SECOND MEETING OF THE HIGH-TECH

DEFENCE INNOVATION FORUM

16th December, 2011

Building a High-Tech Defence

Innovation Base in
India
December 16, 2011

Smita Purushottam
email: smitapurushottam@gmail.com

Fortifying China
Key to understanding Chinas success in
building an innovation model
Many
of
its
principles
underlie
the
recommendations of the High-Tech Defence
Innovation Forum.
Ideological confusions resolved.
Circulated to NSAB and Task Force on Selfreliance in Defence Production.
Second meeting of the Forum key Decision
Makers & Stakeholders present.
High-Tech Google Group: all concerned citizens
can join.

Why Chinas Technology Model?

Justin Yifu Lin Chief Economist World Bank

Both India and China started with similar
economic models with the same distortions
Struggled with the legacy of a Statist model
and from low-tech base
Now, transitioning from central economic
planning to a market and then high-tech
oriented economy
Scale no other country matches India &
similarity of nation-building exercise

Additional Reasons
Relentless
and
fast-paced
Chinese
technological advances especially in the
military area pose a security challenge.
China producing a vast array of advanced
weaponry & upsetting the military balance in
the Asia-Pacific region.
ASBM proof of forethought 1996.
Contrast with our situation 70% imported
defence equipment.

Another reason for looking at Chinas

model
Current macro-economic indices
Rupee currently called Asias worstperforming currency. Why:
1.Industrial output slowed and fell 5% in 1
year in October 2011.
2.Indian investment fleeing totally
contradicts economic principles that
state that assets are bought when
currency devalues.
3.Not just cyclical and international factors.

MOC: Indias merchandise trade deficit to

reach unsustainable 13% of GDP by 2014
We import fully
Over 70% of machine tools, basic building blocks
90%
modern
telecommunications
and
IT
hardware equipment: missed our chance in 1999
100% civil aerospace equipment and aircraft
70% of defence requirements? But Governments
own Audit report import component of the Dhruv
Light Air Helicopter at 90%.
Rail equipment contrast this with China!
And now inevitably - consumer goods.

Sam Pitroda: Electronics import bill could surpass oil

ReutersNov 13, 2011

India must invest in an electronics manufacturing base or

risk an import bill larger than for oil: Sam Pitroda.
"We have lost all of the electronics manufacturing base,
whatever little we had.
If we're not careful, in the next 10-15 years - it could be
more than oil."

Services Sector
Drain on Forex Reserves!
Much touted services sector does not compensate
for not having a robust manufacturing sector
It comprises 55% of GDP but only 35% of total
exports.
Except for IT and healthcare, India has not reached
the controlling heights in the services sector.
Banking, tourism, higher education net drain
(does not have to be like this)

No excuses please!
No embargoes are preventing us
from meeting our requirements.
IMTMA report.

Result
This import dependence is harming Indian
national welfare and national security.
Senior Officer has quipped India is not
even a banana republic, it is a khareedna
republic!
Rupee fall. And yet domestic investment
flees.

Michael Porters Paradigm - 1990

Proof that a competitive sector can
weather the recessionary storm is the
report that Indian automobile exports
grew 30% during April-October 2011
http://www.indiabiznews.com/?q=node/2121

ORIGINAL SIN!

We did not promote manufacturing

Licence Raj never fully lifted

Why does China have US$ 3 trillion in forex

reserves?
China (1978-1997) created an economic juggernaut
based on a solid manufacturing base. As a result of its
development strategy, China has raced ahead of India.
Indias first phase not only started 13 years later, but also
witnessed the launching of only the easy reforms
between 1991-93.
The current economic slowdown and whittling down of the
manufacturing sector in India can be attributed to the
neglect of core sector reforms, something China tackled
early on, with a host of repercussions for sustained growth
in many sectors.
Smita Purushottam, Harvard paper, 2001
Can India Overtake China?

13

 Time to go beyond the consumption

driven, services sector led model of
development.
High growth in Indias services
sector
and
consumption-led
economy translates into gains
mostly for foreign manufacturers
and education providers.
National Manufacturing Policy

So, Chinese model has a lot to

teach us!
China got it right on Manufacturing
Sector
China is getting it right on technology
Only manufacturing sector supports
high-techtinkering, innovation of all
kinds

Chinas Futuristic Strategy

2050 Plan reads like a sci-fi
document
China will invest 1.1 trillion (10 trillion
yuan) in strategic sectors over the
coming five years - alternative energy,
biotechnology,
new-generation
information
technology,
high-end
equipment manufacturing, advanced
materials, alternative-fuel cars and
energy-saving
and
environmentally
friendly technologies.

INDIA
Imperative to have autonomous technological
capabilities.
Urgent need for High Tech Strategy.

