Transcript Introduction (PowerPoint Presentation)

SECOND MEETING OF THE HIGH-TECH
DEFENCE INNOVATION FORUM
16th December, 2011
Building a High-Tech Defence Innovation Base in
India
December 16, 2011
Smita Purushottam
email: [email protected]
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“Fortifying China”
Key to understanding China’s success in building an
innovation model
Many of its principles underlie the recommendations
of the High-Tech Defence Innovation Forum.
Ideological confusions resolved.
Circulated to NSAB and Task Force on Self-reliance in
Defence Production.
Second meeting of the Forum – key Decision Makers
& Stakeholders present.
High-Tech Google Group: all concerned citizens can
join.
Why China’s Technology Model?
Justin Yifu Lin – Chief Economist World Bank
• Both India and China started with similar economic
models with the same distortions
• Struggled with the legacy of a Statist model and from
low-tech base
• Now, transitioning from central economic planning to
a market and then high-tech oriented economy
• Scale – no other country matches India & similarity of
nation-building exercise
Additional Reasons
•Relentless and fast-paced Chinese technological advances
especially in the military area pose a security challenge.
•China producing a vast array of advanced weaponry &
upsetting the military balance in the Asia-Pacific region.
•ASBM – proof of forethought – 1996.
•Contrast with our situation – 70% imported defence
equipment.
Another reason for looking at China’s model
Current macro-economic indices
• Rupee currently called Asia’s worst-performing
currency. Why:
1. Industrial output slowed and fell 5% in 1 year in
October 2011.
2. Indian investment fleeing – totally contradicts
economic principles that state that assets are
bought when currency devalues.
3. Not just cyclical and international factors.
MOC: India’s merchandise trade deficit to reach
unsustainable 13% of GDP by 2014
We import fully
– Over 70% of machine tools, basic building blocks
– 90% modern telecommunications and IT hardware
equipment: missed our chance in 1999
– 100% civil aerospace equipment and aircraft
– 70% of defence requirements? But Government’s own
Audit report import component of the Dhruv Light Air
Helicopter at 90%.
– Rail equipment – contrast this with China!
– And now inevitably - consumer goods.
Sam Pitroda: Electronics import bill could surpass oil
Reuters Nov 13, 2011
• India must invest in an electronics manufacturing base or risk
an import bill larger than for oil: Sam Pitroda.
• "We have lost all of the electronics manufacturing base,
whatever little we had.
• If we're not careful, in the next 10-15 years - it could be more
than oil."
Services Sector
Drain on Forex Reserves!
•Much touted services sector does not compensate for not
having a robust manufacturing sector
•It comprises 55% of GDP but only 35% of total exports.
•Except for IT and healthcare, India has not reached the
“controlling heights” in the services sector.
•Banking, tourism, higher education – net drain (does not have
to be like this)
No excuses please!
•No embargoes are preventing us from meeting
our requirements. IMTMA report.
Result
•This import dependence is harming Indian
national welfare and national security.
•Senior Officer has quipped – “India is not
even a ‘banana’ republic, it is a khareedna
republic!”
•Rupee fall. And yet domestic investment flees.
Michael Porter’s Paradigm - 1990
Proof that a competitive sector can weather
the recessionary storm is the report that
Indian automobile exports grew 30% during
April-October 2011
http://www.indiabiznews.com/?q=node/2121
ORIGINAL SIN!
We did not promote manufacturing
Licence Raj never fully lifted
Why does China have US$ 3 trillion in forex reserves?
•“China (1978-1997) created an economic juggernaut based on
a solid manufacturing base. As a result of its development
strategy, China has raced ahead of India.
•India’s first phase not only started 13 years later, but also
witnessed the launching of only the “easy” reforms between
1991-93.
•The current economic slowdown and whittling down of the
manufacturing sector in India can be attributed to the neglect of
core sector reforms, something China tackled early on, with a
host of repercussions for sustained growth in many sectors.”
Smita Purushottam, Harvard paper, 2001
“Can India Overtake China?”
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• Time to go beyond the consumption driven,
services sector led model of development.
• High growth in India’s services sector and
consumption-led economy translates into
gains mostly for foreign manufacturers and
education providers.
• National Manufacturing Policy
So, Chinese model has a lot to teach us!
China got it right on Manufacturing Sector
China is getting it right on technology
Only manufacturing sector supports high-tech–
tinkering, innovation of all kinds
China’s Futuristic Strategy
2050 Plan reads like a sci-fi document
China will invest £1.1 trillion (10 trillion yuan)
in strategic sectors over the coming five years alternative energy, biotechnology, newgeneration information technology, high-end
equipment
manufacturing,
advanced
materials, alternative-fuel cars and energysaving
and
environmentally
friendly
technologies.
INDIA
Imperative to have autonomous technological capabilities.
Urgent need for High Tech Strategy.
