Pranab asks US tycoons to explore
newer growth areas of collaboration

Invest in India's Defence
Research & Production

Pranab Mukherjee, India's Defence Minister, had once been a popular Finance Minister of this country. He knows what are the most promising areas that ensure higher returns. In his inaugural address to the Third Indo-US Economic Summit held recently in New Delhi, Pranab Mukherjee identifies defence research and production as attractive areas for investment for US businessmen. Defence is also an enormous field for cooperation and collaboration between India and the US, he says. Here is the text of the address.
I am delighted to be here to address this august gathering of Indian and American Corporates, policy makers and thinkers. I congratulate the Indo-American Chamber of Commerce for this initiative that brings the businessmen of the two countries face to face and facilitates trade between the two countries.
Small & Medium Businesses
The Chamber is unique in having not just large enterprises but also small and medium businesses amongst its members. The small and medium businesses, after all, are the backbone of any economy. The summit provides an important forum for not just businessmen of all hues to talk to each other, but also to get their views and perspectives across to government. Many of you have literally travelled half-way across the globe to attend this summit. I urge you to make good every opportunity to catalyse joint ventures and partnerships. That we take this summit seriously is evident from the presence of so many of our premier economic thinkers, financial experts and policy makers amongst the audience.
The theme for this year is “Accelerating Growth”. That, I think, amply reflects the current state of Indo-US economic relations. According to available statistics, US exports to India registered a growth of 23.3 percent during January-May 2006. India's exports to the United Sates in the same period registered a growth of 19 percent. In just the first five months of this year, Indo-US bilateral trade amounted to approximately US $ 12 billion. It is well set to overtake last year's figure of $26.8 billion, which itself was up from $21.6 billion in 2004. Our aim is to double bilateral trade to $60 billion within the next three years. It is an ambitious target. But not a difficult task, given the range of opportunities that abound in India, the new areas opening up for investment literally by the day, and reduced government restrictions on Foreign Direct Investment.
Wharton Report
As far as the conditions for doing business are concerned, a recent article from Wharton Business School concluded that India is a better place for business compared to China in the long run because of the solid underpinnings for economic growth, including “a democratic government, a strong education system, widespread knowledge of English and a deep pool of expatriates experienced in Western businesses.” To that, I would add a vibrant press which keeps the government on its toes. There could be minor hitches in the process of reforms, but as you know only too well, democracy is about checks and balances. Decisions can be taken only after debate and due consideration. Hasty decision-making can have its own negative repercussions.
The good news is that mechanisms are in place to identify bottlenecks and removing them. Since the year 2000, when the Indo-US Economic Dialogue was established, a number of commissions and fora have come into existence with the goal of putting business relations onto a higher trajectory. Revitalising economic relations is a priority issue for both the countries as reflected in the Joint Statement signed between our Prime Minister and the US President in July 2005. The objective of setting up a Indo-US CEO Forum, as envisioned in the Joint Statement, was to bring private sector input to government-to-government deliberations. The Forum submitted its report in March of this year during the visit of President Bush.
Trade Policy Forum
Another important initiative announced by our two governments last year was the establishment of a Trade Policy Forum. The Forum facilitates dialogue in the areas of tariff and non-tariff barriers on industrial products, agriculture, intellectual property rights protection, investment and services. In the year since its inception, three ministerial level meetings and one secretarial level meeting have been held. In the last one, held in Washington in June 2006, it was decided to create a senior-level private sector advisory group to allow for greater interaction between government and private sector trade experts, including from corporations, associations, think tanks and other organizations. The Trade Policy Forum has proved to be a useful mechanism for removing irritants coming in the way of trade. No doubt, it will become even more effective, with the creation of the advisory group. If trade figures are any indication, you are already reaping the fruits of these initiatives, with sales of American scientific equipment, coal, silver jewelry, fibre-optic cable, almonds, and power generation equipment sharing a growth of more than 30 percent in 2005.


