India-US Agreement Atma-Nirbhar or MNC-Nirbhar

Made-in-India became Make-in-India. The policies to create a self-reliant India may achieve the opposite – dependence on foreign MNCs. While the India-US deal has some sweeteners for the Indian industry, there are potential indications that the meat of the deal might be grabbed by US firms

By Alam Srinivas
  • The Micron contract is for an assembling and testing facility. The total investment is valued at $2.75 billion, of which the US firm will contribute $825 million, or 30%
  • in Defense Roadmap, both countries agree to work together for creation of logistic, repair, and infrastructure for aircraft and vessels in India
  • For decades, apart from cars, mobile phones, and white goods sectors to mention a few, Indians have honed skills with screwdriver technology
  • government insists local production is on the upswing. But based on on-ground experiences it appears that the opposite is happening

IF one skims through the almost-6,500-words official statement on the recent India-US agreement inked by Prime Minister Narendra Modi and President Joe Biden, it seems like a giant step towards Atma-Nirbhar Bharat. The creation of a monolith that can compete with China as a reliable, low-cost, and quality-conscious global supplier of goods and services. However, the devil invariably lies in the details. A closer look shows that the bilateral deal is likely to deepen India’s dependence on foreign MNCs. There are several sweeteners for the Indian industry. But the meat may be grabbed by the US firms.

Consider a few proposals and propositions mentioned in the detailed statement. India will procure unmanned aerial vehicles (UAVs) from America’s General Atomics, but they will be assembled in the country. The now-privatised Air India’s “historic agreement” to acquire over 200 aircraft from America’s Boeing finds mention. In both cases, Washington’s carrots to New Delhi are in the form of a new maintenance, repairs, and operations (MRO) facility in the country for the UAVs, and Boeing’s “completion of a C-17 after-market support facility for MRO and a new parts logistics centre in India.”

In a few exciting deals, India will invest in the US to create jobs in America. VSK Energy will spend $1.5 billion to build a new solar panel unit, JSW Steel $120 million in its existing steel plant in Ohio, and Epsilon Carbon $650 million in a greenfield electric vehicle battery component factory. India’s Department of Atomic Energy will contribute $140 million in kind to the US Department of Energy’s Fermi National Laboratory to collaboratively develop the Proton Improvement Plan-II Accelerator for the “first and largest international research facility on US soil.”

There are plans to enhance the Make-in-India program and concretize the foundations of Atma-Nirbhar Bharat. Micron Technology (US) will invest “up to $825 million to build a new semiconductor assembly and test facility in India.” There is a MoU between General Electric (US) and Hindustan Aeronautics to manufacture jet engines for light combat aircraft in India. Nuclear Power Corporation of India and US Westinghouse Electric will construct six nuclear reactors in India. There will be consultations to help Westinghouse to develop a techno-commercial offer for the Kovvada nuclear project.

Both Biden and Modi agreed to encourage private-public partnerships to develop high-performance computing facilities in India. Tech giant Google will continue to use its $10 billion India Digitization Fund to invest in the country, including in early-stage startups. The two leaders adopted a Defence Industrial Cooperation Roadmap to enhance the co-production of advanced defence systems. They wished to negotiate a Security of Supply arrangement and initiate a Reciprocal Defence Procurement agreement. The idea is to accelerate defence industrial cooperation between the two nations.

AN ASSEMBLER OR MANUFACTURER

Now note the caveats. The Micron contract is for an assembling and testing facility. The total investment is valued at $2.75 billion, of which the US firm will contribute $825 million, or 30%. The rest, or the majority portion, will be bankrolled by the Indian government. The huge contract will create only 5,000 direct jobs, and provide “15,000 community jobs opportunities” in the next five years. The High-Performance Computing (HPC) facilities come with a rider. As per the statement, President Biden will work with the US Congress to “lower barriers to US exports to India of HPC technology and source code.”
Clearly, in both these cases, as with the UAVs, India will buy critical and crucial components and technologies from America, and become more of an assembler, and not a manufacturer. Although we are not aware of the specifics, the same may be true about nuclear reactors (Westinghouse), the co-production of defence systems, and jet engines (General Electric). For decades, apart from sectors such as cars, mobile phones, and white goods to mention a few, Indians have sharpened their skills with screwdriver technology. This will continue to be the case in the future as per the new India-US pact.
The key to India’s emergence as a world-class manufacturer, and not just a global supplier, lies in the phrase mentioned with the jet engine MoU. The joint statement reads, “This trailblazing initiative to manufacture F-414 (jet) engines… will enable greater transfer of US jet engine technology than ever before.” Transfer of technology (ToT), technology-sharing, collaborations, and co-development occur a few times in the statement. ToT is the ultimate objective that India has tried to achieve since Independence. ToT works in some sectors, fails in others, and remains partially successful in most segments.

A look at India’s business history in the past 75 years shows that when the foreigner has the upper hand, which is true for high technology products like nuclear reactors, jet engines, semiconductors, HPC, and defence systems, lip service is paid to the grand desire for ToT. It takes years, even decades, as the foreign supplier delays to transfer technology to enhance its revenues and profits. By the time ToT is achieved, disruptive technologies emerge, and overshadow the older ones. In essence, it leads to yet another ToT deal. The story goes on and on, and repeats itself, in both existing and new sectors.

