Bangalore: India’s defence ministry has cleared a new arms purchase policy that will allow the armed forces to buy equipment, including tanks and fighter jets, faster and in a more transparent manner than before, while allowing private sector firms in the business benefit from so-called “offsets” these purchases will generate for them if made from foreign firms.
India’s defence offset policy mandates that foreign contractors source components and systems from local vendors for at least 30% of the value of orders of at least Rs300 crore that they get from the Indian military.
The new rules and procedures laid down in the document, called the defence procurement procedure 2008 (DPP 2008), will come into effect from August, defence ministry spokesman Sitanshu Kar said. “Suitable amendments have been effected to pave the way for speedier procurements of weapons, systems and platforms, while ensuring transparency,” he said, after the defence acquisition council, the ministry arm headed by defence minister A.K. Antony that oversees arms purchases, cleared it on Wednesday.
The document, the third since 2005, will be put on the defence ministry’s website soon and replaces the last such set of rules and procedures released in 2006.
An analyst said that Indian industry expects DPP 2008 to spell out details such as the banking of offsets.
“Let there be clarity on rashtriya udyog ratnas (RURs). The private sector has invested a lot of time and money—they may not be able to actively participate (in defence deals) if it (the clarity) is not there,” said Ratan Shrivastava, director for aerospace and defence at the India offices of research firm Frost and Sullivan.
Till 2001, entry into the defence equipment business was barred for private sector firms. In 2001, a committee headed by Vijay Kelkar recommended that private firms be allowed to participate in the manufacture of arms and other defence equipment. Subsequently, the government said it would award the RUR status to select private firms that met certain criteria. This status will allow them to compete on an equal footing with state-owned firms for defence contracts. Firms such as Larsen and Toubro Ltd, Tata Power Co. Ltd and Mahindra and Mahindra Ltd have significant plans for the defence business.
Many defence deals in India, however, suffer long delays. A deal to buy Hawk advanced jet trainers was nearly two decades in the making.
“Stick to timelines and ensure transparency. This is what the industry expects from the policy,” said Shrivastava.
India’s imports of military hardware and software could reach a cumulative $30 billion (Rs1.29 trillion) in the four years to 2012 as the country’s armed forces buy multi-role fighter jets, artillery guns, a variety of helicopters and long-range maritime spy aircraft, according to a study by Associated Chambers of Commerce and Industry of India, or Assocham, an industry lobby.
Indian companies are expected to get offset orders from global military equipment makers of nearly Rs40,000 crore in the three years to 2011.