17

Further neglect would be another

Blunder of Himalayan Proportions
- senior MOD
official

3 OPENINGS TO BUILD INDIGENOUS

HIGH TECHNOLOGY DEFENCE
INNOVATION BASE
1.Offset opportunity and spate of defence
equipment orders.
2.Defence
Production
and
Defence
Procurement reforms in 2011.
3.Easing of restrictions on technology
transfers by US on Indian entities,
followed by other Western countries,
reflecting changing geostrategic realities.
19

LESSONS FOR INDIA BASIC

PRINCIPLES
Apply India First! to all policies
Offsets, manufacturing, TOT, FDI, tariffs
Impart greater dynamism to economic
reform and grow the manufacturing
sector.
Go for reverse engineering on
war
footing:
China
has
not
suffered
consequences because of the attractions
of its growing market.
But protect IPR.
20

 Civil
military
integration
sophisticated
defence
economy
cannot thrive without sophisticated
economy-wide supply chain.
(Implications for Offset Policy:
indirect/direct increase in scope
etc.)

21

Prof. Tai Ming Cheung

Foundations of Innov. Eco-Syst.

Reverse Engineering different stages

Civil Military Integration and the 16
character policy
Distinction
between
Hard
&
Soft
Capabilities (corporatisation of defence
industry and research institutions)
Restructuring
and
re-engineering
Government
Last but not least Leadership to ensure
Departments follow single minded goal and
work together
22

THE FORUM ON HIGH-TECH DEF

INNOVATION
PROPOSES A

VISION FOR AN INTEGRATED SCIENCE &

TECHNOLOGY ADVANCEMENT STRATEGY

VISTAS!

Make development of a high-tech innovation

eco-system a national priority.
23

 Provide political leadership

highest level for VISTAS.

at

the

Establish
a
National
Technology
Advisory Council (NTAC) including apex
representatives of all stakeholders
(incl. industry, academia and research)
directly under the Prime Minister to
monitor VISTAS.
No new department to be created.
24

Technological Autonomy
(Not autarky)
A matter of national pride!
Same commitment and leadership in
building Atom Bomb, Delhi Metro
required.

25

DIRECTORATES
DG
OF
ACQUISITIO
INDIGENISATIO
NS
MN

ARMED
FORCES

IDS HQ
DOFA

DODP
CSIR
INDUSTRY
ASSOCIATI
ONS

NATIONAL TECHNOLOGY
ADVISORY COUNCIL
PM

DRDO

IITs/ENG.

MOC/MEA/D
ST
26

Declare a Defence Industrialisation Strategy

One document instead of bulky DPP covering
Acquisitions, Offsets, exports, manufacturing, FDI and ToT
policies for indigenous technological development.
In it, prioritise
acquisitions.

Indian

Designate Indian
integrators.

firms

industry
or

in

consortia

defence
as

lead

Introduce modern management in Public Sector Units ,

DPSUs and research institutes.
Corporatise/privatise PSUs and research institutes and
make them more market oriented.

 Explore all strategies for development

of technology including acquisitions of
foreign technology firms.
Promote defence exports to expand
markets.
Promote reverse engineering.

Chinas APE Strategy

ASSIMILATE/ABSORBA
PRODUCE P
EXPORT

E
29

Copying is Official Policy!

Official Guidelines for the Medium- and
Long-Term National Science and
Technology [S&T] Development
Programme (2006-2020) PRC State
Council:
Enhance the Absorption, Assimilation, and
Re-Innovation of Imported Technologies

Reverse Engineering
No shame in it everyones been there, done that.
Success of Indias pharmaceutical sector, now a target of
foreign acquisitions, is due to reverse engineering.
Why have we allowed a liberal acquisitions regime in the
pharma sector?
Different stages corresponding to the level of
sophistication attained by an economy.
Prof. Tai Ming Cheung has lucidly categorised these
stages as - duplicative imitation; creative imitation;
creative adaptation and/or incremental innovation;
architectural innovation (which China has reached);
component innovation and radical/ disruptive innovation.
Cox Committee Report/ Richard Fisher / Russian military
press
West up in arms!

REVERSE ENGINEERING
THEFT ON A SCALE UNSEEN BEFORE: US
COC

SMEs
Reform regulatory environment in the brick
and mortar space make their life easier.
Create industrial
infrastructure.

parks

with

common

33

INCREASE R & D SPENDING ACROSS

GOVERNMENT AND INDUSTRY

Indias R & D expenditure should be

doubled to 1.75% of GDP by 2015 and 2.5%
by 2025.
Chinas aim 2.5% in 2020.

34

INDUSTRY CONTRIBUTION
Industry should contribute an increasing
proportion of R & D expenditure with 5% of
revenues for large scale industry and 3% for
SMEs.
International example: 60-65% R & D funding

internationally
sector.

comes

from

corporate

HIGH TIME SERVICES SECTOR ALSO

CONTRIBUTED
The
service
sector
especially
in
telecommunications and aerospace should
invest
in
indigenous
technology
and
manufacturing capabilities.
Only IT sector has contributed to R & D.
Telecom Policy 1999!

