Connecting the Dots
IAF requires 126 MMRCA (Medium Multi-Role Combat Aircraft) for modernization. Such a large deal is not without its set of complications. One of the complications for the American Boeing and Lockheed Martin was, going up against a consortium of equally worthy opponents.
The Americans can claim to have better technology and product but the truth could be different. The American planes have been seen the most action and there is a lot of marketing and testing material that highlight its technical aspects but the decision of the Indian government was not surprising as there is a marked change from appeasement of strategic partners in a political set up.
One has to look at the deal and what the Americans brought to the table. The American companies are restricted by their own International Traffic in Arms Regulations (ITAR). Also the sales to India would be government to government. This would mean the Indian government would have to sign the agreements such as:
End Use Monitoring Agreement (EUMA)
Communications Interoperability and Security Memorandum of Agreement (CIS MoA) and
Mutual Logistic Support Agreement (MLSA)
The Indian government and its political and bureaucratic set up is not too comfortable signing these agreements for all kinds of defense business with the US government. This was one of the major handicaps that the American companies had when they joined the race for the 126 MMRCA (Medium Multi-Role Combat Aircraft) required by the Indian Air Force.
Indian defense set up needed these planes but the restrictive agreements of US government were always a deterrent.
One can point the fact that India has signed the End Use Monitoring Agreement (EUMA) in 2009 and that cannot be held as a cause. One has to look at the products India has acquired from US for the agreement to be used as a whip. The most visible was the 10 C-17 Globemasters (with the option to buy 6 more) from Boeing that comes to one’s mind.
The Globemasters were never brought with Pakistan in mind. These behemoths are to bolster the border regions and air force bases close to the Line of Actual Control (LAC) shared with China. With their short runway take off capability, these large planes were never meant for a war or supply capability for the border regions close to Pakistan but the high altitudes and hilly regions close to the Chinese border where India has recently activated 4 air force bases.
The deal for the 126 MMRCA (Medium Multi-Role Combat Aircraft) has far more strategic importance for India than appeasing the political and business interests of USA as there could be a very real need for these machines in a low intensity surgical strike against Pakistan, if required and having American made planes would make the act a violation and could sour the Indian-American relationship to the times of the Cold War where there was no trust between the two governments.
It is also interesting to note that Indian government has played out this deal so strategically. The decision looks to have two parties having a larger say, the Indian Air Force (IAF) and the Defense Research and Development Organization (DRDO) than the usual political chaos that surrounds such sensitive and large deals.
The French government, in its bid to win the contract, has cleared full technology transfer of the Dassault Rafale to India, including that of the RBE2-AA Active Electronically Scanned Array (AESA) radar which includes the full transfer of all software source codes. This aspect can be the game changer for Rafale as this allows Indian scientists to re-programme the radar or any sensitive equipment if needed. Without the software source codes, the IAF would have to specify mission parameters to foreign manufacturers to enable configuration of their radar, seriously compromising security in the process and being stuck with limitations.
The other plane in the race is the Eurofighter Typhoon manufactured by EADS. EADS has invited India to become a partner of the Eurofighter Typhoon programme if the Typhoon wins the contract, and will be given technological and development participation in future tranches of the Typhoon. EADS being a consortium of companies from different countries may have limitations when it comes to sharing technology due to various governments being involved. Also there is no clarity on what kind of collaboration they expect from India and if EADS has any future development plans for its planes and the possible timeline for the same.
The EADS Typhoon promised India access to the research and production of future tranches of the Eurofighter Typhoon. The question that should be asked has to be asked is when will the research and development and production of the next tranche of the Typhoon begin. The present tranche has to age in terms of technology or put a profit on the books of EADS to warrant the initiation of the next tranche of Typhoon. This is not going to happen in the near future considering the technology of the plane, the economy of the region and that there are no plans by any country other than India to invest in a major airforce overhaul in the immediate future.
The complex business decisions and fungible timelines on the future development of the Eurofighter made it a handicapped participant. The thought that helped shortlist EADS and Dassault Rafale when extended, clearly gave the French an upper hand in the deal. The deal sweeteners are extensive and also the past and future deals of the French with the Indian government such as the Mirage planes and the Scorpene submarine deal made the French better poised to win this deal.
The other reason this deal went to Dassault Rafale is due to another problem the Indian defense forces are facing. The Tejas Light Combat Aircraft (LCA) is the replacement for the aging MiG-21 that the Indian Air Force (IAF) flies. The Kaveri engine was to be the one that was powering the LCA but the engine has not performed to expectations and is still being tested and worked on.
The LCA is now being powered by engines supplied by General Electric (GE). With Dassault Rafale, if the Indian government is able to get access to the Snecma M88 engine and its variants, it would be a huge jump in the ability to produce and replicate engine technologies and apply the technology to develop newer engines indigenously.
