Scope of defence offsets expanded to aerospace, security

The indigenous aerospace and internal security industry on Thursday received a major boost as the Government announced major changes in its defence procurement policy.

Updated: Jan 06, 2011, 21:38 PM IST

New Delhi: The indigenous aerospace and
internal security industry on Thursday received a major boost as the
Government announced major changes in its defence procurement
policy that are likely to encourage investments worth billions
of dollars in these sectors.

Under the Defence Procurement Policy 2011 announced
today, the scope of offsets has been enhanced to "include
civil aerospace, internal security, training within the ambit
of the eligible products and services for discharge of offsets
obligations," Defence Minister A K Antony said in the foreword
of the policy.
As per the offsets policy till now, foreign vendors
bagging deals worth over Rs 300 crore had to invest 30 per
cent of contract`s worth into the Indian defence sector only
but the new changes will allow them to invest in related
sectors such as civilian aerospace and in industry developing
weapons and equipment for internal security roles.

These changes were being sought by the foreign vendors as
with a very limited defence industrial base in the country,
they were finding it hard to find eligible partners to work
with in India.

The demand had the support of Indian chambers of commerce
as the country is looking to sign various big ticket defence
deals in near future which are likely to result in offsets
deals worth over Rs 50,000 crore and it would have been
difficult for the indigenous industry to absorb them.

"The list of eligible offsets will now most aspects of
civil aerospace including both fixed and rotary wing aircraft,
air frames, air engines, aircraft components, avionics... a
wide range of weapons and services for counter terrorism have
been included in list of products under internal security,"
the Defence Minister added.

Hoping that the policy changes will provide a wide range
of offset opportunities to vendors, Antony hoped that this
would encourage building up of an indigenous manufacturing
capability in crucial areas.
The Defence Minister said the policy has been refined
based on the inputs and feedback received from the defence
industry, both Indian and foreign, and is aimed at expediting
and simplifying contractual and financial provisions.

"The policy also aims to establish a level-playing field
for the Indian defence industry, both public and private
sector," he added.

Antony said the policies regarding the ship building
procedures have also been refined with an aim to "encourage
participation of private shipbuilding industry in India in
defence contracts."

"These guidelines will provide a level-playing field for
Indian shipyards and promote indigenisation and self-reliance
in warship construction," he added.

Under the Ministry policy, the capital acquisitions by
the defence forces have been broadly classified under four
categories including `buy`, `buy and make`, `buy and make
(Indian)`; and `make`.

The acquisition plans of the armed forces would be
based on the procurement planning covering the long-term,
medium-term and short-term perspectives of the forces
including the 15-year Long Term Integrated Perspective Plan
(LTIPP), 5-year Services Capital Acquisition Plan (SCAP) and
the Annual Acquisition Plan (AAP).

Under the new policy, the Annual Acquisition Plan(AAP)
of each service would be a two-year roll on plan for
capital acquisitions and would consist of the schemes from
approved five year SCAP.

As per the broad timeframe suggested by the Ministry
for completing procurements, the new policy says that after
the `Acceptance of Necessity` accorded by the Government, the
acquisition process should be completed broadly in a little
over two years.
In case of single-vendor situations, the DPP 2011 says
that if certain state-of-the-art equipment being manufactured
by only one vendor is to be procured to get qualitative edge
over our adversary, then such case should be debated by the
Defence Acquisition Council (DAC) after proper technology scan
is carried out in consultation with the DRDO.

For promoting private participation in the defence
sector, the Government has decided to identify the Industry
leaders who would be referred to as `Raksha Udyog Ratna
(champion)`, who shall be associated in defence acquisitions .

"The RURs should be treated at par with Defence PSUs,
which are selected by the Government for receiving technology
and undertaking licence production with Transfer of Technology
(TOT) from overseas sources," the policy states.

For promoting private sector participation in
shipbuilding, the policy allows "acquisition of naval, Coast
Guard Ships, submarines, yard crafts and auxiliary crafts on
competitive basis."