Anil Agarwal pitches for corporatisation of defence factories

Mining baron Anil Agarwal on Saturday made a pitch for corporatisation of defence manufacturing factories, as was done for public sector units in the civil sector decades back, saying it will unleash the true potential of these companies. Agarwal, who built a fortune by acquiring state-owned companies and turning them around, also stated that the push for domestic manufacturing of semiconductors and other electronic items has potential to create another Silicon Valley in India in two years.

"We should also look into corporatisation of the defence manufacturing factories which are operating at 10 per cent capacity to unleash the true potential of these companies," he said in an address at IIM Bangalore.

According to a copy of his speech released by his group here, he said corporatisation will help in creating thousands of jobs and improve the performance of these companies drastically.


"Global markets do not want India to produce. They just want India to be a market," he noted.

Corporatisation is the act of reorganising a government-owned entity into a legal entity with the corporate structure found in publicly traded firms. The main goal of corporatisation is to allow the government to retain ownership of the company while allowing the firm to run as efficiently as its private counterparts.

Last year, the government restructured the over 200-year-old Ordnance Factory Board (OFB), which manufactures everything from tanks and armoured vehicles to rifles, ammunition and clothing for the armed forces, into seven state-owned corporate entities to improve its accountability, efficiency and competitiveness.

"We also import a huge quantity of semiconductors and semiconductor components which includes glass displays. There are only four players globally that manufacture display glass," he said. "We have such a potential that in two years time there can be another Silicon Valley created in India. The government is very favourable and in time we will produce cell phones, laptops, television sets at one-tenth of the price."

Vedanta has announced plans to start manufacturing semiconductors in 2-3 years.

"We need to leverage our resources and talents. That will help us produce domestically at a much cheaper cost than other countries," he said. "Be it gold, copper or other resources we must produce to our potential to reduce our imports."

Agarwal, who heads the mining-to-oil conglomerate Vedanta Ltd, made a case for privatisation of PSUs.

On corporatisation of state firms, he said in western economies, most of the companies have been corporatised where the share has been given to the public.

In India, it has to be ensured that not a single job is lost in the public sector. "Secondly nobody can have more than 5 per cent of share. A board should be appointed who should run the company. There is a lot of potential in PSUs. A transformation would see an increase of production by at least 3-4 times."

"In the 70s we followed the Russians, the communist pattern which was necessary for the government to drive all the manufacturing. That was the time when whatever you produce was under the government. We were very proud of our PSUs. Those times have gone, now the government has no business to be in business," he said.

He, however, did not say which sectors or PSUs the government should privatise.

Vedanta had acquired 51 per cent government stake in Bharat Aluminium Co (Balco) for Rs 551 crore in 2011 and 64 per cent in Hindustan Zinc Ltd for over Rs 750 crore in 2002-03.

"Today India is an import based economy. People don't realise but almost 70 per cent expenditure goes into imports with 13 per cent in defense, 15 per cent in electronics and 40 per cent in natural resources. Moreover we don't get technology easily to process it," he said. "The important thing is how we can improve both production and consumption. There is a phenomenal opportunity in India."

Agarwal said one of the biggest outflows in India happens in the education sector. "20 per cent of faculties teaching abroad are Indians. We can create institutions in India which will attract foreign students."

"Jobs are being created outside for the produce which should have been produced domestically. We need to work towards reducing imports to stop our hard earned money flowing abroad. Trust has to be built, self-certification has to come into place," he added.