How commercially viable a sector is defence?

Reliance has been eyeing investing in the defence for quite some time now, so have many private giants. And with ‘Make in India’ in the scene, it is important to evaluate the commercial viability of investment in defence, now and in the future, given the critical nature of the sector.

PRIVATE SECTOR INVOLVEMENT IN DEFENCE SECTOR

     1)    Public sector undertakings (PSUs) in defence sector have a cumulative turnover of about Rs.50, 000 crores. Public sector shipyards have been given orders worth Rs 1.24 lakh crores in the past two years. In the same period, the private sector has received orders worth barely Rs 2,000 crores. Considering the high-level technical expertise required in defence manufacturing, barely 6-7 private firms in the country namely, Tata, Mahindra, Hero, Reliance group, Hinduja group and Bharat Forge, have the technological know-how and financial strength to be able to invest in defense.

      2)    Also, a major problem in the sector for the entry of private players is forced dependence only on government purchases and the forces. Public sector players are not outsourcing received orders to private players. Industry representatives pointed out that over the past two years, not a single Rs 100 crores-plus order was placed by PSUs to any private defence manufacturer. Private sector supplies to DPSU and Ordnance Factories grossed over Rs. 1200 crores and Rs. 1900 crores respectively last year. Whereas these figures signify the contribution made by the private sector, they also highlight the fact that the private sector continues to be merely an outsourcing base for the public sector. 

      3)    With the coming of 100% FDI, foreign manufacturers will prefer coming in on their own rather than going in for a joint venture and share their profits, making it even more difficult for the private sector in the domestic market.

WHY PRIVATE INVESTMENT IS IMPORTANT

Defence manufacturing, for years, has been exclusively under government for security reasons. However, since we still lag behind in the area of technology, our defense requirements had to be imported. As a result, India is one of the largest arms importers in the world.
Increased domestic private investment will serve as import substitution, leading to cost saving, self-reliance, quality enhancement and in future, even help bolster exports of defence equipment.

WHY IS PRIVATE INVESTMENT WEAK NOW?

     1.     Though the government has so far been optimistic in its Make in India vision, not many enterprises have started working on the ground. A number of licences have been granted to private parties but only around 35 have started actual production.

      2.     Requirements of the armed forces are not made known to the private sector sufficiently in advance, with the result that it does not get adequate time, either to scout for foreign tie-ups or to establish the necessary facilities. The time given for the submission of technical and commercial proposals is grossly inadequate for a new entrant in the field.

      3.     The lack of focus on two horizontals that cut across all major programmes - electronics and materials. Electronics, technology life cycles are today down to 5-7 years and hence are incompatible with a procurement model that evolves from a 20 year vision. It is usually seen that the definition of system need (qualitative requirements), changes many times over, often even before the procurement process can be effectively concluded. A dedicated differentiated focus is needed from the centre.
 

     4.     Lack of a sustained focus on R&D in the materials sciences space. Encouraging private institutes or even firms to come up with latest R&D in defence, funding of independent research or providing incentives for research will engage more and more firms in the sector.

     5.     Lack of talent availability for the industry. The current sources of supply of talent are largely from the defence PSUs and user services. Neither are they adequate in quantity nor in terms of skills and quality, when evaluated from a perspective of the magnitude of demand arising from the need to build a robust home-grown industry.

HOW TO MAKE IT MORE VIABLE?

          1.     The government needs to be commercially sensitive.

2.     Around 25% of the defence PSU (public sector undertaking) turnover can be off-loaded to the private sector. A good sign is that the ministry has already de-licensed 60-70% of the production.

3.     The centre should create categories of private investments in defence manufacturing with varying caveats of concessions and guaranteed purchases, along with hedging investments. It must also try to take into account the small industries in this field to give them a level-playing field.

Defence manufacturing in India is undergoing a step function change. There have been substantial measures taken to boost local manufacturing in India and to ensure that this capability is built in both the public and the private sector. This aim is being addressed at one level through tweaking of the policies that are redundant and at another by supporting defense manufacturing industry through orders, investments and technology.

The government has displayed a very clear focus and a mindset to tackle the issue. If it continues its reformist policies, starts providing technological know-how to the private sector and controls how the local sourcing clauses of FDI are regulated, we can expect a fruitful engagement of private sector in the defence sector in the coming years.

What does the Paris Agreement mean for the Asia-Pacific?

Recently I attended an absolutely enriching conference on the Review and Implementation of the Paris Agreement in the Asia-Pacific Region. Given the fact that this region is the most vulnerable to climate change, it is extremely essential to discuss how much do international treaties and agreements actually affect the targeted parties.

