Scope of defence offsets expanded to aerospace, security

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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."


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