that ‘Make in India’ was absolutely necessary for self-reliance, especially in critical sectors such as defence production.

While some of the state of the art weapons required by the Services would be met through imports, some that were produced in the country and met the standards have to be procured locally only. The negative list would be worked out in consultation with the Department of Military Affairs headed by the Chief of the Defence Staff.

Ms. Sitharaman said the separate budget provision for domestic capital procurement would help reduce the defence import bill and encourage domestic manufacture.

The limit for Foreign Direct Investment (FDI) in defence through the automatic route had also been raised from 49% to 74%. Earlier, 100% FDI was allowed on a case by case basis.

However, two industry observers said the real impact of the increased FDI limit had to be analysed.

Corporatisation of OFB

Ms. Sitharaman also announced a long pending proposal of corporatisation of the Ordnance Factory Board (OFB) for autonomy, efficiency and accountability. While clarifying that it would not be privatised, she said the ordnance factories would eventually be listed on the stock market to improve transparency.

Late last year, the Defence Ministry set up a high-level committee to examine the aspects of corporatisation of the OFB and work out the modalities. The Kolkata-headquartered OFB, with 41 factories spread across the country, functions as a department under the Department of Defence Production.

The Finance Minister said a time-bound defence procurement process and faster decision-making would be brought in by setting up a Project Management Unit (PMU) to support contract management, “realistic setting” of General Staff Qualitative Requirements (GSQRs) of weapons and platforms and overhauling the trial and testing procedures.

Stressing on realistic GSQRs, Ms. Sitharaman said “sometimes unrealistic quality requirements are established” and quite a lot of time was spent on searching for suppliers who met all those requirements and the whole process repeated after a single vendor situation, which was not allowed.

Separately, a revision of the Defence Procurement Procedure (DPP) was on and a draft put in public domain for feedback before finalisation.

Much needed step

The Confederation of Indian Industry (CII) called the measures a much needed step for reducing imports and building self-reliance in defence. “The stress laid on domestic manufacturing is very encouraging as India today is among the largest importers in the world of defence equipment. The list of non-importable items and corporatisation of OFB are some landmark steps and will boost the confidence of domestic manufacturers,” CII Director General Chandrajit Banerjee said in a statement.

The increase in FDI limit to 74% would attract foreign funds into this sector, along with technology infusion, he added.

Naval fighter aircraft can be deployed in the Western desert areas: Gen. Rawat

The proposed Northern theatre command along the border with China should also have a small Navy element in it as some of the naval systems are useful there, said Chief of Defence Staff (CDS) Gen. Bipin Rawat. He also said the naval fighter aircraft can be deployed in the Western sector in the desert areas when not required at sea to effectively utilise existing resources.

“Theatre commands (land) will mainly be between the Army and the IAF. While it is the northern border there should also be a small Navy element,” Gen. Rawat told a small group of journalists during the week. Referring to the Navy’s ifghter jets, he said, “Can we not bring some of the naval assets to the land borders?”

Saying the naval fighter jets can operate in deserts and the IAF jets there can move to the other borders, Gen. Rawat said, “There is not much of difference between sea flying and desert flying.”

Gen. Rawat had in the past said the capabilities of the Navy’s P-8I long range maritime surveillance aircraft were used for observing the Chinese movements during the Doklam stand-off in 2017.

The first of the integrated commands in the works is the integrated Air Defence (AD) command headed by the IAF followed by a maritime command and then the land based theatre commands.

Separately, Army chief Gen. Manoj Naravane said at an event they have carried out a few brainstorming sessions but the specifics of the theatre commands have not been firmed up at — like whether the entire western front can be one theatre or the northern front can be one theatre.

“Soon we will have a presentation by the IAF with the representatives from Army and Navy and we will flush out the contours of the AD command,” Gen. Naravane said. “We will do it as per the Indian operational requirements and with Indian characteristics.”

Gen. Rawat said the study on the AD command is under way and he already had the first presentation and the standing instructions should be issued by year end. In 2-3 years it should take shape, he said.

Gen. Rawat said the idea is that all air defence resources of the three Services should be under one Commander and ensure that there is no fratricide. “The command and control instructions should come from one person.”

“In three years, operational instructions will be issued on the theatre commands,” Gen. Rawat said adding it will take shape after that. The Navy has already started a study on the maritime command.

The next step in the integration is having common communications which presently the three Services have their respective set up and also common training establishments and equipment where possible. Basically with integration, maintenance and logistics elements go down and bring in a lot of savings, he said.

NSS draft to be finalised

Asked about the proposed National Security Strategy (NSS) that is being being formulated by the Defence Planning Committee headed by the National Security Adviser (NSA), Gen. Rawat said the draft is being finalised but did not give a timeframe for its completion.

“The draft was ready. But with the CDS coming in, it needs some changes. That is being done,” he said. He said without the NSS too, the three Services have their operational directives and India has a Union war book which integrates everything in terms of war or calamities.

MEA official flags ‘overdependence’

Ashok Malik

As the deadline for a response to a fresh proposal of India rejoining negotiations on the ASEAN-led trade Regional Comprehensive Economic Partnership (RCEP) ran out on Friday, a senior Ministry of External Affairs (MEA) official indicated that global post-COVID-19 concerns over China had strengthened India’s opposition to the grouping.

“If anything the COVID-19 experience and the experience of countries that have been overly dependent on imports from China or one country would have reinforced and revalidated the decision to stay out of the RCEP,” said Ashok Malik, policy adviser in the MEA.

The letter sent by the RCEP’s Trade Negotiating Committee (TNC) Chairperson last month, had an offer to reconsider India’s objections to giving market access for a “limited number of products”, if it would rejoin the talks.

Prime Minister Narendra Modi had announced India’s decision to quit the grouping, which includes the 10 ASEAN nations, Australia, China, Japan, New Zealand and South Korea in November, citing lack of protection for country’s agricultural sector among others.

After pulling out of the grouping, India skipped at least two separate meetings it was invited to, including one in Bali in February, and a virtual meeting in April. At the April RCEP-TNC meeting , negotiators who ironed out legal issues with the pact committed to signing the agreement by the end of 2020.

“The RCEP will provide a more stable and predictable economic environment to support the much-needed recovery of trade and investment in the region, which has been adversely affected by the COVID-19 pandemic,” said a statement issued on April 30, which added that “Against this backdrop, the 15 [countries] reaffirmed their commitment to continue working with India to address its outstanding issues…[and] would welcome India’s return to the RCEP negotiations.”

However, Mr. Malik said India’s experience of trade pacts in the past was that they had “hollowed out” manufacturing in the country, and would hamper the government’s renewed commitment to the ‘Make in India’ policy. “At a time when our ‘Make in India’ programme is moving from Level 1 to Level 2, and it has to go to Level 10, I think it was a good decision [to leave RCEP],” he said, speaking at a web seminar organised by the Carnegie India Foundation.

Significantly, Australian High Commissioner-Designate Barry O’Farrell cited the ‘Make in India’ policy as the reason for India to join. Australia and Japan have been at the forefront of efforts to convince India to rejoin the RCEP as a possible counterweight to China in the grouping that would represent a third of global trade.

“If India did want to rejoin the [RCEP] negotiations, there would be no better time than now, because it would send a signal to the world that not only is India an attractive place to invest, but also, its potential of being a global manufacturing hub as envisaged by the government’s ‘Make in India’ policy was realisable” Mr. O’Farrell said.

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