New Delhi: The Indian government has raised to 50% the offset limit on its acquisition of 126 medium multi-role combat aircraft at an estimated cost of Rs42,000 crore, India’s largest ever aircraft deal. The offset limit is a reciprocal arrangement with the company supplying the aircraft under which it promises to give Indian component makers orders worth a certain percentage of the deal. The country’s current defence procurement policy mandates that foreign arms sellers procure equipment worth 30% of contracts of more than Rs300 crore in a bid to boost the local arms manufacturing industry.
The offset limit has been raised specifically for this order. Defence ministry spokesman Sitanshu Kar said the 50% offset limit would not be on the total cost of the deal but on the value of aircraft and a few other components (the Rs42,000 crore also includes cost of service, parts and maintenance equipment).
He declined to provide any further details. The exact value of the offset requirement will be announced after the Request for Proposals (RFPs) is sent to six aircraft makers by next month.
In the fray are Russia’s MiG-35 (made by RAC MiG), Swedish JAS-39 (Gripen), American F-16 Falcon (Lockheed Martin), Boeing’s F/A-18 Super Hornet and Eurofighter Typhoon (made by a consortium of British, German, Spanish and Italian firms). The first of the 126 aircraft is expected to be delivered by 2012.
“If the offset increases (to 50% ), it will benefit the Indian industry. There will be more work here,” said Ashok Baweja, chairman of Hindustan Aeronautics Ltd (HAL), the public sector defence aircraft maker. The deal involves buying 18 aircraft from the seller and manufacturing under licence 108 others (this process will be spearheaded by HAL).
The RFPs carry technical details of the requirements of the Indian Air Force (IAF). “It’s ready. There were some suggestions that were asked to be included in today’s (Defence Acquisition Council) meeting. That would be done in a few days,” said Kar. “It’s not important what aircraft you are buying but what you can do inside the aircraft. The type of weapons and the EWS (Electronic Warfare Systems) being acquired with it (matter),” said former Air Chief Marshal S.P. Tyagi, who retired from the IAF earlier this year.
Tyagi said IAF has taken care of the technology needs for the next 20 years in its RFP. “It (the RFP) is relevant for tomorrow and not for today,” he said.
Manufacturers, some of whom are scouting for local partners, said they were eager to participate in the bids. Gripen International, the marketing arm of aircraft maker SAAB AB, for instance, is willing to offer the source code for avionics (the software that runs the aircraft) if its fighter is selected. Tony Ogilvy, India director of Gripen International, said the firm would wait for the RFP document before commenting on the issue. “It is too early to comment till we study the RFP,” said Ogilvy.
Boeing India’s spokesperson said the company would not comment till it has seen the RFP.
Since India’s new Defence Procedure and Procurement Manual came into effect in 2006, mandating offsets to local industry, only one order, a $15 million one from ELTA Systems Ltd to Larsen and Toubro Ltd and Astra Microwave Products Ltd has been finalized.