Several IT and aeronautics companies in Karnataka may benefit from the $1.6 billion offsets which the successful bidder for India’s 126 medium multi-role combat aircraft (MMRCA) programme will implement in India.  The  contract winner must select Indian companies, provide them technology and systems support to set up ancillaries and buyback equipment from them worth 30 per cent of the total contract value. Since Hindustan Aeronautics Limited (HAL) will be the main partner for the foreign supplier to licence-manufacture the fighters in India, companies  in and around Bangalore or existing HAL vendors may benefit most.

For the first time in India’s history of buying big ticket defence equipment  a comprehensive offsets policy will be a part of the deal. Ever since the Ministry of Defence (MoD) implemented an offsets policy in 1995 , only one deal, a relatively lower priced radar bought from the Israeli firm Elta, has come under the policy’s purview.

The bidders
The MMRCA project has attracted six potential bidders - Lockheed Martin (F-16), Dassault (Rafale), RAC-MiG (MiG-35), Boeing (F/A-18), Eurofighter (Typhoon) and SAAB (Gripen). It remains to be seen which of these make it to the final shortlist as the request for proposals (RfP) expected in the next few weeks, will highlight the Indian Air Force’s aircraft specifications. Indications so far are  that the preference will be for a light fighter. Barring the F-16, Gripen and perhaps the MiG-35, the others do not belong in the light fighter category. 
Whichever company finally walks away with the $6 billion prize, it must plough back $1.8 billion or 30 per cent of the total deal into buying components, sub-assemblies and related items including software from Indian companies.

The MoD has already set up a defence offsets implementation agency whose job is to ensure that the winning company meets its offsets requirements. Indian companies who wish to be part of the offsets programme will be selected from a pool of local firms. Their expertise should match the requirements of the foreign company.
Elsewhere in the world, offsets are often not direct. When South Africa bought Gripen fighters, it settled for SAAB to effect improvements in its farming technology. However, for the MMRCA offsets, early indications are that the government may favour development of India’s aeronautics capability and the evolution of a dynamic private sector to handle complex sub-contracting jobs and eventually build whole aeronautical systems.

The challenge
Implementing the offsets policy will be a challenge leading to delays in the MMRCA project implementation. That the gritty RfP is taking time to finalise is due to the nitty involved in offsets implementation. The successful bidder may have to get a certificate from the offsets implementation agency for every milestone reached which will add to the cost and effort of doing business with the MoD.

Nevertheless, potential bidders have already started talking about their offsets capability.  Lockheed Martin organised a suppliers’ conference last June in Bangalore. Other contestants too are known to be doing quiet research into what they could buy back from India and going about identifying potential partners.
Meanwhile, there is considerable excitement among small and medium enterprises in Karnataka who want to share the offsets pie.  Large companies in the software and heavy equipment manufacturing are equally enthused.

The MMRCA offsets is expected to be the biggest positive push ever to happen to the aeronautics and aerospace software industry in India and Bangalore and Karnataka will be in the thick of this development.  A quantum leap in domestic aeronautics manufacturing capability may materialise by the time the 126 fighter are fully in service with the IAF.

(The writer is Editor, defenseworld.net, New Delhi.)