Foreign industry bodies ask MoD to ease defense trade terms

Six major western industry associations have written to the Indian Ministry of Defense asking for measures to ease their prospects for commerce in defense equipment. They say in their letter, “The current offset policies have effectively hindered our member companies’ ability to play a full role in supporting India’s defense, security and economic needs,” adding that, “These and other challenges presented by the current offset policy have often precluded our member companies from responding to a Request for Proposal. Our member companies have lost out on potential programs, while the MoD (Ministry of Defense) may not be able to benefit from the best technology solution at the best price.”

The letter was jointly written by the ADS (Aerospace, Defense and Security), a British association of defense and aerospace companies, AIA (Aerospace Industries Association), a US body, AIAC (Aerospace Industries Association of Canada), BDLI (Bundesverband der Deutschen Luft und Raumfahrtindustrie -German Aerospace Industries Association), GIFAS (Groupement des Industries Françaises Aéronautiques et Spatiales – Grouping of French Aerospace Industries) and USIBC (US India Business Council) and addressed to Defense Minister Arackaparambil Kurian Antony, Minister of State for Defense Mallipudi Mangapati Pallam Raju, Defense Secretary Pradeep Kumar, Secretary for Defense Production Raj Kumar Singh.

These organizations, while appreciating the proposals of the Ministry of Commerce to increase Foreign Direct Investment (FDI) in the defense sector to 74 per cent, have recommended ‘eliminating the ceiling on FDI’ saying it ‘will encourage greater cooperation and information sharing between international defense manufacturers, which have finite funds with which to execute offset contracts, and Indian defense companies’.

They also recommend an expansion of the definition of offsets to include projects involving ‘dual-use technologies, high-tech civilian projects, security and transfer of know-how and production license-based projects’, saying this would ‘provide more flexibility for the government and the offset obligator’. “Broadening the definition of what can count as an offset will aid in the creation, sustainment and diversification of defense and defense-supporting industry jobs, wherein the latter comprises a dual-use/high-tech civilian/security sector that supplies required components/parts and services to the defense industry,” they say, adding, “Parallel development of dual-use industries would accelerate and buffer the maturity of an Indian defense technological base, inducing greater indigenous capability to build and support defense modernization objectives.”

The industry associations also say that while they ‘applauded the creation of the Defense Offsets Facilitation Agency (DOFA)’, ‘there is still ambiguity in how offset contracts will be approved, validated, discharged and measured’ and recommend the creation of ‘one clear’ ‘permanent standing’ offset authority outside the Defense Acquisitions Council (DAC) ‘with decision-making power’.

They also ask for caps on financial penalties, giving increased weightage in terms of offsets to encourage transfer of crucial technologies as well as ‘elongating the time limit for offset banking contracts from the stipulated 2-2 1/2 years to 5-7 years’.