OFFSETS
Formulate model National Offsets Policy.
Declare aim of offsets policy is to
promote
indigenous
manufacture,
technology and innovation.
Set up Offsets Agencies in sectors
depending on huge imports such as
telecommunications,
aerospace,
railways, IT, etc.
37

Raise defence offset obligations to 100%:

While 30% should continue to be reserved
for defence production, 70% can be invested
in high-tech sectors such as aerospace,
telecommunications, railways, composites,
engines,
machine
tools,
electronics
hardware, etc.
This would create a dual use manufacturing
base
benefiting
defence
sector,
the
philosophy
behind
civil
and
military
integration (CMI).

International experience
Europe: Over 100% Offsets is common
Gripen SAAB just offered 100-120% offsets
to Czech Republic and Croatia
Turkish offset policy: maximise local
involvement at 70%; 15% - SMEs
No minimum threshold was only US$10 m
to begin with
Chinese offsets: growth of indigenous civil
aviation sector

OTHER EXAMPLES WE CAN LEARN

FROM
The Israeli Industrial Co-operation
Authority handles offsets with long
term goal of promoting indigenous
technological upgradation.
Israel spends 3% of GDP on R&D

SOUTH KOREAN SYNERGIES

Launched agency to boost indigenous defence
industry and expand exports to become top
military exporter.
The Defense Industry Development Council
(DIDC) is co-chaired by the South Korean
Ministry of National Defense (MND) and the
Ministry of Knowledge Economy (MNE).
Also to plan R & D activities, training and skills
programmes as well as defence offset, including
technology acquisition.
DIDC will also co-operate with Defense
Acquisition Program Administration (DAPA) (for
offsets), Korea Defense Industry Association and
the Korea Trade-Investment Promotion Agency.

Coincidentally our recommendation was to:

Create a combined Defence Industry Development
Council from MOD departments/ agencies like Defence
Acquisitions, DoDP, IDS HQ, DOFA and DRDO, associating
the Ministries of External Affairs, Defence, and Commerce
and Industry - to implement a coordinated technology
indigenisation policy by leveraging all means at a States
disposal including leveraging market access for
indigenization.
Eventually, re-engineer Government organisations and
processes by merging or dynamically linking departments
in charge of acquisitions, production, indigenisation, R&D,
ToT, FDI with TOT provisions, manufacturing and exports to create synchronised entities focusing on promoting
indigenous high technology.

FDI IN DEFENCE
Take advantage of Western interest in defence
collaboration.
Lift FDI cap so that manufacturing facilities are set
up in India.
1.A calibrated tariff policy to protect indigenous including
FDI manufacture, resisting pressure for tariff reductions
under multilateral trading arrangements should be
instituted. Med. Devices.
2.Host country policies should mandate transfer of
technology and phased indigenous sourcing obligations, as
China has done.
3.Monitoring of indigenisation/ local sourcing and
production targets must be ensured if the FDI ceiling is
raised.
43

 Inter-ministerial
coordination
between the Ministries of External
Affairs, Defence, and Commerce
and Industry - to leverage market
access for technology transfers
must be established under the
NTAC.
(China aerospace example)

44

R&D
Best practices of MNC R & D centres should be
studied
Simple solutions: promotion and incentive systems
in R & D Institutes and academic institutions should
be based on the marketability of product and
patents acquired.
DRDO and CSIR to focus on fundamental research
and accelerate outsourcing of technologies for
production to private sector.
Govt. R & D labs allowed to generate own income
and be corporatised where necessary.
45

Information & Transparency

Ensure transparency in awarding Government
contracts.
Every Government Department / private or public
sector company should carry on its website a list
of:
(a) Projects to be awarded for indigenisation and
(b) Items imported from abroad.
Names of proactive departments and officials charged
with indigenisation with full contact details.

Declassification of important reports like the

Kelkar Committee report, greater consultation with
entities outside Govt. and data access is
imperative.

Copycats dont catch mice!

While it Does not Matter
What Colour the Cat is,
Copycats Certainly Dont Catch Mice!
Smita Purushottam, 2002

Conclusion
India has to overcome the hesitant, piece-meal
and turf-led approach to defence industrialization
and innovation if it wishes to catch up with the
worlds technological leaders.
Without the above reforms and changes, India
will be unable to take its place as an advanced
technological nation which will affect its
standing, autonomy in conducting foreign policy,
but most importantly, affect the overall welfare
of its citizens. NSA has stated this in a speech.
It is recommended that Government consider
these
suggestions
and
take
appropriate
measures to launch a high-tech science and
technological revolution in India.

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NAMASKAAR!

JAI HIND!
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