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Further neglect would be another “Blunder of Himalayan
Proportions”
- senior MOD official
3 OPENINGS TO BUILD INDIGENOUS HIGH
TECHNOLOGY DEFENCE INNOVATION BASE
1. Offset opportunity and spate of defence
equipment orders.
2. Defence
Production
and
Defence
Procurement reforms in 2011.
3. Easing of restrictions on technology transfers
by US on Indian entities, followed by other
Western countries, reflecting changing
geostrategic realities.
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LESSONS FOR INDIA – BASIC PRINCIPLES
• Apply “India First!” to all policies – Offsets,
manufacturing, TOT, FDI, tariffs…
• Impart greater dynamism to economic
reform and grow the manufacturing sector.
• Go for reverse engineering on war footing:
China has not suffered consequences
because of the attractions of its growing
market.
• But protect IPR.
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• Civil military integration - sophisticated
defence economy cannot thrive without
sophisticated economy-wide supply chain.
(Implications for Offset Policy: indirect/direct –
increase in scope etc.)
Defence
Economy
Hightech
civilian
sector
Dual use
econom
y
Low tech
sector
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Prof. Tai Ming Cheung
Foundations of Innov. Eco-Syst.
• Reverse Engineering – different stages
• Civil Military Integration and the 16 character
policy
• Distinction between Hard & Soft Capabilities
(corporatisation of defence industry and
research institutions)
• Restructuring and re-engineering Government
• Last but not least –Leadership – to ensure
Departments follow single minded goal and
work together
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THE FORUM ON HIGH-TECH DEF INNOVATION
PROPOSES A
VISION FOR AN INTEGRATED SCIENCE & TECHNOLOGY
ADVANCEMENT STRATEGY
VISTAS!
Make development of a high-tech innovation eco-system
a national priority.
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• Provide political leadership at the highest
level for VISTAS.
• Establish a National Technology Advisory
Council
(NTAC)
including
apex
representatives of all stakeholders (incl.
industry, academia and research) directly
under the Prime Minister to monitor VISTAS.
• No new department to be created.
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Technological Autonomy
(Not autarky…)
A matter of national pride!
Same commitment and leadership in building Atom
Bomb, Delhi Metro required.
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DG
ACQUISITIONS
DIRECTORATES OF
INDIGENISATIOMN
ARMED
FORCES
IDS HQ
DOFA
DODP
CSIR
INDUSTRY
ASSOCIATIONS
NATIONAL TECHNOLOGY ADVISORY COUNCIL
PM
DRDO
IITs/ENG.
MOC/MEA/DST
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Declare a Defence Industrialisation Strategy
•One document instead of bulky DPP covering
Acquisitions, Offsets, exports, manufacturing, FDI and ToT
policies – for indigenous technological development.
•In it, prioritise Indian industry in defence acquisitions.
•Designate Indian firms or consortia as lead integrators.
•Introduce modern management in Public Sector Units ,
DPSUs and research institutes.
•Corporatise/privatise PSUs and research institutes and
make them more market oriented.
• Explore all strategies for development of
technology including acquisitions of foreign
technology firms.
• Promote defence exports to expand markets.
• Promote reverse engineering.
China’s APE Strategy
•ASSIMILATE/ABSORB
A
•PRODUCE
P
•EXPORT
E
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Copying is Official Policy!
Official Guidelines for the Medium- and Long-Term
National Science and Technology [S&T] Development
Programme (2006-2020) PRC State Council:
“Enhance the Absorption, Assimilation, and ReInnovation of Imported Technologies”
Reverse Engineering
• No shame in it – everyone’s been there, done that.
• Success of India’s pharmaceutical sector, now a target of
foreign acquisitions, is due to reverse engineering.
• Why have we allowed a liberal acquisitions regime in the
pharma sector?
• Different stages corresponding to the level of sophistication
attained by an economy.
• Prof. Tai Ming Cheung has lucidly categorised these stages as
- duplicative imitation; creative imitation; creative adaptation
and/or incremental innovation; architectural innovation
(which China has reached); component innovation and
radical/ disruptive innovation.
Cox Committee Report/ Richard Fisher / Russian military press
West up in arms!
REVERSE ENGINEERING
THEFT ON A SCALE UNSEEN BEFORE: US COC
SMEs
• Reform regulatory environment in the brick and
mortar space – make their life easier.
• Create industrial parks with common infrastructure.
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INCREASE R & D SPENDING ACROSS GOVERNMENT
AND INDUSTRY
•India’s R & D expenditure should be doubled to 1.75%
of GDP by 2015 and 2.5% by 2025.
• China’s aim 2.5% in 2020.
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INDUSTRY CONTRIBUTION
• Industry should contribute an increasing proportion of R &
D expenditure with 5% of revenues for large scale industry
and 3% for SMEs.