Defence Research & Production
Another sector where there is ample scope for joint ventures is in defence research and production. The Joint statement of July 18, last year, provides for the United States and India to work towards concluding “defense transactions, not solely as ends in themselves, but as a means to strengthen our countries' security, reinforce our strategic partnership, achieve greater interaction between our armed forces, and build greater understanding between our defense establishments.” And just before the July 18 agreement was reached, I had signed an important defence cooperation agreement with the US government on the above lines. The defence ministry has taken a number of initiatives to energise defence co-production, including opening up of defense production to the Indian private sector with the option of foreign direct investment upto 26 per cent in these companies. There has sometimes been criticism that our defence procurement procedures are time-consuming and opaque. I initiated a policy reforms process two years ago.
Defence Procurement Procedure
Defence Procurement Procedure 2006 is now a comprehensive document with clearly stated norms and guidelines on 'Buy', 'Buy and Make' and 'Make' procedures. It also includes shipbuilding procedure and Fast Track Procedure for acquisitions. The Offset Policy which was introduced in 2005, is now firmly in position. The long pending request of the Indian industry for a level playing field has also been addressed and necessary orders providing a level playing field have been issued and are now a part of these two documents. With these measures, we have effectively opened the doors for the Indian industry to participate in defence research, development and production. The acquisition of defence equipment is a complex and intricate process. This is necessarily so as defence equipment is expensive involving commitment of substantial public funds. Defence acquisitions, owing to its special features and characteristics, involve a long and deliberate process. This process is to ensure that the country gets best value for money. To achieve this objective, it is essential that proper procedures for acquisition are laid down and adhered to. These procedures provide the guidelines and norms that would govern the selection of an equipment and its subsequent acquisition. They provide the template against which all steps taken in the acquisition process can be examined for their correctness. Strict adherence to laid down procedures, therefore, ensures the highest degree of probity and public accountability. It creates the conditions required for transparency, free competition and impartiality. Now all major decisions would be taken simultaneously in a collegiate manner by the Defence Acquisition Council. The generic requirements of the three Services would be placed on the website of the Ministry of Defence to enable vendors to register themselves on the internet. There would be increased transparency in the conduct of field trials. It will be mandatory to sign a pre-contract integrity pact in all contracts over Rs. 100 crores. In 2005, the government came out with a new offset policy which requires that 30 percent of the value of foreign defence contracts over Rs. 300 crores would need to be offset by purchases, investments and transfer of technology to India, to run concurrently with the main contract. That policy has been further amplified in the current set of procedures a potential vendor now has many more options for fulfilling his offset obligations. He can either carry out direct purchase of goods or execute export orders for defence products, components and services provided by Indian defence industries.


Foreign Investment in defence industry
Alternatively, offset requirements could also be satisfied through direct foreign investment in Indian defence industries, and even by direct foreign investment in Indian organizations engaged in defence research and development. Roadmap for indirect offsets is also under our consideration. A Defence Offset Facilitation Agency has been set up, as a single window agency, to facilitate the implementation of the policy. One of the briefs of this Agency will be to assist potential foreign vendors in interfacing with their counterparts in the Indian defence industry for the purpose of identifying potential offset products and projects. With these new and transparent policies in place, my hope is that you will find the defence sector an attractive arena to collaborate and invest in. It is true that the implementation of new policies brings up many problems, and the defence sector has problems that are unique to it, given its size and structure. You have my assurance that timely corrective measures will be taken to smoothen the roll out of the new policy framework. I will welcome suggestions from the industry in this process.



Cooperation in N-energy
Pre-existing barriers and mindsets that came in the way of economic co-operation are in the process of being removed on both sides. The passage of the Bill on co-operation in the field of civilian nuclear energy by the US Congress would, I believe, benefit the business communities on both sides. Firstly, India is largely dependent on imported oil and gas to meet its energy needs. Our energy consumption levels are going to increase very significantly if we are to maintain a high rate of economic growth of 8-10 per cent. Conversely, our growth levels could flag if we don't have access to more than one source of energy. If that were to happen, that could have tremendous side-effects since India is poised to be one of the engines of the world economy in the years ahead. Secondly, there is a large body of restrictions on the US side related to the nuclear issue that forms an invisible barrier to trade and investment on the part of both Indian and American businesses. Particularly so in the areas of high-technology trade and co-operation, so vital to the advancement of the economies of our two countries in the 21st century. The benefits of co-operation, not just in trade, but on the other important issues of our times, are brought home to us day after day, and the governments of the two countries owe it to our two peoples to remove those barriers that come in the way of a better quality of life. Once the US Congress passes the Bill, in the form reflecting the understanding between the two governments, it is my belief and hope that Indo-US economic co-operation will finally come into its own.
Bilateral Trade
Current bilateral trade between our two countries is one tenth of the trade between the United States and China. There is no reason why levels of trade between our two countries shouldn't rise to, and even surpass, those levels. It is my hope that the 3rd Indo-US economic summit will provide a useful forum bringing about awareness of the opportunities for trade between the two countries. I wish the summit all success. Thank you.”