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Home arrow Engineering, Technology, Research and Development arrow Defence Offset Policy Likely To Fetch USD 10 Bln. In 11 Plan: ASSOCHAM-E&Y
Defence Offset Policy Likely To Fetch USD 10 Bln. In 11 Plan: ASSOCHAM-E&Y Print E-mail
Written by Ganesh   
Tuesday, 14 April 2009
New Delhi : Defence offsets policy is expected to bring in USD10 billion during the 11th five-year plan period as every foreign company is required to spend 30% of the value on offsets goods or services purchased from Indian defence companies, according to The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Ernst & Young.

In a Paper jointly brought out by the ASSOCHAM and E&Y, it has been stated that as India has a large industrial base, offsets will further develop its technical and manufacturing potential and they will also help to increase investments in domestic research and development.

The policy is also expected to hugely benefit the Small and Medium Enterprises and is conducive for the private companies to have a larger presence in the defence set up.

Releasing the Paper, the ASSOCHAM President, Mr. Sajjan Jindal said  that host of Indian companies can get the benefit of offset policy and such a scenario will further boost country’s economy in the near future. The offset policy is expected to generate market-entry opportunities for private companies, to invest in research and development and manufacturing of defence goods.

Currently about 70% of the procurement in value terms, is from foreign sources because the Indian public sector cannot deliver in terms of quality or speed on either research or production. And only about 30% of the orders placed in India - or 9% of the total - goes to the private sector.

Barring the Air Force, there is an equal distribution of procurement towards Imports & Indigenisation. More specifically, Navy has increased its share of imports over the years whereas the Air Force has started focussing on indigenisation as well. As far as the spending pattern of the Army is concerned, the focus has shifted between imports & indigenisation over the period 2001 to 2006.

The government has set a 70% target for procuring its defence requirements from indigenous sources by 2010. For achieving this target, the government is mainly relying on private players.

The public sector is facilitating greater private sector participation in the area of defence goods production which will also contribute to the growth of domestic industries. There are more than 5,000 companies supplying around 20% to 25% of components and Sub-assemblies to state owned companies. The current defence market for private sector firms in India, which includes outsourcing from Defence Public Sector Units and Ordnance Factories is estimated to be USD700 million.  This spend will further increase since the Indian Defence Industry is determined to increase the participation of private players.

Some of the advantages that exist with roping in a private partner are set out below:

    * PPP enables the MoD to exploit industry’s comparative advantage and expertise where the generation of in house military capability is less cost effective, thereby ensuring value-for money,
    * PPP reduces incentives for ex post supplier opportunism because contracts are configured to create forms of ‘gainshare’ or ‘incentivisation’ that provide ‘value-added benefits for both MoD and industry’. Through ‘mutual trust’, the combining of complementary assets and the identification of shared objectives, PPP can draw on ‘complementary contributions to compose a package that makes good business sense for the MoD and industry partners
    * Public private partnerships also make a strong case for greater indigenisation of arms production as it not only gives a huge impetus for the domestic manufacturing sector to grow but it also creates employment for the local people
    * PPP releases personnel and financial resources that can assist the MoD in meeting government efficiency targets, or that can be re-invested as operational enhancements in the form of additional front-line military manpower and funds that form an integral part of plans to modernise forces

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