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TEJAS and COMPETITIVENESS

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Tejas LCA Mk-1

While once I had lauded the fact that the nationalists had helped Tejas not being killed, today I mourn it. Today HAL is set to produce 8 Tejas a year. A target it hasn’t reached in 3 years. It is supposed to reach 16 Air Craft a year AFTER its 2nd assembly line becomes operational. In comparison, Lockheed Martin is set to produce 183 F35 a year. It is looking for a production run which will have F35 reach costs as low as the true cost of Tejas 1A before Tejas 1A gets into production. In the meanwhile, HAL employees have gone on strike. Further delaying even this snail-paced assembly.

HAL employees are supposed to come in cheap, in comparison to international labour costs. But has anyone calculated the productivity per hour per employee and compared it with any international company? Dassault did it, and found that a HAL assembled Rafale would take the construction cost of a Rafale nearly twice of its France assembled cost. The Su 30MKIs we manufacture in India is 250% the cost of having imported it off the shelf.

NOW, investing that additional costs into a local industry would have made sense IF that investment had built up home capacity AND that could be put to effective use. Has it? Has assembling Su 30MKIs EVEN enabled us to tweak them enough to create our own versions? Put in our own AESA radar (oh wait, we don’t have one yet), our own MAWS, our own ECM systems, our own wide panel dispaly, our FLIR, our own missiles…? NO. To do that, we have to go to Russia. We can’t even tweak the system. But we have paid 150% extra per aircraft to build, nay assemble, them in India. How much sense has that made?

IF we had invested that money in just ONE sub-industry, by putting in the money as VC into any indigenous system developer. Be it drone or assault systems or AC subsystems, would we have gotten a competitive edge? Profit via exports? A niche in the world market? Today we ONLY have costly aircraft and neither a home industry nor cheap planes. Finally, we don’t have an aircraft in which you can confidently send a pilot to fulfil a mission and expect him to return unscathed. For that, we had to count on the venerable Mirages. With the size of our defence budget, our chief antagonists know we can’t enforce our punch and power. Thus they act with impunity. Is this the best use of our defence budget?

HAL, uncertain about when it will actually turn up MWF is today trying to hedge its bets and is talking about a Tejas 1B. It talks loftily of AMCA. BUT, Korea, which already has its slated fifth Gen fighter mockup up, has come to the conclusion:

  • It can’t build a 5th Gen fighter. Thus it is building a 4.5 Gen.
  • It will need to get 21 vital technologies from US. Which it can’t. So it is getting US to create the basic fighter armature and components which it will assemble in Korea.

This is the same conclusion Japan has come to. Both have a much wider academic base, Military-Industrial complex, greater budgets…yet they are realistic in their estimates. How are we being so confident about our projections about AMCA? And what will be AMCA’s true ability? Another 4.5 Gen craft? AMCA won’t even have a third of F35 capability.

Dassault, which made a presentation about its future jet, will have its first prototype out next year, but hopes to realise the plane ONLY in 2045. Indians are making wild claims about its schedule while even a mockup hasn’t been made.

It’s great to have an Air Force chief to vote so strongly for indigenous tech. But, even as he made his pronouncements, we hear talks about US-India co-development of a fighter jet engine falling through. NO nation will help us build an aircraft engine. IF there isn’t even an aircraft engine finalised, how do we create a fighter with a timeline?

Tomorrow F35 will be cheaper than MWF. Albeit, its per hour cost of operation will be much higher. But whom will we be able to sell MWF to at that price? Even as all will compare it with F35?

All of India’s calculations is based on Pakistan and China not getting an F35 in the near future. Thus it is betting high on MWF. BUT, 5 years from now Bangladesh will have more than enough resource to buy a squadron or two of F35 (it being cheaper than MWF). I’d like to know who can state confidently that India won’t be shitting bricks then?

What can be argued is that getting an F35 (say) will mean putting our balls in US hands. But hey, how isn’t our balls not in their hands when we are getting the engine from them? And how isn’t our balls in other people’s hands when we are importing most of the critical subsystems? And remember, a number of countries ARE placing their balls in the US hands, cos F35 is going to be the most widely distributed fighter after F16. Finally, between F35 and MWF, in which aircraft will an air chief feel most confident about sending its air-warriors for a mission? What do you think the neighbouring response will be?

I am all for building capacities at home. BUT if we are spending money and that DOESN’T provide us with either cutting edge nor a competitive advantage, and neither are we able to export it (we can’t even export Bhramos, cos wherever we try to export it, Russia offers them Onyx cheaper) what do we ultimately achieve?

Avi Das

(Avi Das is a senior commentator on world’s defence, security and diplomatic issues. The views expressed are personal. He can be reached on Twitter @Indusglyphs)

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Research and development activity to get hit as WD benefit to cease from FY21

According to experts, R&D activity is a key proponent of the ‘Make in India’ strategy and to further expand the manufacturing sector in the country.

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Research and development activity

New Delhi, Feb 19 : India Inc’s R&D activity might get adversely impacted as weighted deduction (WD) benefits, including those on capital expenses, stand withdrawn from the next fiscal.

Till now, the Income Tax Act allowed for weighted deduction for all R&D activities.

However, four years back a sunset provision was introduced in the Budget on the availability of weighted deduction from April 1, 2020.

This deadline was expected to have been extended in this year’s Budget. However, that did not happen.

