Defence offset sector opened up to foreign firms

Companies selling their military wares can also invest a part of the deal in domestic industries catering to civilian aerospace and homeland security. Earlier the offset was restricted only to defence industries.

Till 2010, the estimated offset market in India was as big as Rs 50,000 crore, which is set to rise with India working other big ticket deals like buying new helicopters and howitzers and setting up a second production line for submarines.

According to the government offset policy, for all military imports worth more than Rs 300 crore, the winning company has to reinvest 30 per cent of the deal amount in the domestic sector as “offset”.

Earlier it was restricted to the military, but has now been expanded.
The shift was incorporated in the new defence procurement procedure released by Union Defence Minister A K Antony here on Thursday. The DPP would be reviewed every year to fine-tune the procedure with experience.

Outlining the reason behind shift in the offset policy, Antony said, “From the experience of the last five years, we have seen that we cannot absorb the full offset investment in the military space. That’s why it is being opened to civil aviation and homeland security.”
The government for the first time has released a defence production policy which will give preference to indigenous design, development and manufacture of defence equipment. For the first time, warship production has also been brought under the DPP, 2011.

The new DPP also seeks to suggest that procurement of military platforms and systems should be completed within two and half years from the date of issuing tender.

In reality, it took decades to get the Hawk advanced jet trainer from the United Kingdom whereas another protracted contract to buy Russian aircraft carrier Admiral Gorshkov is yet to be realised.

Antony said even though the thrust was on self-reliance and indigenisation, achieving “zero import” would not be possible. But the “make” category of DPP would be simplified in a manner to facilitate involvement of both private and public sectors in defence production.

The government would also set up a separate fund to provide necessary resources to the public and private sectors including the small and medium enterprises to support innovation and research.