India to get $10 bn offset works from defence deals

Discussion in 'Economy & Infrastructure' started by LETHALFORCE, Oct 21, 2010.


    LETHALFORCE Moderator Moderator

    Feb 16, 2009
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    BANGALORE: The multi-billion dollar defence deals under negotiations are expected to give Indian firms offset works worth around $10 billion (Rs 45,000 crore) over the years, Minister of State for Defence Production M.M. Pallam Raju said here on Wednesday.

    "Defence offset projects worth Rs 45,000-crore ($10-billion) are being negotiated, which will benefit India in terms of business and development of defence technology," said Raju, releasing the KPMG-AMCHAM report on "The Indian Defence Sector: The improving landscape for US business and Indo-US commercial enterprise".

    According to the global consulting firm KPMG, the increasing convergence between Indian and US defence establishments is manifested in signing of major procurement contracts.

    These include deals such as 12 P-8I (Poseidon maritime reconnaissance aircraft) worth over $3 billion, ultra-light howitzers worth $647 million, F414-GE-INS6 engines for the Light Combat Aircraft (LCA) worth $650 million, Harpoon anti-ship missiles worth $170 million and six Martin C-130 J super Hercules aircraft for the Indian special forces worth $1 billion.

    "The offset provision is a great opportunity to develop long-term partnership in various areas, which can be utilised by the US industry to identify Indian partners and establish a long-term supply chain," Raju said in his keynote address to the Indian Aerospace and Suppliers' Conference, organised by KPMG and the American Chamber of Commerce (AMCHAM).

    Under the renewed defence procurement policy (DPP), it is mandatory for overseas firms securing Indian defence contracts to outsource 30 percent of the deal to state-run Indian enterprises and private firms as offset works.

    "The procurement contracts indicate that the US defence industry players are increasingly looking towards East to establish manufacturing bases," said Martin W. Philips, KPMG global head of aerospace and defence.

    Endorsing Philips' view, Richard Rekhy, KPMG advisory head, said a business of $10-billion was a big number for the Indian defence industry.

    "The benefit to the Indian industry will be in the form of upgrading domestic infrastructure, capacity addition and research development and activities," Philips noted.

    Raju also told the industry representatives that the government was conscious of the benefits of the offset policy and would tweak it to incorporate best global practices.
  3. Patriot

    Patriot Senior Member Senior Member

    Apr 11, 2010
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    Ahmedabad, Gujarat, India
    Indian MOD to Announce New Policy Changes

    India Defence Online, New Delhi – Faced with criticism for maintaining a strict defence offset policy, the Indian government is now considering the modification of the offset policy and issues relating to foreign direct investment. The Indian government is also planning to bring dual technology products in civil aviation and encourage technology transfer to Indian joint ventures.

    As of now, the defence offset policy stipulates that foreign contractors catering to the armed forces should source systems and components from local vendors for at least 30 per cent of the value of orders of more than Rs 300 crore. Nearly 80 per cent of offsets are in the area of aerospace. According to the Indian Defence Ministry, the offset opportunity will grow to $10 billion in the next five years.

    The defence ministry’s offset programme has been active for the last three years. However, countries like the US, the UK and Germany has been seeking policy changes as well as amendments in the offset clause. In fact, a joint letter from the British, German and French aerospace industries and the US-India Business Council has sought policy changes, according to sources. The letter sought a 74-100 per cent stake for foreign firms in Indian defence to help them to meet the offset requirements.

    It must be noted premier Indian institutions like Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Federation of Indian Chambers of Commerce and Industry (FICCI) have been lobbying against the strictness of various policies in defence. It is largely felt that a foreign investment limit with a 26 per cent cap does not go down well with the foreign investors as it gives them less security. Hence, the foreign companies are wary of licensing their technology to a local firm which holds the majority stake. ASSOCHAM has already suggested a 49 per cent stake for foreign firms as an incentive.

    The Indian defence ministry will now be taking measures to affect some changes. The impact of the foreign direct investment (FDI) policy has been so far quite marginal. In addition, India also needs to exercise its purchasing power and gain access to high-end technologies which have dual use. With Indo-US relations soaring and the US getting more inclined to favour India, the onus now lies on India to maximise its potential in harnessing crucial technology from developed nations.

    India’s defence offset policy must have broader agenda’s programmes to exalt the country’s competitive advantage and offer more incentives to foreign investors for the transfer of major technologies. The Indian government has always considered a strict offset policy in order to favour Indian firms and strengthen the position of local firms in joint ventures. India perceives offsets as an enabler to build indigenous capabilities. Hence, offsets are an integrated part of the Indian policy towards indigenisation of integrated systems and platforms. In fact, the Indian defence ministry has been working to strengthen the monitoring mechanism for the implementation of offsets.

    It remains to be seen what measures the Indian government will take to bring changes in offset policy and FDI policy in a manner that will encourage the foreign players and not upset private and local firms.

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