The UNESCAP (United Nations Economic and Social Commission for Asia and the Pacific) exclusively looks at Climate Change policies, threats etc on the Asia-Pacific.

During the two day conference, I realized how much brainstorming is conceptualized to make substantial changes and help governments fight climate change threats. The extent and scope of these mechanisms goes beyond our comprehension.

Here's a general bird's eye view of what the Paris Agreement means to Asia and the Pacific and how it can be well implemented.

1. The Paris Agreement is considered to be a key instrument under UNFCCC (United Nations Framework on Climate Change Conference) however, it is shockingly subjective and abstract. It hardly offers any substantial mechanism to achieve the ambitious goals it lists.

2. It calls for what is called a 'bottom to up' approach. This is probably the only part which makes it different from other treaties. This means that member nations are allowed to set their own 'emission-limits' and INDCs  (Intended Nationally Determined Contributions) to achieve the bigger goal of limiting global temperature rise to 1.5-2% in the long run.

However, it has many cons:

a) Lack of mechanisms to determine and calculate Green House Gas and carbon emissions

b) Lack of a transparent international body to determine whether Nations are honestly reporting and evaluating their emissions

c) Its non-punitive nature, just like former agreements, offers no incentive for member parties to actually abide by the Agreement

d) Substantial lack of technology transfer and carbon reporting mechanisms to assist LDCs (Least Developed Countries) that are not equipped to carry out these processes by themselves.

e) The Agreement is also vague on the issue of Climate Finance. It merely calls upon the developed nations to 'voluntarily contribute' to the various climate funds like the Green Climate Fund.

f) It also offers no specific solution to tackle the Loss and Damage caused by Climate Change.

g) Private firms and industries are responsible for a huge chunk of pollution caused. The Agreement does not offer any guideline for member nations to include the private sector in the ambit of this Agreement.

h) It raises the issue of climate refugees but again offers no explicit ways to help them.

Here's a suggested list of solutions and suggestions to facilitate the implementation of the Paris Agreement in the Asia-Pacific:

1. Regulating determination of INDCs

- Using SBSTA (Subsidiary Body for Scientific and Technological Advice) and other bodies to assist governments in areas of technology, emission recording, etc

- Creating a common platform/forum for nations to share information regarding emissions and pollutants and means to control them

2. Ensuring Transparency in reporting
- Empowering IPCC (Intergovernmental Panel on Climate Change) or any other subsidiary body to devise a uniform reporting system

3. Prevention of Loss and Damage due to natural disasters

- Warsaw Mechanism for Loss and Damages to be referred to for guidance on means to prevent loss and damages

- Sendai Framework for Disaster Risk Reduction to be used more frequently and subsequently adhered to

4. Trade as a means to combat effect of climate change

-Harness the potential of geographical proximity within the Asian-Pacific

-Urging all member nations to join the APTA (Asia-Pacific Trade Agreement)

- Intra-trade will reduce transportation costs and help use the surplus money in investing in unconventional sources of energy

5. Taking the private sector in the ambit of Paris Agreement

- Urge nations to impose at least 1-2% CSR (Corporate Social Responsibility) in the field of environment development

- Call upon specific private institutions to credit, certify or fund firms investing the highest in pro-environment activities

- introduce Green Investment Banks for easier funding of projects aiming to control climate change

6. Creation of a specific body under UNESCAP for climate  refugees and appeal to UNHCR (United Nations High Commission on Refugees) to recognize climate refugees (current refugee law has no provision for climate refugee).

7. UNESCAP must create forums to associate with rural women in highly vulnerable areas and empower them through awareness and social entrepreneurship workshops.

8. Funds calling for voluntary donations are inexhaustible and unsustainable hence financing should come from high penalties on environmental excesses, green bonds, green investment banks, etc or by incentivizing foreign investment in targeted  countries by offering investors tax cuts, cheap labour, etc.

    

Can UBI combat poverty in India?

Following the GST and Demonetization, the Centre plans to come up with yet another monumental scheme, the Universal Basic Income (UBI).

Presented in this year's Economic Survey, the UBI, as the name suggests, refers to a basic minimum income for citizens to ensure basic living standards. It is proposed as an alternative to subsidies, MNREGA and other existing pro-poor schemes. Empirical evidence has shown that these schemes have been prone to red-tape and misappropriation of funds, hence have not been able to deliver the desired results. Also, the lack of a well-defined and accurate mechanism to distinguish between the poor and the non- poor has resulted in these welfare schemes benefitting the latter more.

