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Offset clause in defence deals could go to speed up purchases

Offset clause in defence deals could go to speed up purchases
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First Published: Wed, Feb 13 2008. 11 46 PM IST
Updated: Wed, Feb 13 2008. 11 46 PM IST
New Delhi: India is planning to cut some of the red tape associated with its weapons-buying in a bid to speed up purchases worth billions of dollars, officials said Wednesday.
Many of the global conglomerates jostling to grab arms deals worth $30 billion (Rs1.19 trillion) over the next five years see India’s so-called offset policy as too “restrictive”, defence ministry officials said.
The offset policy obliges firms to engage in some local manufacturing and transfer certain technologies. “We are getting some feedback that there are some difficulties, and it is in our interest to make it easier for companies to fulfil their obligations,” said defence production secretary Pradeep Kumar. “We would have a new policy ready by April this year,” he added.
The official was speaking ahead of Saturday’s opening of the four-day DefExpo in New Delhi, billed as Asia’s biggest arms fair, drawing some of the world’s largest weapon manufacturing companies to India.
The 2002 policy stipulates that any purchase from a foreign supplier in excess of $70 million requires a reinvestment of 30% of the total amount in India—mainly to buy local components and services.
International companies that win deals worth more than $1 billion have to plough back as much as 50%.
“The Indian industry views the offset policy as an opportunity to raise the threshold of its capacity,” said S.S. Mehta, director general of the Confederation of Indian Industry, an industrial lobby. India also argues the policy helps trim costs, estimating local production is 40% cheaper.
But companies have complained that India’s largely state-run defence sector and private firms are sometimes unable to handle the work.
British defence group BAE Systems, which in 2004 agreed to sell 66 Hawk trainer jets worth $1.45 billion to India, is one company that has questioned the policy.
“Offsets are too often short-term projects whose raison d’etre goes little beyond the fulfilment of offset obligations for the life of a particular programme,” BAE Systems spokesman Guy Douglas said. European aerospace giant EADS, which is eyeing a massive military helicopter deal as well as long-term joint military research worth $2.5 billion, also called the rules “challenging”.
“The defence offset policy is as of now defining a challenging set of rules in the actual context of the Indian defence industry,” said Yves Guillaume, chief executive officer of EADS India.
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First Published: Wed, Feb 13 2008. 11 46 PM IST