2 Good moves by UPA Govt: 1)Green signal to Airport Policy 2) Hike in FDI in defence to 49%

In a move that will greatly improve Defence and Aviation in the country, 2 proposals have been passed by Cabinet of UPA Government today

1) Green signal to Airport Policy:
Now any airport, if has to come up in any city, only the green signal by Director General of Civil Aviation Ministry is sufficient. So far the entire Cabinet was doing this job causing unwanted delays. Sometimes some cabinet ministers would derail the process and complicate matters. Now there is a single window clearance in the sense the director general of aviation ministry approval is enough. Also, within 150 km radius of the new airport, no new airport must come up. If it has to then the entire Cabinet will be consulted.

This policy is called the greenfield airport policy and is a good move. The real problem is the bureaucratic handling of tenders, supervising and co-ordinating the tasks of various entities involved. Of course, one must understand an airport is a bigger planning exercise and all sides must be consulted.

2) FDI hike in defense from 26% to 49%:
Vajpayee Govt decision to allow 100% private participation and FDI upto 26% in defense boosted the Indian defense sector. Now the UPA has decided to increase this to 49% and the new Offset Policy in Defense Procurement will revolutionize the industry and will avail the latest technological equipment to the armed forces. Already Russia, US, EU have signed lot of deals with India. In fact this NYT article clearly says in the next 5 years, India will be the hottest destination for weapons import and machinery. Already Lockheed Martin, Boeing have striked billions of dollars worth deals with Tata, L&T, HAL etc. The NYT article clearly mentions it

So what does the new Offset Policy and FDI hike mean? It means that if a foreign company like Lockheed Martin, Boeing makes a deal equal to or greater than Rs. 300 Crore, it has to re-invest minimum 30% of the money back in India. This can be direct or indirect. So, the foreign company can make

1)Contractual Agreements involving the following w.rt. defense products
. Buy Back and Market Access

• Co-production

• Licenced Production

• Joint Development and Joint Ventures

• Investment (FDI) in Indian Defence R&D and/ or infrastructure

2) Services:

Repair, maintenance and Overhauling facilities

3) Software:

For Quality assurance and other testing

The biggest advantage is access to latest technology which India badly needs despite great advancement in indigenous research. The CII is extremely happy by this move and will help India in modernizing the much needed Defense Sector. Let the Govt not forget that despite best efforts and recommendations, role of middlemen and their impact is still hindering transparency and government's flip-flop policy on these have irked foreign countries. Hence, transparency is the need of the hour along with such good policies.

Added on April 30, 2008:

This article appeared on Business Standard

"That means urgently nominating the private sector Raksha Utpadan Ratnas, generously subsidising their R&D, and assuring a minimum order that can help pay for their input costs."

In other words, Govt must subsidize the RUR (first of all govt must designate some private companies as RURs), and help them with a proper financial support.