Business Briefing 06/03

Makings of an Indian Military Establishment; Who Needs Air India?

Makings of an Indian Military Establishment; Who Needs Air India?

Makings of an Indian Military Establishment; Who Needs Air India?

For too long India’s defence sector has been a closed door for the private sector. This, even as India is projected to spend sums in the range of $115 billion over the next ten years on arms imports. The Government, however, has taken tentative steps to open up this huge opportunity to India’s private sector. By its new policy, a revision of its old one on ‘defence offsets’, contracts worth 30 per cent of every deal over Rs 300 crore will compulsorily have to be farmed out to Indian firms for indigenous development. A joint study by CII-KPMG, Opportunities in the Indian Defence Sector says that Indian industry is upbeat on defence and aerospace opportunities. Already, there are signs of activity. Larsen & Toubro has teamed up with US major Raytheon for upgrading India’s T-72 tanks, Mahindra and Mahindra (M&M) has joined BAE Systems to launch land combat vehicle systems via a new venture in which M&M will hold 74 per cent equity. Last August, Wipro and Lockheed Martin set up a network-centric operations centre. “Private sector participation is a good first step. It will require a lot of policy work for the potential to be fully realised. For one thing, even now public sector firms get much bigger tax breaks than the private sector if they participate in defence work. The defence developer needs volume, and Indian private sector firms do not have permission to export their products, thus they become captive to the Indian armed forces in supplying equipment,” says KPMG’s defence sector analyst Neelu Khatri. Such policy impediments hobble India’s entrepreneuri­al and technological capabilities. Without favourable policy changes, firms in Russia or the US could earn at India’s cost.

The Indian economy has seen $1.2 billion vanish from its bottomline this fiscal. The reason? Air India continues to bleed. Shamelessly run as before, the air­line lost more than Rs 4,500 crore this fiscal alone, and there is no end to its losses in the near future either.  To deal with its sorry affairs, the airline has only proposed some cosmetic changes. It is still hoping for a Government bail-out.  Fact is, the national carrier is sick and needs major surgery; however, all it is willing to undergo is a 15 per cent salary cut. As a stopgap measure, the Government has decided to infuse Rs 800 crore into the airline. Even this infusion is unlikely to improve the company’s finances. Never before has money been so brazenly wasted by the Indian exchequer. Amazingly, the opposition too has been silent on this, and the media has virtually taken no note at all.  Air India has no right to burn public money at will. It is in terminal crisis, and if it cannot be shut down because a public sector player is a must in high-entry-barrier sectors that necessitate licencing because of their use of public resources in limited availability (like airspace), then this makes its revival all the more urgent. In a country with starvation deaths in Orissa, politicians flying first class should not be a priority.

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