A new ecosystem for private players
tie up for technology transfer. The main criterion on which the OEMs will be identified is the extent of technology they are willing to pass on. The joint ventures between a strategic partner and an OEM cannot, however, have more than 49% FDI. They must be owned and controlled by resident Indian citizens. The OEMs, for their part, must obtain prior licence for technology transfer from their own governments.
These provisions are likely to prove onerous. For one thing, the FDI ceiling of 49% will give pause to foreign manufacturers in tying up with Indian firms. If the experience of the past few years is anything to go by, then OEMs will be reluctant to transfer significant technology for production in India under an arrangement that gives them insufficient control. To be sure, the policy does talk about protecting the property rights of OEMs. But this may not be sufficient assurance. What’s more, the governments of the OEMs may also be disinclined to permit significant technology transfer under these conditions.
In consequence, OEMs may choose to supply the advanced sub-systems and components from abroad while enabling the Indian strategic partner to manufacture only lowerend technology in India. On the flip side, the Indian firms may be uncomfortable with the idea of being forced to bear all the risks associated with the venture without commensurate control over key technology.
Firms on both sides have voiced such concerns in the past. Instead of brushing them aside, the Ministry of Defence could consider other options to circumvent the problem of foreign producers being majority stakeholders. The government could mandate that the control of the entity cannot be transferred without its concurrence, that it be managed and staffed exclusively by Indians. Such workarounds could help secure higher levels of technology transfer, which alone can ensure that the larger, strategic objectives of the policy are met.