This new proposal offers ‘universality’ of cash transfer, which means the government would not have to waste resources and time in identifying beneficiaries.

But is such an idea feasible in India?

An acceptable level of the UBI could be an income equivalent of the poverty line, which is about Rs1,090 per month for each individual (2015-16 prices). The total cost of providing this income to all Indians would amount to 12.5% of GDP, which is nearly equal to the size of the Union Government’s budget. Thus, such a UBI which provides poverty line-equivalent income to all Indians does not appear to be feasible because of budget constraints.

The scheme also presents an irony. If it seeks to target the poor and the ‘needy’, why call it universal? And if it does involve targeting, we’ll be back to square one: differentiating and identifying the poor and the non-poor.

The idea of presenting each individual with the same monetary assistance, disregarding his needs, financial status, background, etc is flawed also because; one, money given to an individual under this scheme would be definitely less than what he/she would have received in a targeted scheme; two, it will also lead to less cash in hand as compared to benefits in kind received now, which is no less than a political disaster.

It will also de-incentivise people to work, who will then be assured of a basic minimum support amount. This might lead to a fall in number of workers and also work efficiency, forcing the government to spend more on such spoon-feeding. Much of its revenue will go towards assisting non-working individuals, leaving it with less money to invest in infrastructure, which could bring the GDP down.

The concept of a UBI is widely popular in the West, however many developing economies like Switzerland rejected it. A developing and economically diverse country like India is nowhere close to being ready for a scheme like this. Its opportunity cost is huge and it's no more than an impressive theory on paper. What we really need are more pragmatic macro-economic reforms (better restructuring of taxes, efficient labour laws, minimal bureaucracy, skill development, expansion of vocational training centres, etc) that increase employment opportunities and make work atmosphere more conducive. A debate on UBI is just digressing us from looking for more substantial solutions for the present economic challenges.

Union Budget 2017

KEY HIGHLIGHTS:

1.  Finance

- Total expenditure at 21,47,000 crores
- 90% FDI flows automated
-Foreign Investment Promotion Board will be abolished
- Direct Benefit Transfer to LPG consumers
- BHIM app launched
-Fiscal deficit at 3.2% for 2017-18
- Revenue deficit stood at 1.9%

2. Agriculture:

- NABARD fund increased to 40,000 crores

- A micro irrigation fund (within NABARD) of 5000 crores

- Irrigation corpus increased by 20,000 crores

- 2000 crores invested in Dairy processing infrastructure

- 10 lakh crores dedicated to credit for farmers

Targets:
- Model law on contract farming
- Mini Labs in Krishi Vigyan Kendras for soil testing

3. Rural Population

- Total spending of 3 lakh crores for rural sector

- Sanitation coverage up to 60% from around 40% in three years

- Allocation to MNERGA increased from 38,500 crores to 48,000 crores (expected to double farmers' incomes)

- 19,000 crores for Pradhan Mantri Grameen Sadak Yojana

Targets:
- Bringing out 1 crore homes out of poverty by 2019
- Steps to increase women participation in MNERGA to 55%

- Use of space technology to improve working of MNERGA

-100 % electrification by March 2018

4. Infrastructure and Railways

- Total Allocation in Infrastructure of approximately 39,00,000 crores 

- Allocation to Railways of 1,30,000 crores

- 64,000 crores for highways

- No service tax on online ticket booking through IRCTC

Targets:

- Bio-toilets in all trains by 2019

- 500 railway stations to be made differently-abled friendly

- High speed internet in some 1,50,000 gram panchayats

5. The Poor and Health Sector

- Rupees 6000 for pregnant women nation-wide

- More than 1,80,000 crores for women and children development

- 2 new AIIMS in Jharkhand and Gujarat

- Around 52,000 crores for uplifting Scheduled Castes

- 500 crores for Mahila Shakti Kendras

Targets:

- Elimination of tuberculosis by 2025

- Aadhaar based smart cards for senior citizens to monitor health

6. Energy Sector

- Strategic policy for crude reserves
- Almost 1,30,000 crores received as energy production based investments


Other
- Out of approx 13 lac registered companies, only around 6 lac filed returns for 2016-17
- Maximum amount a political party can receive in cash from one source as donation is Rs 2,000
-Personal Income Tax grew by 34%
- Cash transactions to be of only upto 3 lakhs
-Tax on income between 2.5 lakhs-5 lakhs reduced from 10% to 5%
-10% surcharge on income above 50 lakhs and 15% on income above 1 crore

Reputation

Reputation is, but a farce-
A tool constructed to limit passion and courage into tiny moulds, 
of irrational and uncomfortable notions;
of stereotypes and prejudices in mixed proportions. 
A red sign, for fearless romances
and for the one taking  unconventional chances.
A wrecked pedestal of righteousness;
an old whip, whipping attempts at individual-ness.
Oh it's wary, let's rip it apart, 
so it's easy to breathe for our heart. 

