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MoD constituting Unified body to evaluate, interpret & monitor offset obligations Print E-mail
Written by Anand   
Friday, 21 January 2011
New Delhi: The Ministry of Defence is constituting a Unified body to deal with all issues vis-à-vis evaluation, interpretation and monitoring of offset obligations with a time-bound manner and transparent guidelines.

“The present arrangement results in considerable delay due to fragmentation of responsibility," said Dr. M.M. Pallam Raju, Minister of State for Defence. He said, though the existing defence sector viz. PSUs, DRDO and Ordinance Factories have a great capacity for technology absorption, government will not be able to meet emerging requirements, especially those related to offsets without involvement of private defence industry.

He was inaugurating "4th ASSOCHAM International Conference on Indian Defence" here in Delhi today.

The value of offset contracts is likely to be more than Rs. 10,000 crores in the 11th plan. Twelve offset contracts valuing Rs. 9,943 crores have already been signed, Indian private industries Rs. 6,464 crores and DPSUs/OF’s – Rs. 3,430 crores. More than 35 Indian companies, both in public and private sector, would be involved in getting the offset benefits.
 
In addition the Minister said, Rs. 4,818 crores are at CNC stage and Rs. 31, 839 crores are at TOEC/TEC/RFP stage. SMEs have a good chance to be tier I/II suppliers for Indian OEMs and may expect to earn significant revenues through defence supply with the right business strategy and investment in Indian defence technology.
 
Mr. Raju further stated that another issue which requires detailed examination is acquisition of technology through the offset route, particularly relating to valuation of foreign technology. Eligibility of investments in “kind” or “cash” through non-equity route for co-production, license production, co-development, sub-contracting etc. deserves examination. The government has recently constituted a committee under the chairmanship of DG (Acquisitions) to conduct a comprehensive study of existing offset policy as well as institutional arrangements and recommend changes, as appropriate. The industry bodies may come up with appropriate suggestions before this committee so as to arrive at useful policy modifications.
 
The Minister while responding to an ASSOCHAM suggestion said that the government was serious about ensuring that modernization of armed forces keeps pace with changing security environment of India’s immediate and strategic neighbourhood. New challenges have already emerged while the old threats from traditional adversaries remain. In the prevailing era of strategic uncertainty, repeated tactical surprises faced by the country (Kashmir 1947-48, Kargil 1999, Parliament Attack 2001, Terrorist strike at Mumbai 2007) and the ever present threat of a short and intense conventional war, defence preparedness demands a judicious mix of threat and capabilities-based forces, joint services rapid reaction teams and as components of Multi-national coalition forces.
 
The plans to meet such threats require capability building of three services through a well thought out technology and capability plan implementable within an acceptable time period. This would be possible only if there is an integrated approach by government,defence forces and Indian industry to bridge the gap between what is desired and achievable within the framework of requisite/contemporary technology, production capability and affordable defence expenditure.
 
While there could be a tendency to look abroad for immediate acquisition of state of the art high tech weapon systems and platforms, we should not lose focus on the ultimate need for India to attain self reliance and strength, which will be respected by the world. The defence budget estimates for the years 2008-09, 09-10 and 10-11 are 1.05, 1.41 and 1.47 lakh crore respectively. This year the outlay comprises of Rs. 87,344 crores for revenue expenditure and Rs. 60,000 crores.
 
The Minister also said that requirement for an increased number of force multiplier platforms such as multi-role fighter aircraft, airborne early warning (AEW), refueller aircraft/tankers, self propelled artillery guns, main battle tanks, long range surface to air missile systems, blue water naval and amphibious operation capabilities have also been outlined.
 
India is currently the 10th largest defence spender in the world with an estimated 2 per cent share of global defence expenditure; yet, 70 per cent of equipments are imported and only 30 per cent are manufactured in India. The current policy initiatives display Government’s keenness to reverse this ratio.
 
The ASSOCHAM-Aviotech study on "Aerospace and Defence Manufacturing in India" released by the minister states that India has been a key destination for global defence contractors as a defence market considering it as a top defence spender in the world. Global defence spending is dominated by United States which accounts for more than 40 per cent of global defence spend. India has the 10th largest defence spent in the world. In 2011, India has expanded its defence budget by 3.98 per cent to Rs. 1,43,377 crore representing 2.12 per cent of Gross Domestic Product (GDP). Of this, approximately 40 per cent finds allocation under capital expenditure and equipment modernization programmes. Since, current levels of indigenisation are anticipated to be around 40 per cent, a significant outlay is towards global procurement.
 
More significantly, India’s defence spent as compared to some other countries, has been expanding over time at a reasonable rate. It is anticipated that for the period 2011-2015, Indian military is expected to spent more than $80 billion on acquisitions with the Indian army having largest contribution less than 50 per cent followed by Indian Airforce and Indian Navy. Capital expenditure is expected to grow at 10 per cent per annum for the period which is significantly positive as compared to other global economies.

 
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