APPENDIX 22
Memorandum by Rolls-Royce
BACKGROUND
Rolls-Royce has had a presence in India for
over 70 years. The Company established its headquarters in Delhi,
together with a Diesel Engine Trading Company, and currently employs
almost 100 people "in-country" operating in seven locations.
We have a Marine Trading Office located in Mumbai and support
staff are positioned with operators/customers in Bangalore and
several other locations.
In the past, most of the Company's business
was focused on licensing Hindustan Aeronautics Limited (HAL),
the state owned aircraft manufacturing company, to build Rolls-Royce
engines for locally produced military aircraft. This partnership
with HAL has existed since 1956.
In recent years, Rolls-Royce has re-positioned
itself in India to adjust to the rapidly changing local circumstances.
From being perceived as the supplier of luxury cars, the Company
is now recognized as a modern leader in the power systems business.
Rolls-Royce has more than 1,000 aero engines in service in India,
mainly as a result of long-term defence programmes and all four
of the company's global market sectors: civil aerospace, defence
aerospace, marine and energy are represented in the country.
The surge in civil aviation during the previous
two years, and especially the emergence of private sector domestic
airlines, has brought a flood of new business. The V2500 engine,
in which we have a major share, has been selected by every Indian
private airline that has chosen the A320 aircraft for its fleet:
a total of almost 400 V2500 engines. Our partnership with HAL
remains a major activity via the new Hawk Trainer programme and
the support of older military engines.
In the Marine and Energy sectors we also have
significant growing business. Over 300 Indian ships operate Rolls-Royce
equipment including engines, thrusters, steering gear, stabilisers,
winches, shafts and propellers. The Coast Guard is a major customer
for our waterjets which power its large fleet of patrol craft
and three new Pollution Control Vessels—designed and equipped
by Rolls-Royce—are also under construction for the Coast
Guard.
In the oil and gas sector over 100 RB211 and
other, smaller, gas turbines are employed on-shore and off-shore
whilst our diesel engines power the network of pipelines carrying
crude oil and refined products across India. With the arrival
of imported LNG and large gas discoveries off-shore, major expansion
is now being planned for this sector.
The Company is currently establishing local
sub-contract engineering and we are also planning to set-up a
joint venture to manufacture diesel engines.
OPPORTUNITIES/CHALLENGES
India is now realising its long awaited potential.
The economy is growing strongly at about 8% per year and is less
dependent on agriculture having moved firmly into services (50%
of GDP). However, India is still heavily affected by the monsoons
since 75% of the population is employed in agriculture.
The burgeoning middle class is driving consumerism
and credit with associated spiraling demands for energy and air
travel. Meanwhile, India's non-aligned status and regional instabilities
continue to drive India's defence spending which is about 3% of
GDP.
These factors mean that there is strong demand
for the whole range of Rolls-Royce products but doing business
in India can be extremely demanding. There are now two distinctly
different business arenas: the traditional and the new. The first
continues to be represented by Government owned companies like
Air India, HAL, Oil and Natural Gas Commission (ONGC), and the
MoD with traditional bureaucracy. By comparison, the latter is
represented by the private airlines, Oil and Gas companies, private
shipyards etc, with modern business practices.
Both business environments demand value for
money and reliable products with good service. Both are affected
by poor infrastructure which is lagging well behind the rate of
business progress—this is especially the case in airports,
roads and electricity.
There is a well-established legal structure
in India although litigation is still very much in evidence.
Rolls-Royce has found it vital to have a strong
resident presence in-country to guide our visiting Business Units.
Increasingly, we also need to be seen to have a strong local presence
through local manufacture, transfer of technology, contribution
to Indian exports etc. The recent Indian defence offset policy
firmly points in this direction for the future with stringent
demands for exportable technology transfers.
Local content is increasingly important but
there is also an opportunity for localisation of selected posts
and outsourcing both of which reduce costs. The key is maintenance
of quality through supervision and training. The common use of
English coupled with high educational qualifications and willingness
to adapt are all helpful features in localisation.
ROLE OF
HMG
The British High Commission (BHC) in Delhi provides
Rolls-Royce with first class support. The High Commissioner is
frequently personally engaged on our behalf especially with Indian
Government Ministers and the Post plays an important role as an
integral part of the Company marketing team. Regular meetings
ensure exchange of views and relevant, timely interventions. We
are also fully involved by the High Commission with visiting Inward
Missions and senior UK visitor programmes.
There are two areas where further UK Government
support would be helpful. The first is in relation to implementation
of defence offset policy, where the rules need to be modified
to support the transfer of exportable technology. The demanding
requirements on the release of technology, and the associated
IPR, to specific Indian defence manufacturers such that it can
be subsequently exported, gives rise to unrealistic expectations
which cannot be delivered. Such precise demands could actually
be detrimental to the encouragement of foreign investment.
The second is in relation to Export Credit support.
Of the 1,400 aircraft ordered by airlines this year over 200 are
going to airlines in India and the majority of these are destined
for start-up carriers who will not be able to readily access commercial
funding. The availability of export credit support will be vital
to the delivery of those orders. Currently the UK ECGD has a market
risk appetite of £500-750 million for India. This may appear
to be more than adequate today but if account is taken of the
infrastructure requirement to support these aircraft deliveries
(airport development, air traffic control investment, etc) and
assume that UK companies will be successful in bidding for at
least a portion of those projects, these limits may need to be
reviewed upwards in the not too distant future.
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