The concept of a society was constructed by man for the convenient and harmonious living of his fraternity. Often, this very society imposes upon us compulsions and customs which we must necessarily abide by, in order to make space in that society. These customs vary from society to society but the way they suffocate dreams, difference of opinion and novelty remains the same. Be it society in general, or exclusive groups of intelligencia , there is a tendency to give legitimacy to accepted norms which closes all doors for new thought. Anyone taking the road not taken is perceived as a threat to society and as a result not accepted into it. This anyone may not necessarily be a person, it could be a minority religious sect, two lovers forced to elope due to caste difference, a child in a family of doctors wanting to pursue literature, a small group of theorists challenging a given theory, et al. 
The fear of being secluded away crushes emotions, desires, innovation and most importantly, freedom. It crushes all incentives to look for newer means and creates a mundane sameness of people, existing with suppressed ideas. As a result, it increases frustration, anger and resentment which further leads to disputes, violence and disharmony. 
This unnatural construction is an aberration in the way of a fearless society. And young and old voices speaking against it is what we need to have real peace in the world. 

Dreaming in the day

The clock gradually drags,
with the weight of nothingness.
Eyes stare blankly,
past the vibrant walls,
colourful posters fading into a blur;
past the overflowing cupboard,
wherein pop out things of all sorts.
Empty hands tapping on the desk,
full of sheets to be filled, notes to be made.
Legs wearing the new Nike shoes
dangling in a slow unconscious rhythm.
Within the mind, there's a swirl
of ideas, imagination and energies
also leisure, laziness and abstract memories.

There are weird ironies in daily life. There's a lot of time but there's no time. There's so much to be done, accomplished and explored but no willingness or effort in that direction. We want success or change but we rarely take a substantial step in that direction. Even if we do, we lose the momentum half way. Often the hinderances to our goals are not any major distractions but as mundane as unnecessary compulsive daydreaming or overstretched pangs of laziness.Recollections of past or imaginary structuring of the future, both are destructive of what we have now, the present.

Desh Prem Divas

120 years ago, the Indian soil was blessed with the fiercest patriots of the time. The one who waged a genuine aggressive fight against the British through the Azad Hind Fauj and by allying with the Axis powers. Whose contribution to the Indian Struggle is a legend to treasure for times to come and whose spirit of patriotism is to be treasured for centuries.

Over centuries, the conception of patriotism has changed. From the crusades, consolidation of empires, monarchy, conquering territories, rise of feudalism and its collapse, imperialism and colonialism and the fight against them, unification of provinces to democratization, patriotism has come a long way.

The word Patriotism or nationalization still has that cliched connotation of only fluttering flags, bravehearts sacrificing their lives, movement leaders being imprisoned. Though these constitute a great part of the term, patriotism has enveloped a wider area.

This is the era of rapid globalization. Issues of a country are not specific to it but subjects of international deliberation. For instance, in the political sphere, not just the US but the whole world is expressing its apprehensions of the new US President; in the cultural sphere, our putrid and unfair caste system has invited criticism from the world over; almost all nations scorn at Kim Jong Un, et al. 

Patriotism in today's time is more associated with making our nation look better, internationally. A  nation is identified with the level of happiness of its people, its culture, its economic development, etc and there are structured parameters for evaluating them. The HDI Index, Ease of doing business index, GNH indicator and the like. For those who don't bat an eyelid before starting to blame the administration and government, besides government schemes and programs, there is an enormous lot we can do at our level to improve our performance.
Mundane doings tend to skip our comprehension of an enthusiastic feeling of patriotism like:
-Keeping our streets and neighbourhood clean;
-protecting our cultural heritage;
-not wasting resources like food, water, electricity, etc ;
-doing away with gender-based stereotypes and discrimination
-standing up for those in need
-making the visitors from abroad safer and welcome;
-respecting our indigenous markets, culture and art
-not engaging in corrupt practices
-not indulging in excessive consumption of alcohol, drugs or tobacco
-most importantly, using only merit as a basis of distinction in people

There's a lot to be done but nothing spectacular to be done. Basically, the key to national progress begins with just us being better humans.