India to open more sectors for defence offsets commitments

BANGALORE - India will soon open up new sectors to foreign manufacturers of military hardware to enable them fulfil their offsets commitments, Defence Minister A. K. Antony announced here Wednesday.

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

Under the Defence Procurement Policy enuncicated in 2006 - and revised every year - 30 percent of all purchases above Rs.3 billion ($66 million) has to be reinvested in the India’s defence manufacturing sector. However, in the case of an upcoming $10 billion order for 126 combat jets for the Indian Air Force, the offsets obligation has been raised to 50 percent.

Antony also pointed out that defence offsets should not be an impediment in development of indigenous capability in arms production.

The defence 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 $100 billion on defence purchases in the next 10 years, it is estimated that the offsets would be worth $30 billion.

The defence ministry in January expanded the scope of offsets commitments, which was exclusively in the arms domain, to sectors such as internal security, aerospace 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 defence acquisition council the new areas once the committee submits is report,” Antony said.

Noting that offsets was a new, evolving concept for India, he said the demands of the armed forces for new equipment was increasing with their modernisation plans in progress.

Speaking about 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 defence 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 defence minister said the provisions laid down in the tender would be strictly followed.

He said he was not able to predict the outcome of the tender at the moment.

“There will be no other consideration except what is laid down in the RFP (Request For Proposal),” he added.