With such a deal suggestions come in fast, on what is a better choice. The suggestions are from companies who competed but were not shortlisted and also external experts and media. One suggestion was that the American contenders were better. This is probably true but strategic requirement and long term investment required India to tap into a promise of full access to technology. How much India gets out of the deal is still open to debate but that is the nature of most businesses and a country’s strategic needs are no different. I think the line Ronald Reagan used in reference to ones allies is most apt here; trust but verify.
India has to trust that it will get 100% technology transfer that France promised but the verification will take some amount of time.
The US companies walked into the tender process with serious limitations that the US government had imposed on technology transfer. For a better perspective, the Lockheed Martin F-22 Raptor, the frontline stealth aircraft in operation for the US is not sold to the UK, an all weather ally of the US, due to technology transfer and export restrictions imposed by US Congress. Today the production of the F-22 Raptor has been stopped as the F-35 Lightening Joint Strike Fighter (JSF) is undergoing flight trials for induction into the US air force.
Much like the Lockheed Martin F-22 Raptor, the Boeing F/A-18 Super Hornet and Lockheed Martin F-16IN Super Viper could not have transferred some of the technologies to India due to technology transfer and export restrictions imposed by US Congress.
There is a question on why the Lockheed Martin F-35 Lightning II Joint Strike Fighter (JSF) was not taken into consideration. There are 2 reasons for it:
1. It is yet to be inducted into service and is behind schedule and
2. It is a single engine aircraft
The other most commonly raised doubt is why India did not wait for a fifth generation fighter aircraft. India is already part of a deal with Russia to develop a fifth generation fighter aircraft. The Sukhoi PAK FA is to be developed as a single and double seater fighter aircraft and is a development collaboration between Russia and India. This gives India access the Sukhoi PAK FA and its variants.
The Rafale is expected to replace the aging MiG-21s and the Mirage 2000s. The Rafale and the Tejas LCA are expected to the add strength to the IAF.
In the long run the deal is expected to increase the indigenous production capability of India.
The concept of design in manufacturing has been around since we started making machines to assist in mass production processes. Machines were built and created with various aspects in mind but 2 of the most important aspects were:
The concepts of design found its place in the world today because of a different revolution. Mobile revolution has brought the spotlight on the need for a good design. The spotlight now is not merely focused on designs of mobile phones but all products that we see and use.
Design in the commercial space is a necessary requirement but was invisible until the mobile revolution.
Even within the mobile space one cannot ignore or diminish the contribution of Apple and its iPhones to design concepts. Apple started the design wars of mobile phone and has been very successful in holding that niche.
Samsung entered the design wars with its Galaxy range of smartphones but it faces being upstaged in the design front by companies like Sony, HTC and Google (Nexus).
Samsung has been dependent on plastic as a material for its design requirements and has had changes made to its shape that has not gone down well with many.
Apple, HTC, Google (Nexus) and Sony are experimenting with metal and glass in their mobile phone designs.
This design war was inevitable. In the days to come newer materials will become the basis of the design war.
The design wars are not limited to any particular industry. It’s come into the forefront due to a change in consumer spending. From mobile phones to cars and even medical devices, design is one of the important factors to consider.
A good design though is not a valid reason for not having cutting edge hardware and software. Customers are demanding cutting edge hardware and software and a good design in a single package and there is little hope that this demand will die away anytime soon.
The manufacturing sector has been a bit of a concern for India since 2 decades. Compared to the service sector growth, the manufacturing sector has faltered and not found a firm footing.
One of the primary reasons that this has happened is the inability of successive Indian government to pull the private manufacturers into the defence production segment. Though it’s clearly seen in the case of United States that private contractors have helped the US manufacturing take a huge leap before and after the WW II and the Cold War, India has not been able to replicate the model effectively.
Defense manufacturing is one of the most growth oriented segment for Indian manufacturing but private manufacturers in India do not have any concrete plans to exploit it effectively. There are small and medium enterprises in the fray and low value work that is given to private enterprises by the government firms but the larger chunk of defence requirement is purchased outright or produced by public sector firms.
The private manufacturers in India are capable of providing the requirement in conventional weaponry for the Indian armed forces but there are real and valid reasons for many of them not entering the segment.
The primary reason is that there is no level playing field for Indian manufacturers in the defence procurement process. The procurement process has 3 sections:
The second reason is that there is no support for research and development outside of the public sector firms.
The third is the lack of clarity on requirements of a product and lack of clarity causes most private manufacturers to defer production and research and development in defense manufacturing space.
Given a clear mandate of requirements and supported in research and development with an equal playing field, many Indian firms would be able to compete with global companies for conventional weapons supply to the Indian armed forces.