“The weighted deduction was a key reason for entities to invest in R&D infra. This withdrawal will impact future investments in this area,” said Amarjeet Singh, Senior Partner, International Tax and Regulatory, KPMG in India.

According to experts, R&D activity is a key proponent of the ‘Make in India’ strategy and to further expand the manufacturing sector in the country.

Besides, R&D investments into India have grown with many MNCs establishing their research bases here.

“The ‘Make in India’ programme has got the booster of a reduced tax rate. Similarly, had the government continued with the weighted deduction for R&D, it would have surely ensured that India marched ahead both in manufacturing and in the corresponding R&D,” said Gukul Chaudhri, Partner, Deloitte India.

“So, while India may not lose its tag as the R&D lab of the world, the availability of weighted deduction would have ensured that India continued as one of the most attractive destinations for R&D in the world,” Chaudhri added.

The Finance Act, 2016, restricted the availability of expenditure incurred on scientific research to 150 per cent from April 1, 2017, and no weighted deduction from April 1, 2020.

“Globally, most countries are encouraging R&D activity as it generates new ‘intellectual property’ (IP), which in turn creates sustainable revenues. Such IP or new product gives rise to a new industry and other supporting activities,” said Samir Kanabar, Partner, Tax and Regulatory Services, Ernst & Young.

“In India, several sectors like auto, pharma etc. have invested substantially in R&D facilities to develop new IPs, patents and hence, a new tax regime to boost R&D was a major expectation,” Kanabar added.

However, Suman Chowdhury, President, Ratings, Acuite Ratings and Research, said that the reduction in weighted tax deduction will not have any significant effect on India Inc’s R&D activity.

“India’s R&D activity has held steady at 0.7 per cent of GDP over 5 years and no visible signs of positive outcomes were seen emanating from private enterprises despite such benefits,” Chowdhury said.

“Nevertheless, corporates now enjoy a reduced effective corporate tax structure, which should more than compensate for the loss, at least for the manufacturing sector. Service oriented enterprises, whose business model thrives on innovation, do not require incentives to do R&D in our opinion,” Chowdhury added.

(Rohit Vaid can be contacted at [email protected])

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AGR risk for GAIL, OIL and Powergrid stays: Fitch

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New Delhi, Feb 19 : India’s telecom-related regulatory dispute still is event risk for GAIL, OIL and Powergrid, Fitch Ratings said on wednesday.

Fitch Ratings continues to treat any payments that three India-based companies – GAIL (India) Limited (BBB-/Stable), Oil India Limited (BBB-/Stable) and Power Grid Corporation of India Ltd (BBB-/Stable) – may have to make under a demand notice from the Department of Telecom as an event risk for the companies’ ratings.

Fitch is not taking immediate rating action on the three companies, as the Supreme Court of India allowed the companies to withdraw their clarification applications on February 14, 2020, and resolve their dispute with Department of Telecom outside the court.

This is in stark contrast to the court’s decision to demand immediate payments from the telecom companies that are also involved in the dispute, Fitch added.

“We expect the three companies to eventually resolve the dispute, although resolution timing is uncertain. A speedy solution is important to prevent disrupting the companies’ investment plans and damaging their performance. The three companies are considering an appeal against the demand notices. We understand that they have the option to resolve the matter through alternate dispute-resolution mechanisms available to state-owned enterprises. This is in addition to the legal options available to telecom license holders in general,” it said.

The Department of Telecom has issued demand notices to GAIL, OIL and POWERGRID for Rs 1,831 billion, Rs 480 billion and Rs 220 billion, respectively.

The notices include license fees on non-telecom revenue and additional interest and penalties on the license fees. However, the three companies’ telecom-related revenue is insignificant, at around Rs 0.5 billion, Rs 0.01 billion and Rs 23 billion, respectively, for the same time period as the demand notices.

The three companies have created telecom infrastructure for internal use and have obtained national long distance and Internet service provider licenses to rent out spare capacity. They maintain that their licenses differ from the unified access licenses held by telecom companies, hence, the court’s decision on adjusted gross revenue for telecom companies does not apply to them.

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Kanpur tanneries asked to shut down again

Aftab Alam, a leather exporter, said the closure order would not only damage the business image of tanneries but would affect leather export too.

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UP tanneries Business

Kanpur, Feb 17 : The Regional Pollution Control Board of Uttar Pradesh has ordered 248 tanneries in Jajmau area of Kanpur to stop their operations from February 19 till further orders, without assigning any reason.

The tanneries, which remained closed for a period of 13 months on the charge of polluting Ganga, were allowed to start production on December 20 for two months only.

S.B. Franklin, regional pollution control board officer, said the time limit of two months is expiring on February 19.

Feroz Alam of Small Tanners’ Association said that on December 20 last year, the government, while granting permission to run the units with half capacity, had also stated that the tanners would be allowed to run their units till next year if they followed the necessary norms and standards fixed by the pollution control board.

He said, “During the last two months, not a single notice was issued to any tannery by the regional pollution control board because the tanneries did not flout the norms set by it.”

He said that the UP Pollution Control Board (UPPCB) had not given any reason for the closure order now.

Aftab Alam, a leather exporter, said the closure order would not only damage the business image of tanneries but would affect leather export too.

He said the tanneries which have got orders from foreign companies would suffer if they failed to supply the goods in time.

The tanners would also face problems in getting new orders in future, he added.

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