India to open more sectors for defense offsets commitments

India will soon open up new sectors to foreign manufacturers of military hardware to enable them fulfill their offsets commitments, Defense Minister Arackaparambil Kurian Antony announced on Wednesday.

This is in view of the limited capability of the domestic arms industry to absorb the over USD 30 billion investments expected to accrue from foreign military purchases over the next decade, Antony said after inaugurating the Aero India 2011 air show.

Under the Defense Procurement Policy (DPP) enunciated in 2006 – and revised every year – 30 percent of all purchases above INR 3 billion (USD66 million) has to be reinvested in the India’s defense manufacturing sector. However, in the case of an upcoming USD 10 billion order for 126 combat jets for the Indian Air Force (IAF), the offsets obligation was stipulated to be 50 percent, ab initio.

Antony also pointed out that defense offsets should not be an impediment in development of indigenous capability in arms production.
The defense ministry has set up a committee to study the new areas in which offsets investments could be allowed in the near future to enable India develop its own industrial complex for self-reliance in hi-tech sectors.

“We need offsets. At the same time, offsets should not become stumbling blocks in the development of indigenous industrial base. Hence we made studies and held discussions with various stake-holders,” Antony said.

“We took a decision to expand the offsets clause a bit. One suggestion is to allow state-of-the-art technology to be an area for offsets commitments. Before going ahead and allowing this, we have to talk to all stakeholders. So a committee is studying the matter and holding discussions,” Antony told a press conference.

With India expected to spend over USD 100 billion on defense purchases in the next 10 years, it is estimated that the offsets would be worth USD 30 billion.

The Defense Ministry expanded the scope of offsets commitments last month, which had been restricted to the defense industry sector, to sectors such as internal security, civil aviation and related training under the amended DPP-2011.

“We will take a considered view on expanding the scope of offsets. We will decide in the Defense Acquisition Council the new areas once the committee submits is report,” Antony said. Noting that offsets were a new, evolving concept for India, he said the demands of the armed forces for new equipment was increasing with their modernization plans in progress.

Referring to the combat aircraft deal, Antony said the contract would be awarded to one of the six competitors in the next financial year. There would be no political interference or influence on who would win the contract, he added.

“In defense acquisitions, there will be no political decisions or interference. The process of request for proposals (RFP), trails by a technical evaluation committee and cost negotiation committee will be followed and only then will the report come to the government for a final decision,” Antony maintained.

To a question about the US seeking orders for the combat aircraft from the two American firms in the fray as a payback for the civil nuclear deal and support for a permanent UN Security Council seat, the defense minister said the provisions laid down in the tender would be strictly followed.

Saying he was no astrologer, he said he was not in a position to predict the outcome of the tender at the moment, but insisted, “There will be no other consideration except what is laid down in the RFP (Request For Proposal).”