India to get $10 billion offset works from defence deals

"Defence offset projects worth $10-billion are being negotiated, which will benefit India in terms of business and development of defence technology," said Raju, releasing the KPMG-AMCHAM report on "The Indian Defence Sector: The improving landscape for US business and Indo-US commercial enterprise".

According to the global consulting firm KPMG, the increasing convergence between Indian and US defence establishments is manifested in signing of major procurement contracts.

These include deals such as 12 P-8I (Poseidon maritime reconnaissance aircraft) worth over $3 billion, ultra-light howitzers worth $647 million, F414-GE-INS6 engines for the Light Combat Aircraft (LCA) worth $650 million, Harpoon anti-ship missiles worth $170 million and six Martin C-130 J Super Hercules aircraft for Indian special forces worth $1 billion.

"The offset provision is a great opportunity to develop long-term partnership in various areas, which can be utilised by the US industry to identify Indian partners and establish a long-term supply chain," Raju said in his keynote address to the Indian Aerospace and Suppliers' Conference, organised by KPMG and the American Chamber of Commerce.

Under the renewed defence procurement policy, it is mandatory for overseas firms securing Indian defence contracts to outsource 30 percent of the deal to state-run Indian enterprises and private firms as offset works.

The offset provision applies to all capital acquisition categorised as buy (global) or buy and make with ToT (transfer of technology), where the estimated cost of the acquisition proposal is $67 million and above.

Keeping in view the upcoming visit of US President Barack Obama to India Nov 8-10, Raju said the country saw the US as a key partner in building not only peace and stability, but also in fulfilling its development goals and aspirations.

“Ever since the military ties with the US went on the upswing, we have engaged in several defence and aerospace related acquisition programmes, including the C-130J, the C-17 Globemaster and the P-8I. There is an enormous potential and opportunities for collaboration and creation of joint ventures between the US and Indian firms,” Raju observed.

With the Indian aerospace sector ranking among the world’s most dynamic, India represents a growing market for air defence equipment comprising military hardware.  
In the civilian sector, with the domestic air traffic projected to grow at 12.5 percent annually, India will need an additional 1,180 aircraft valued at a whopping $120 billion over the next two decades, as per the global aerospace firm Boeing Corporation.

“In view of the growing demand and growth of the civil aviation sector, the thrust is on modernization of airports, communication, navigation and surveillance systems for air traffic management and facilities for maintenance repairs and overhaul (MRO) of aircraft and sub-systems,” Raju said.

India annually imports about 80 percent of aerospace products, including aircraft and parts.Raju also told the industry representatives that the government was conscious of the benefits of the offset policy and would tweak it to incorporate best global practices.

"The procurement contracts indicate that the US defence industry players are looking more towards East to establish manufacturing bases," said Martin W. Philips, KPMG global head of aerospace and defence.

Endorsing Philips' view, Richard Rekhy, KPMG advisory head, said a business of $10 billion was a big number for the Indian defence industry.