Firms lament stringent policies

Private arms companies told Defence Minister Manohar Parrikar here on Thursday that several bottlenecks in the Centre’s offset policy and unfriendly attitude of officials would come in the way of realising India’s potential as a defence manufacturing hub.

As per the Indian offset policy, for any contract worth more than Rs 300 crore, the selected vendor has to reinvest 30 per cent in the Indian defence industry.

Introduced in 2005, the policy was tweaked twice in 2006 and 2008 and is valid under “buy” and “buy and make” categories.

The ministry created a separate agency to handle offset issues, but the industry is far from being satisfied.

“The offset policy can’t be executed as replacement for tax. If it is coercive offset, we will buy our own offset and won’t transfer technology,” Yedidia Yaari, president and chief executive officer of Rafale Advanced Defence Systems, told Parrikar here at a session with the industry organised by the Confederation of Indian Industries on the sidelines of Aero India, 2015.

“The policy needs a review as there is no flexibility and the officials differ in interpreting the rigorous policy,” said George White of Boeing.

His concerns were echoed by Lockheed Martin’s India head Phil Shaw, who blamed the “audit mindset” of the Defence Ministry for creating the problems rather than looking at converting India into a global manufacturing hub.

Not only the two American aviation majors, but also major players like SAAB, Tata Advanced Systems, Honeywall, Shin Maywa and HCL Technologies shared their concerns on the offset implementation.

“Currently before signing a contract, we have to tell from whom we would be sourcing the work packages for the next five, 10 or 20 years depending on the duration of the contract. It is virtually impossible to forecast what will happen 20 years from now,” said Arijit Ghosh from Honeywell India.

“Enforceability (in offset) remains the big challenge. We should be given flexibility in selecting the work package and time schedule,” he said.

Other troublesome issues include protection of intellectual property rights and financial strength of the medium, small and micro-level enterprises.

The MSME can’t even register with the defence public sector undertakings unless they satisfy three-year profitability condition.

There is no IPR protection and sometimes the bank guarantee asked from the MSME is three times the order value.

“Why to talk about the margin if we have the IP. The MSME sector has to be empowered if ‘Make in India’ has to succeed,” said Sandip Kumar Maini from the Maini Precision Products, Bangalore.

A day before, Parrikar said the Defence Ministry was reviewing the offset policy.