The third point of the procurement process of making and building indigenously is the most neglected with respect to the local Indian private sector participation and research and development spend.
It is difficult to accept the reasoning that Indian private sector does not have the capacity to make conventional weaponry and conduct further research and development to improve on past designs and produce new designs and cutting edge technologies.
The indigenous private sector military-industrial complex can grow if the Indian government is ready to:
The private sector military-industrial complex development holds the key to achieving growth in manufacturing as a whole and India could get on the road to be a defense equipment exporter.
When one talks of investing money and making it work for them, the stock markets of the world and value investing concepts enter the picture. The reasons for the stock market to figure as an investment option is due to its superior returns as compared to bank deposits and bonds. Value investing gets its due because it’s a concept that works.
Value investing, made popular by Warren Buffet, is derived from the book Security Analysis by Benjamin Graham and David Dodd. The value investing concept is founded on the premise that everyone is seeking financial security and growth and people will look to the stock market in search of this security.
Investments in the markets happen either directly or indirectly through mutual funds. Over the past few years entering the markets has been made easy. The physical share certificates have been done away with and in its place we have dematerialized and electronic form of shares. This has made it easier to trade and there is far less danger. Earlier share certificates could be forged but this has been overcome due to the electronic form of trading in stocks.
The dematerialized form of shares have made its transfer easier, faster and secure thus reducing the cost and charges of transfer or sale. This benefit has been passed to all to increase market participation. The increased speed of trading and reduced cost has enabled more investors to enter the stock markets. It has also made the stock markets more liquid.
A stock market has different players:
For the first time small investor its best to know that stocks and stock market is not a place where you can put your money and forget about it. Stocks do not give regular fixed returns. Good company stocks do give regular dividend but the percentage varies each year. Also some amount of the profits are retained by the company as a reserve for future business plans.
Historically, stocks have given a better rate of return compared with any other investment instrument. Real estate might be a possible exception. Returns on investing from stocks have seen significant gains when one takes a look at the stock markets spread over 5 to 10 year periods though fluctuations are a part of the cycle.
The first time small investor it is better to follow the principles of ‘value investing’ or long term investing expounded by Lord John Maynard Keynes, the eminent economist who was an astute stock market investor and Benjamin Graham and David Dodd, authors of the Security Analysis. Investors would do well to also read The Intelligent Investor by Benjamin Graham. The Intelligent Investor has been called the best book written on investing by Warren Buffett.
The question that remains is how does a small investor decide if he or she should pick up the stock of a company. The following is basic skeletal idea of what an investor needs to do before investing in a stock:
The reasons why people enter are quite simple. Either they want to beat inflation, get better returns and save for the future or they want to be part of the money making crowd and are driven to the stock markets hearing the success stories of the people. The lure of a quick easy buck is also one of the big reasons for people to venture into the stock markets.
As humans we are going to make mistakes but investing mistakes can be reduced if we pay attention to where we are investing and why we are ready to take the risk with a particular stock. Emotional decisions have to be avoided when they are related to money. And it would do us well to remember that earning, saving and spending are easier but investing for a secure future in the sunset years takes effort.
India is moving towards urban cities but the urban cities are no longer what they once were. Today, most Indian cities are unplanned and there is increased ghettoization of a different kind. More than a community or religion dictating the ghettos, it is economics that is forming the basis of it.
Smaller communities are holding on to their way of life vehemently denying growth. This denial of growth is not due to the lack of knowledge of the new amenities that come with urbanization and urban planning. It is primarily because of the problems of having to share space with an increasing size of slums and the increased squalor that is becoming a permanent fixture in most Indian cities.
Let us take the example of Mumbai. As a city its cosmopolitan qualities are one part of the city’s features but the city has grown in spurts and there has been no plan to make the city sustainably functional.
There are few features that one desires in the life of a city:
When Mumbai first took shape the railway lines in the city defined a transportation system that connected the entire city but as the city took shape it became a place where the development was lopsided and unplanned.
The cities of the future would be better planned if they used the township model where all necessities are available.
For example, consider Mumbai having 20 to 30 large townships with sustainable models of living and each have an internal and external connecting transport and communications system. The townships will have to be growing vertically giving the city enough open spaces with better air quality and ability to handle water harvesting for the entire city in an efficient and optimum manner.
The monorail project could help connect the townships with each other and provide transport within the townships too. The existing bus transportation system and private vehicles could also add to the point to point transport system of the city.
The reasons that these could be the cities of the future is because there will be waste management systems that keep cities clean and the law and order can be effective. In most cities the problem of slums will be addressed effectively with government controlled housing projects that will be brought to life with private builder participation who get permissions to build private and commercial housing projects based on how effectively they provide for housing for lower-income groups.