• International
60-65% R & D funding
internationally comes from corporate sector.
example:
HIGH TIME SERVICES SECTOR ALSO CONTRIBUTED
•The service sector especially in telecommunications and
aerospace should invest in indigenous technology and
manufacturing capabilities.
•Only IT sector has contributed to R & D.
•Telecom Policy 1999!
OFFSETS
•Formulate model National Offsets Policy.
•Declare aim of offsets policy is to promote
indigenous manufacture, technology and
innovation.
•Set up Offsets Agencies in sectors depending
on huge imports such as telecommunications,
aerospace, railways, IT, etc.
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Raise defence offset obligations to 100%:
• While 30% should continue to be reserved for
defence production, 70% can be invested in
high-tech
sectors
such
as aerospace,
telecommunications, railways, composites,
engines, machine tools, electronics hardware,
etc.
• This would create a dual use manufacturing base
benefiting defence sector, the philosophy behind
civil and military integration (CMI).
International experience
• Europe: Over 100% Offsets is common
• Gripen SAAB just offered 100-120% offsets to Czech
Republic and Croatia
• Turkish offset policy: maximise local involvement at
70%; 15% - SMEs
• No minimum threshold – was only US$10 m to begin
with
• Chinese offsets: growth of indigenous civil aviation
sector
OTHER EXAMPLES WE CAN LEARN FROM
•The Israeli Industrial Co-operation Authority
handles offsets with long term goal of
promoting
indigenous
technological
upgradation.
•Israel spends 3% of GDP on R&D
SOUTH KOREAN SYNERGIES
• Launched agency to boost indigenous defence
industry and expand exports to become top military
exporter.
• The Defense Industry Development Council (DIDC) is
co-chaired by the South Korean Ministry of National
Defense (MND) and the Ministry of Knowledge
Economy (MNE).
• Also to plan R & D activities, training and skills
programmes as well as defence offset, including
technology acquisition.
• DIDC will also co-operate with Defense Acquisition
Program Administration (DAPA) (for offsets), Korea
Defense Industry Association and the Korea TradeInvestment Promotion Agency.
Coincidentally our recommendation was to:
• Create a combined Defence Industry Development Council
from MOD departments/ agencies like Defence Acquisitions,
DoDP, IDS HQ, DOFA and DRDO, associating the Ministries of
External Affairs, Defence, and Commerce and Industry - to
implement a coordinated technology indigenisation policy by
leveraging all means at a State’s disposal including leveraging
market access for indigenization.
• Eventually, re-engineer Government organisations and
processes by merging or dynamically linking departments in
charge of acquisitions, production, indigenisation, R&D, ToT,
FDI with TOT provisions, manufacturing and exports - to
create synchronised entities focusing on promoting
indigenous high technology.
FDI IN DEFENCE
• Take advantage of Western interest in defence collaboration.
• Lift FDI cap so that manufacturing facilities are set up in
India.
1. A calibrated tariff policy to protect indigenous including FDI
manufacture, resisting pressure for tariff reductions under
multilateral trading arrangements – should be instituted.
Med. Devices.
2. Host country policies should mandate transfer of technology
and phased indigenous sourcing obligations, as China has
done.
3. Monitoring of indigenisation/ local sourcing and production
targets must be ensured if the FDI ceiling is raised.
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• Inter-ministerial coordination between the
Ministries of External Affairs, Defence, and
Commerce and Industry - to leverage
market access for technology transfers–
must be established under the NTAC.
(China aerospace example)
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R&D
• Best practices of MNC R & D centres should be studied
• Simple solutions: promotion and incentive systems in R &
D Institutes and academic institutions should be based on
the marketability of product and patents acquired.
• DRDO and CSIR to focus on fundamental research and
accelerate outsourcing of technologies for production to
private sector.
• Govt. R & D labs allowed to generate own income and be
corporatised where necessary.
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Information & Transparency
• Ensure transparency in awarding Government
contracts.
• Every Government Department / private or public
sector company should carry on its website a list of:
(a) Projects to be awarded for indigenisation and
(b) Items imported from abroad.
© Names of proactive departments and officials charged with
indigenisation with full contact details.
• Declassification of important reports like the Kelkar
Committee report, greater consultation with entities
outside Govt. and data access is imperative.
Copycats don’t catch mice!
While it Does not Matter
What Colour the Cat is,
Copycats Certainly Don’t Catch Mice!
Smita Purushottam, 2002
Conclusion
• India has to overcome the hesitant, piece-meal and turfled approach to defence industrialization and innovation if
it wishes to catch up with the world’s technological
leaders.
• Without the above reforms and changes, India will be
unable to take its place as an advanced technological
nation which will affect its standing, autonomy in
conducting foreign policy, but most importantly, affect the
overall welfare of its citizens. NSA has stated this in a
speech.
• It is recommended that Government consider these
suggestions and take appropriate measures to launch a
high-tech science and technological revolution in India.
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NAMASKAAR!
JAI HIND!
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