Companies such as Boeing would look for taxation and other stimulus relief for airlines, Salil Gupte, the president of Boeing India says, as Union finance minister Nirmala Sitharaman readies to unveil her third budget. It will help India recover early from the economic shock that has resulted from the covid-19 pandemic.
Simplification in the administration of offsets, incentives to original equipment manufacturers (OEMs) to increase their research and development (R&D) activities, and increasing the local aerospace and defence (A&D) ecosystem are some of the measures that will help Make in India, Gupte says in an interview. The Atmanirbhar Bharat vision requires policies that encourage global competitiveness, he added. Edited excerpts.
India is shortly going to come out with its annual budget. As a foreign OEM, what kind of signals would you look for?
The signals everyone is looking for are very clear, increased stimulus for the aviation sector, maintaining capital budget commitments for military modernization and defence preparedness, and increased allocations to boost mission-readiness and modernization of the forces.
The covid-19 pandemic has dealt a big blow to the aviation and defence industry. We project it will take about three years for travel to return to 2019 levels and it will be a few years beyond that for the industry to return to long-term trend growth. However, the fundamentals of the industry remains intact. The aviation industry is the lifeblood of commerce in India and around the world and we continue to be optimistic of its recovery, as in past crises. We urge the government to bring in much needed taxation and other stimulus relief for airlines that will position India, with its strongly recovering demand, for an early recovery from the shock caused by the pandemic.
Defence policies such as the Defence Acquisition Procedure (DAP) 2020 and Defence Production and Export Promotion Policy (DPEPP) 2020 lay a solid foundation to attract investments and build capabilities for the sector. When coupled with enablers, such as increasing foreign direct investment (FDI) in defence, we believe this will go a long way to harness the potential of the Indian aerospace and defence industry. In 2021, we look forward to the realization of strong policy intent in the execution of DAP 2020 and the simplification of offsets’ administration based on the guiding principles of DAP 2020.
The Atmanirbhar Bharat vision requires policies that encourage global competitiveness through financial and technology investments in the Indian supply chain, especially in micro, small and medium enterprises (MSMEs), and by up-skilling India’s labour force in the latest techniques in manufacturing and maintenance. We’ve been partnering with the government and the Indian industry on this exciting journey.
From a foreign company perspective, is India still a difficult market to do business in?
India’s rise as an attractive business destination has been commendable. In the recent World Bank’s Ease of Doing Business 2020 report, India rose for the third straight year and was ranked 63rd among 190 nations. This is encouraging for companies from other nations who see potential in doing business in India. We hope to continue seeing momentum on the government’s reform agenda in 2021, especially on streamlining taxes for the aviation sector.
The government has raised foreign investment limits to 74% in defence manufacturing. We are engaging with the government on the precise modalities of FDI and once these are established, we foresee new opportunities and possibilities for Indian joint ventures producing entire defence platforms in India, in the spirit of Atmanirbhar Bharat.
India’s defence budget as a share of its gross domestic product (GDP) has shrunk in the past years. Given the way the pandemic has affected the economy it doesn’t seem as if there is going to be much resources for modernization. How does that affect your India plans?
The pandemic has affected every nation and will have a bearing on budgets and spends everywhere. In a constrained growth environment as we come out of the 2020 economic shock, defence modernization imperatives will need to be driven with efficiency in capital budget utilization. Policies such as DAP 2020 rightfully emphasize predictability and speed in acquisition and modernization through measures such as simplification of the process, flexibility and innovation in the trials process, streamlined standard contract terms and conditions. Implementation of these policy changes will be vital in 2021 to allow the industry to build business cases and for investors to finance with confidence.
That said, India’s defence sector growth imperatives remain unchanged in the mid-term. The industry is poised for growth and Boeing is steadfast in our commitment to partnering with India’s defence forces towards their modernization and mission-readiness. Increasing partnership between the US and India further cements this growth. India’s economic aspirations go hand-in-hand with a desire for trade autonomy that is provided by a capable and modernizing military to support peace, stability, and a rules-based order in the Indo-Pacific region. This is a point of convergence between India and the US as the two countries are increasingly committed to maintaining a free and open Indo-Pacific region.
What is Boeing’s reaction to the new Defence Procurement Procedure (DPP) 2020? It gives a lot of encouragement to domestic companies. There is also a negative list for weapons import. Is that a negative from your perspective?
DAP 2020 brings forward new concepts such as the leasing of equipment as a new mode of acquisition, smoother execution of contracts and the long-term sustainment contracts for the entire life-cycle of the product. DAP 2020 encourages building local capability through indigenous modes of acquisition, supported by the new negative import list. At the same time, new modes such as Buy Global with Manufacture in India will encourage investments in niche technologies and help develop the overall aerospace and defence ecosystem.
Establishing a contract management project management unit is a progressive step to bring about execution improvements in the acquisition process. These will go hand in hand with the mandate to set more realistic GSQRs (general staff qualitative requirements) for the acquisition of platforms.
Additionally, the introduction of innovative contracting concepts such as leasing provides fiscal flexibility in upfront capital budget allocation. There is potential to re-evaluate the parameters for discharging offset obligations and its practical implementation. Defence offsets are regarded across the world as a key enabler of industrial development, driving economic benefits and growth by providing skilled jobs, increasing foreign investments, and enabling the transfer of advanced technologies.
To fully achieve the objectives of Make in India, the country needs to provide positive incentives to OEMs towards investments in the development and growth of the local A&D ecosystem, expansion and skilling of talent pools, generation of increased employment, and upgrade of vital technologies.
What about the provision for leasing of equipment? India recently leased two drones from a US company. What are the prospects of leasing platforms from Boeing?
As a leading manufacturer of defence equipment and platforms, Boeing is ready to support our customers in the best way possible to meet their requirements for modernization of defence platforms and mission-readiness as outlined in DAP 2020. We’re happy to engage on leasing as the defence services require.
In recent months, the government has announced measures to boost manufacturing under the self-reliant India theme. How do you look at steps such as raising the cap on FDI?
The move to allow up to 74% FDI in the defence manufacturing sector through the automatic route is a welcome step. Along with an enabling policy, the inclusion of forward-looking concepts in DAP 2020 is a positive step.
The Atmanirbhar Bharat vision requires policies that encourage global competitiveness through financial and technology investments in the Indian supply chain, especially in MSMEs, and by up-skilling India’s labour force in the latest manufacturing and maintenance techniques. On the offset front, we request the ministry of defence to revert to the wider scope of DPP 2016 for discharging obligations. This allows for a holistic development of the Indian A&D sector as there are synergies between defence and commercial aviation.
I would add that given the connection between space and defence, there is no reason why space collaboration should not be accepted as an avenue for the discharge of offsets.