BACK-FOOT SHUFFLE DIPLOMACY

After India’s recent aggressive anti-West stance on the Russia-Ukraine war and proactive actions in global diplomacy, one assumed that New Delhi would play tough with Washington on foreign affairs. Sadly, this does not seem so from the India-US statement. For one, New Delhi took several steps backwards in Ukraine. Both nations agreed that “rules-based international order must be respected.” Biden and Modi “called for respect for international law, principles of the UN charter, and territorial integrity and sovereignty.” They emphasised that the contemporary global order is built on these principles.

What these imply is that India agreed with the US (West and NATO) that Russia was wrong in waging the war against Ukraine. Russia, as per the US policymakers, disrupted the rules-based global order. It violated Ukraine’s territorial integrity and opposed an independent nation’s desire to take independent actions, like Ukraine’s hesitant move to join NATO. Russia did not like it and wished to oppose it. But does this provide a legitimate and moral reason for a country to invade another one? If New Delhi cosies up with Washington on defence and security issues, will it give Beijing the right to attack India?

Seen from the US perspective, the joint statement can be seen as a strong defensive-offensive counter to China. For some time, and especially in recent times, Washington was worried about Beijing’s marine overtures in the Pacific region. The US involved India in the Quad, which includes Japan and Australia, and is billed as a “partnership for global good.” Biden and Modi agreed to continue partnerships with other regional platforms such as the Indian Ocean Rim Association, Indo-Pacific Oceans Initiative, and ASEAN to “address shared challenges in the Indo-Pacific Region”, where China is active.

India will invest in the US to create jobs in America. VSK Energy will spend $1.5 billion to build a new solar panel unit, JSW Steel $120 million in its existing steel plant in Ohio, and Epsilon Carbon $650 million in a greenfield electric vehicle battery component factory

The overriding objective: a commitment, largely undertaken by the US, to “a free, open, inclusive, peaceful, and prosperous India-Pacific region with respect for territorial integrity and sovereignty, and international law.” America, as most diplomatic experts contend, is concerned over “coercive actions and rising tensions… (and) destabilising and/or unilateral actions that seek to change the status quo.” This quoted phrase, which appears in the joint statement, is a direct hint at China, which claims control over the East and South China Seas, and over the territories of Tibet and Taiwan.

UGLY AMERICANS IN INDIAN PORTS

Most of us are familiar with two famous novels, ‘The Quiet American’ (Graham Greene) and ‘The Ugly American’ (William Lederer and Eugene Burdick). Some of us are confused between the two. Although vastly different in literary style, the two books have common settings (Indo-China; Vietnam or Burma), similar characters (American policymakers and officials), and related plots (US’ involvement in distant lands). Both the novels portray Americans stationed abroad to achieve strategic global security goals in different ways. But both conclude that Americans can only cause chaos in nations they do not comprehend.

Greene’s protagonist is Alden Pyle, a CIA operator, who is “thoughtful, soft-spoken, intellectual, serious, and idealistic.” He believes in an achievable solution in Vietnam, which is rooted neither in communism nor colonialism, but in a Third Force led by a local leader seeped in local traditions and culture. The ugly Americans, explained by a Burmese journalist, transform when they go to foreign lands. “A mysterious change seems to come over Americans…. They isolate themselves socially. They live pretentiously. They are loud and ostentatious.” In the end, both types ruin the lands that they go to.

Both the novels are set in the 1950s. But we have seen the mayhem that the US policymakers, diplomats, marines, and soldiers create in far-flung nations such as Saudi Arabia, Iraq, Afghanistan, Pakistan, and the Balkan countries. They interfere with local cultures and customs and try to mangle local traditions and lifestyles. The Americans, whether quiet and idealistic, or ugly and loud, tend to impose their cultural icons, such as Coke and McDonald’s, in foreign lands. With the US money that pours in, either via war destruction or war reconstruction, they erode the morals and values of the other nations.

Transfer of technology (ToT), technology-sharing, collaborations, and co-development occur a few times in the statement. ToT is the ultimate objective that India has tried to achieve since Independence. ToT works in some sectors, fails in others, and remains partially successful in most segments

As per the India-US agreement, President Biden and Prime Minister Modi “welcomed India’s emergence as a hub for maintenance and repair for forward deployed US Navy assets and the conclusion of Master Ship Repair Agreements with Indian shipyards. This will allow the US Navy to expedite the contracting process for mid-voyage and emergent repair. As envisaged in the Defense Industrial Roadmap, both countries agree to work together for the creation of logistic, repair, and maintenance infrastructure for aircraft and vessels in India.” India will be the new MRO for the US ships.

