A significant amendment in the country’s defence procurement rules will allow foreign vendors to plough billions of dollars into non-defence sectors that were out of bounds for them.
India has thrown open its civil aerospace and internal security sectors to foreign defence suppliers, giving them more elbow room to discharge their contractual obligations involving military deals worth more than Rs 300 crore.
The defence ministry’s offset policy makes it compulsory for foreign vendors to invest 30 per cent of the value of such contracts in India through purchases, investments and transfer of technology.
The new Defence Procurement Procedure for 2011, made public on Thursday, has broadened the scope of the offset policy “to include civil aerospace, internal security and training within the ambit of eligible products for the discharge of offset obligations.”
Defence minister AK Antony said, “These changes will provide a wider range of offset opportunities to defence vendors and encourage building up of indigenous manufacturing capability in crucial areas.”
The government’s previous offset policy, confined only to hardcore defence sectors, had been labelled rigid by foreign vendors who had been lobbying through various business associations to make it more broad-based so investments could be distributed across non-defence sectors or what is known as indirect offsets.
Antony said the new procedure incorporated “further refinements” based on the experience of procurement agencies and feedback from Indian as well as foreign vendors.
Vivek Lall, vice president, Boeing Defense Space & Security, said, “Broadening the definition of the offset policy will complement big-ticket programmes. It will benefit both foreign vendors and indigenous suppliers.”
The opportunities for Indian firms in the defence production sector are vast, but questions have been raised about their capacity to absorb the billions of dollars that would flow into the country through the offset policy. The latest policy tweak will bring in spin-off benefits to a broader swath of Indian industry. The offset policy is expected to generate commercial activity worth more than $30 billion (Rs 1,35,000 crore) during 2010-20, according to industry estimates.
Swedish defence firm Saab’s India head Inderjit Sial said the new policy would clear the haze surrounding products and services that overlapped across defence and other sectors. Sial, however, added that the DPP-2011 should have also granted offset credit to firms bring newest technologies to India.
Antony said the changes aimed at expediting decision making, simplifying contractual and financial provisions and establishing a level playing field for the Indian defence industry, both public and private sector. CII deputy director general Gurpal Singh, however, said there was nothing concrete in the 291-page document providing a level playing filed to the Indian defence industry. “We had been pressing for some concrete measures in DPP-2011 for a level playing field but the document does not reflect that.”
LIST OF PRODUCTS ELIGIBLE FOR DISCHARGE OF OFFET OBLIGATIONS
1. DEFENCE PRODUCTS:
· Small arms, mortars, cannons, guns, howitzers, anti-tank weapons and their ammunition.
· Bombs, torpedoes, rockets, missiles, other explosive devices and charges, related equipment and accessories specially designed for military use, equipment specially designed for handling, control, operation, jamming and detection.
· Energetic materials, explosives, propellants and pyrotechnics.
· Tracked and wheeled armoured vehicles, vehicles with ballistic protection designed for military applications, armoured or protective equipment.
· Vessels of war, special naval system, equipment and accessories.
· Aircraft, unmanned airborne vehicles, aero engines and air craft equipment, related equipment specially designed or modified for military use, parachutes and related equipment.
· Electronics and communication equipment specially designed for military use such as electronic counter measure and counter-counter measure equipment for surveillance and monitoring, data processing and signalling, guidance and navigation equipment, imaging equipment and night vision devices, sensors.
· Specialised equipment for military training or for simulating military scenarios, specially designed simulators for use of armaments and trainers.
· Forgings, castings and other unfinished products that are specially designed for products for military applications and troop comfort equipment.
· Miscellaneous equipment and materials designed for military applications, specially designed environmental test facilities and equipment for the certification, qualification, testing or production of the above products.
· Software specially designed or modified for the development, production or use of above items. This includes software specially designed for modelling, simulation or evaluation of military weapon systems, modelling or simulating military operation scenarios and Command, Communications, Control, Computer and Intelligence (C4I) applications.
· High velocity kinetic energy weapon systems and related equipment.
· Direct energy weapon systems, related or countermeasure equipment, super conductive equipment and specially designed for components and accessories.
2. PRODUCTS FOR INTERNAL SECURITY:
· Arms and their ammunition including all types of close quarter weapons.
· Protective Equipment for Security personnel including body armour and helmets.
· Vehicles for internal security purposes including armoured vehicles, bulletproof vehicles and mine protected vehicles.
· Riot control equipment and protective as well as riot control vehicles.
· Specialised equipment for surveillance including hand held devices and unmanned aerial vehicles.
· Equipment and devices for night fighting capability including night vision devices.
· Navigational and communications equipment including for secure communications.
· Specialised counter terrorism equipment and gear, assault platforms, detection devices, breaching gear.
· Training aids including simulators and simulation equipment.
3. CIVIL AEROSPACE PRODUCTS:
· All types of fixed wing as well as rotary aircraft including their airframes, aero engines, aircraft components and avionics.
· Aircraft design and engineering services.
· Technical publications.
· Raw material and semi-finished goods.
· Flying training institutions and technical training institutions (excluding civil infrastructure).
BANKING OF OFFSET CREDITS: Offset banking will now be permitted. Foreign supplies can accumulate offset credits for two years preceding the award of a contract. The proposals for banking of offsets will have to be submitted to the defence ministry. Such proposals will have to be in conformity with the valid discharge of offset obligations as specified in the DPP-2011.
The banked offset credits are non-transferable except between the main contractor and his sub-contractors within the same acquisition programme. A vendor will be able to discharge the banked offset credits for the RFPs (requests for proposals) that are issued within the two financial years of the date of approval of the banked offset credits. The cut off date would be 1st April and 1st October of the financial year.
As an illustration, offset credits that have been banked on or after 1st April 2009 would be valid for discharge against RFPs issued up to 30th September 2011. Similarly offset credits banked on or after 1st October 2009 would be valid for discharge against RFPs issued up to 31st March 2012. If a vendor is able to create more offsets than his obligations under a particular contract, the surplus offset credits can be banked and would remain valid for the period of two financial years after conclusion of the said contract.
The surplus offset credits would be valid for discharge against the new RFPs that would be floated within this period. The vendor will submit reports on implementation of banked offset credits to the offset monitoring cell every six months. The vendor will inform the cell about the RFP against which he wants to discharge the banked credits.
The DPP-2011 will cover all capital acquisitions (except medical equipment) undertaken by the defence ministry, defence services and Indian Coast Guard both from indigenous sources and ex-import. The Defence Research and Development Organisation, Ordnance Factory Board and Defence Public Sector Undertakings will, however, continue to follow their own procedures for procurement.
PROCEDURE FOR PROCUREMENT ON STRATEGIC CONSIDERATIONS: In certain acquisition cases, imperatives of strategic partnerships or major diplomatic, political, economic, technological or military benefits deriving from a particular procurement may be the principal factor determining the choice of a specific platform or equipment on a single vendor basis. These considerations may also dictate the selection of particular equipment offered by a vendor not necessarily the lowest bidder (L1). The Cabinet Committee on Security (CCS) would take decisions on all such acquisitions. Defence procurement manual