Defence offsets rise to Rs 8,000 crore Page 1 of 1

Defence offsets rise to Rs 8,000 crore

Ajai Shukla / New Delhi November 21, 2009, 0:38 IST

foreign
94% investment in aerospace alone.

Defence mandated
Since
that 2005,
every foreign
when thedefence
Ministry
purchase
of above Rs 300 crore would impose on
the vendor an offset liability of 30 per cent of the contract value, global arms majors have scurried to tie up partnerships with
Indian defence manufacturers.

Today, for the first time, the defence ministry revealed exactly how much business
the defence offsets policy has generated. Satyajeet Rajan, the chief of the Defence Click here to visit SME Buzz
Offsets Facilitation Agency (DOFA) revealed that, since 2007, foreign vendors have
signed up for offsets worth about Rs 8,000 crore.

In 2007, a mere Rs 243 crore worth of offsets were firmed up. The figure rose tenfold
to Rs 2,598 crore in 2008. In 2009, DOFA has already cleared Rs 4,870 crore worth
of offsets and counting.
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These values are of planned production; actual production has still to begin in all but
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a handful of offset partnerships that were tied up over the last three years.
India.
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Interestingly, 94 per cent of all planned offsets are in the aerospace sector; the
remaining 6 per cent covers the manufacture of naval systems. Apparently, the
defence ministry’s Rs 42,000 crore tender for the purchase of 126 medium fighters
has been a major driver in encouraging offsets partnerships. Most of the six vendors
competing for that contract have been identifying potential partners within India’s
private sector, as well as with public sector aerospace giant HAL.
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So far, 40 per cent of all offsets have gone to defence ministry-owned entities: carrier
factories of the Ordnance Factory Board and the eight defence PSUs. Thirty-three per
cent of the offsets have gone to large private companies and a healthy 27 per cent - Development should be linked to
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The potential value of offsets business is enormous. India currently buys foreign parts in Bangalore
weaponry worth about Rs 50,000 crore annually, a figure that is rising. Taking the - Navy to be responsible for
minimum offsets liability of 30 per cent, about Rs 15,000 crore worth of offsets must overall maritime security: Govt
be discharged annually. In fact the figure is higher; the medium fighter tender
specifies an offsets liability of 50 per cent.

The global arms industry complains bitterly about offsets; the United States government officially frowns at offsets demand, but
allows its companies to meet the conditions of buyers. But India’s defence ministry insists that global defence contractors
actually derive commercial benefits from partnering Indian companies in defence manufacture. The DOFA chief says, “Offsets
requirements force foreign vendors into looking for Indian companies to partner. But this is for the present; 10-15 years down
the line we will not need offsets at all to galvanise Indian defence manufacture.”

Offsets were first demanded by European countries in the late 1950s, when the US was arming NATO against the Soviet
Union. But the practice gathered momentum only in the last two decades. In 1990, only 20 countries demanded offsets as a
part of arms purchases. Today, offsets are demanded by over 130 countries.

In India, defence offsets were first approved by the defence minister in 2004 and included in Defence Procurement Policy of
2005 (DPP-2005). This was amended in DPP-2008, which permitted “offset banking” and the waiving of offsets in “fast track”
purchase. This year, DPP-2009 permitted a long-standing request by foreign vendors, allowing them to change offset partners.

Today, indicating that more changes could be legislated in DPP-2010, DOFA Chairman Satyajeet Rajan asked the private
sector to suggest useful changes to the offsets policy.

http://www.business-standard.com/india/news/defence-offsets-rise-to-rs-8000-crore/377140/ 5/21/2010