Foreign vendors are not too happy with the new defence “offset” policy, which stipulates that all contracts over Rs 300 crore must have a minimum direct investment of 30 per cent — of the value of the contract — in the defence sector.
They have branded the policy — spelt out by the government in the Defence Procurement Rules-2006 — rigid. The vendors are now lobbying through various business associations to make it more “broad-based.”
The firms have urged the government to dilute the 30 per cent direct offset provision so that investment can be distributed across the non-defence sectors as well — in what is known as “indirect offsets”.
Anil Shrikhande, managing director, Boeing International Corp. India, said, “Vendors have no qualms about channeling investment into the defence industry. However, we should not be straitjacketed into a specific area. The thrust of the policy should be to build an industrial base, bringing new technology and triggering research and development.”
Boeing IDS is competing with a clutch of global firms to clinch the $7 billion deal to supply 126 multi-role combat aircraft to the Indian Air Force. This deal alone will generate an investment of about $2.3 billion dollar, arising out of an offset agreement. The defence ministry projects investment of $10 billion to flow into the country during the 11th Plan period (2007-2011).
Calling for a more “flexible” offset policy, vendors have expressed concern about the “technology absorption capacity” of the indigenous industry.
The defence ministry, however, rubbished such concern saying they should first check out the indigenous capabilities. Companies that have implemented offset programmes world-over also feel that India should not confine itself to direct offsets alone.
At a recent Confederation of Indian Industry seminar, Guy Verroquier, vice-president, business development and offset, European Aeronautics and Defence Space, said a fair balance between direct and indirect offsets would offer wider scope for business options. Mitch Butta, manager, international operations, Northrop Grumman, said India should look at forging long-term relationships to reap maximum offset benefit.
Chris Chadwick, vice-president, Global Strike Systems, Boeing IDS, told the Hindustan Times on Tuesday, “By confining offsets to the military segment, you are not taking advantage of all that Boeing has to offer.”
But the government seems to be interested in attracting investment only in the defence sector in the form of co-production, transfer of technology, licensed production and investment in R&D. “What will we do with investments in any other sector where we already have expertise,” an official said.