Sweden has no cap on FDI in defence
Lars-Olof Lindgren, Chairman Saab India Technologies Pvt Ltd
SP’s M.A.I. (SP’s): What do you think about the 49 per cent FDI limit increased from 26 per cent recently? Lars-Olof Lindgren (Lindgren):
It is an important step towards the goal of making India self-reliant in defense production. An even higher ceiling for FDI would have been better since that would have given stronger incentives to companies to bring in new technologies. In many countries, including in Sweden, there is no limit for FDI in the defence sector.
Having said that, what is likely to change with a 49 per cent stake is that global defence companies and their shareholders will be looking at investing in the country as a business investment decision rather than simply a decision to facilitate participation in a contract.
A 26 per cent stake in a company invariably carried a number of business risks in a sector such as defence where proprietorial information, research and development and sensitive technology are closely guarded. Defence companies seek the assurance of being the largest shareholders in order to ensure that their interests and technology are appropriate.
Further, companies need to be assured of long-term business investments in a sector where there is a single customer and orders are few and far between. Being a minority partner in companies where other domestic partners may not have the investment capacity or have other priorities would unnecessarily create situations where foreign partners are trapped in under-funded companies.
Lindgren: SP’s: What all can your company offer to our country with this change now versus the past limit? Lindgren:
For us, India is more than a market. The focus is not simply on winning bids but on building business in partnership with reliable Indian partners across the entire hierarchy of manufacturers, all the way from strategic partners to sub-component suppliers. Saab is looking at the Indian Industry as their potential partner in product development for the world market. We believe that the Indian industry has the necessary capability and can absorb stateof-the-art technology for manufacturing world-class products.
That said, we do not see any significant change in the way we collaborate with Indian companies at this juncture.
SP’s: As on date can you brief us about your joint activities with Indian industry? And the business arrangements involved in these joint activities?
We work closely with partners such as BEL, HAL and Pipavav. Saab has a partnership with Indianeye Security Pvt Ltd for supplying Agile Tactical Engagement Simulation (ATES) equipment to Indian armed forces, paramilitary, special forces and police.
Saab and Bharat Forge Limited have signed an agreement to work together on the Indian Army Air Defence projects VSHORAD. Also, Saab and Ashok Leyland have entered into an agreement to work together as partner for the Indian Army Air Defence project for the short-range surface-to-air missile (SRSAM) based on the Saab BAMSE system. Ashok Leyland will deliver high mobility vehicles for the BAMSE SRSAM solution.
Saab is an equity investor in Pipavav Offshore and Defence Engineering Ltd (Pipavav). Further, Saab and Pipavav have jointly formed the Combat System Engineering Group (CSEG) in India.
In 2012, Saab, in collaboration with Elcome Marine Services, implemented the National Automatic Identification System on the Indian coastline for India’s Directorate General of Lighthouses and Lightships (DGLL). The project involved set up of sensors and equipment to help secure the entire Indian coastline.
Saab is also working with many suppliers of machinery and composite parts in India, including CIM Tools, Tata Advanced Material Limited and Aegus (former QUEST Global Manufacturing). These companies play a very valuable role in helping Saab develop, industrialise and manufacture complex airframe assemblies for Airbus and Boeing. Our joint venture with Aegus manufactures and supplies assemblies for the global commercial aero structures market.
Saab India Technologies has set up the Saab India Technology Centre, a Research and Development Centre, in partnership with Tech Mahindra in Hyderabad. This centre forms an important bridge for the transfer of the latest in defence technologies between India and Sweden.
These alliances will go a long way in helping Saab fulfil its vision – of becoming a true and genuine partner to India’s defence industry. We are committed to true transfer of technology and investing in the future of Indian defence industry and here to stay for the long haul to build an indigenous defence industry in India.
SP’s: Why there seems to be a demand for 51 per cent FDI limit still? Is that justified? Lindgren:
Yes, a higher ceiling for FDI would give stronger incentives to companies to bring in new technology. All companies with proprietorial technology in any domain seek to retain control over access to the technology.
India has many lessons from its own history of economic reforms. Almost all the multinational companies entering India – as automotive industry from Japan or Korea or American beverage companies or Japanese consumer electronics companies – came into India in a fullfledged fashion only after they were able to set up fully-owned subsidiaries. Indeed, the experience of joint ventures on the other hand has been quite troubled and needs to be kept in mind.
India has benefited clearly from that change in the regime. It is quite clear that all technology dependent companies will shy away from any situation where their technology or business process is in danger of being outside their control.
In many countries, including in Sweden, there is no limit for FDI in the defence sector. As a first step, an increase to a minimum threshold of 51 per cent is urgently called for.