Page 4 - IACC Newsletter March-April 2014 Issue 03

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President’s Message
Dear Member,
There are exciting developments in the economic horizon that can trigger greater economic cooperation between India
and the US. One among them is the further opening up of the defense sector in India for private sector participation,
which also has the potential to accelerate the flow of FDI into the country. The pruning of negative list where the
licensing is required for the private sector to involve, clarity in terms of dual use of items that can be used for the
military purposes and civilian applications, and the intent to increase the threshold limit for FDI in the allowed segments
etc. are in the right direction.
IACC has been in the vanguard in promoting greater participation of the private sector in the defense sector for quite
some time. The rationale is that it is an imminent step for boosting the manufacturing sector, which has been lagging for
long and its contribution to GDP has dithered over the years. Secondly, defense imports have been a major drain on the
precious foreign exchange. Import substitution can lead to saving in the import bill, which will positively impact the
strenuous current account deficit. Thirdly, increased defense production will lead to greater military preparedness and
strategically will pay rich dividends in the future in terms of security. Fourthly, India can emerge as a defense production
hub and that way can become a net exporter of defense items.
Happily, the announcement has created a lot of enthusiasm both from within and abroad. Representatives of major arm
producing nations and corporations are scouting New Delhi in the recent days to become a stakeholder in the arms
manufacturing sector in the country. It is expected that a high level dialogue will take place between Prime Minister
Modi and President Obama in September this year, when the former makes his maiden trip to the US as the head of the
state. Some of the major Indian corporations like Reliance, Mahindra and Larsen and Toubro are gearing up themselves
to reap the benefits from the opening up, mainly through forging joint ventures, where they are keen to source funds
and technology. Equally, significant is the lack of consensus among some of the potential players on the threshold limit
of the FDI. While a few are fielding for a calibrated increase in the cap, yet another group wants to have even 100
percent FDI in the no-licensed sector. Of course, we need an informed debate on this vexatious issue.
In the euphoria triggered by the proposed policy change, what goes not well orchestrated is the precise role of small and
medium sector in the defense production. It is learnt that items like casting, IT, assemblage etc. which were in the
prohibited list earlier is now thrown open to the private sector participation. It is an area where SMEs can make a
difference. They should enter into these segments and scout for I joint ventures from their counterparts from the US. In
fact, IACC has been espousing the cause of the coming together of the mid-sized companies from both countries to
make a qualitative change in the direction and velocity of the economic partnership. Let us hope, opening up of the
defense sector will trigger that partnership in a bigger and meaningful manner.
Undoubtedly, it is a trying time for organizations like ours. We have got a policy decision, after years of advocacy. We
have to sensitize our membership on the potentials of the defense sector and more importantly, the need for forging
greater collaborations with the US companies all hues-big, medium and small.
Chella K Srinivasan
National President, IACC