Simply put, American marines, and soldiers, along with pilots, co-pilots, and technical staff, are likely to spend weeks, possibly months, in several Indian port cities. These ports will turn out to be mini-Iraq or Saudi Arabia with hundreds and thousands of Americans stationed there. The Marines are likely to spend huge sums. The maintenance and repairs of ships and aircraft may be a ruse for America to have a longer presence in the Indian Ocean to quickly access the East and South China Seas and the Pacific Ocean via Asia. This is apparent from the ongoing US security concerns vis-à-vis China.

MNC PREFERENCE OVER LOCAL SUPPLIERS

From the above-stated arguments, it seems that India’s dependence on American firms or foreign MNCs is likely to grow, even as more Americans are stationed in India, and spend weeks and months at Indian ports. What will augment these trends is that India’s domestic policies to boost Make-in-India and self-reliance (Atma-Nirbhartaa) are twisted and manipulated to suit foreign firms. Take the Public Procurement-Preference to Make-in-India Policy, 2017. It stated that Indian-made products will get preferential access to purchases made by central and state governments, and public bodies, firms, and institutions.

Although the policy mandates local content of 50% for Class-I local suppliers, and 20% for Class-II ones, it is not achieved because of the calculation loopholes. A recent study by the Center for Digital Economy Policy Research (C-DEP) found that the requirement for local products is computed on the project cost, rather than what is spent on specific products. Since the overall costs include huge amounts spent on construction, local labour, and building materials, which can only be procured locally, the main products like machinery, equipment, and components are legally imported. It is simple maths.

Americans, whether quiet and idealistic, or ugly and loud, tend to impose their cultural icons, such as Coke and McDonald’s, in foreign lands. the US money that pours in, either via war destruction or war reconstruction, they erode the morals and values of other nations

C-DEP gives an example: A contractor needs to construct a conference room. Under the policy, 50% of the costs is to be spent on local products for the contractor to qualify as Class-I local supplier. He goes ahead and imports the EPABX and air-conditioners, the main and high-cost technology products, and still qualifies. This is because out of the total project cost of say, INR 100 lakh, the imported equipment costs only INR 30-40 lakh. The bulk of the money is spent on civil construction, which includes products from cement to bricks, and labour that are locally sourced. Thus, the local content comes to 60-70%.

To give a more specific illustration, government-funded digital infrastructure projects typically entail 35% expenditure on services like digging, trenching, and backfilling, 18% on passive materials like poles and ducts, 12% on active materials (wireless equipment) and power infrastructure, and 30% on optical cables. The remaining 5% is on active services like integration. Given this scenario, “contractors selected for (government’s) BharatNet projects can import 100% of cable and active materials, and still qualify as Class-I local suppliers under the Public Procurement-Preference policy.

UNFAIR TENDER NORMS TO FAVOUR MNCs

In December 2022, the central government red-flagged unfair tender norms that favoured foreign firms and acted against purchases from Indian suppliers, under the above-mentioned policy. Media reports stated that one of the criteria was “observed in the procurement of IT, electronic, and electrical products.” The government tenders specified foreign brands, “either for finished products or for part of the scope of work.” Thus, the names of Cisco, NEC, Alcatel, and Siemens were specified for telecom, HP, Dell, and Lenovo for IT products, and Otis, Mitsubishi, Schindler, Kone, and Johnson for lifts.

For the more technical tenders, the clauses mentioned foreign standards, without specifying equivalent Indian ones. This eliminated participation by Indian firms, especially the smaller ones, which had not adhered to foreign standards or did not apply for foreign certifications. In the case of airport equipment, the tenders wanted them to efficiently operate in minus-25-degree temperatures. This eclipsed the Indian products, and there was no rationale for the airports to insist on such a clause. The demand for a minimum net worth or annual revenue was another way to keep out Indian firms.

India’s dependence on American firms is likely to grow, even as more Americans are stationed in India, and spend weeks and months at Indian ports. What will augment these trends is that India’s domestic policies to boost Make-in-India and self-reliance (Atma-Nirbhartaa) are twisted and manipulated to suit foreign firms

What is interesting is that the government advisory (December 2022) noted that many tenders unashamedly claimed that certain products, works, and services were exempt from the 2017 procurement policy, and outside its purview. Since the nodal ministry had not issued any notification, the advisory felt that these tenders were non-compliant with the procurement laws and rules. In fact, the advisory said that they applied to any purchase over INR 5 lakh. In addition, several ministries were allowed to hike the requirement percentages for local goods to over 50% and 20%. But many did not do so.

Thus, India’s bilateral deals, as well as domestic policies, emphasise Make-in-India and Atma-Nirbhar Bharat. The government publicly insists that local production is on the upswing. But based on on-ground experiences, and reading between the lines, it appears that the opposite is happening. India’s penchant for foreign goods and services is still on a high. Even the government tenders favour the MNCs, rather than local suppliers. If we do not take corrective action, if we are not careful, and if we are swept away by the rhetoric, Atma-Nirbhar Bharat may turn into MNC-Nirbhar India.

Alam Srinivas

Alam Srinivas is a business journalist with almost four decades of experience and has written for the Times of India, bbc.com, India Today, Outlook, and San Jose Mercury News. He is working on a new book on the benefits and pitfalls of the Indian Bankruptcy Code.

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