Tuesday, 14 August 2012

Defence offsets cross Rs 25,000 crore; bigger contracts loom

The MoD releases the Defence Production Policy in Jan 2011

By Ajai Shukla
Business Standard, 14th Aug 12

Minister of State for Defence, MM Pallam Raju, told parliament today that Indian companies had signed 19 offset contracts with foreign vendors since the offset policy came into effect in Sept 05. Indian Air Force (IAF) procurements have generated 80% of all offsets, with naval procurements accounting for the other 20%. Army procurement have yielded no offsets so far.

Business Standard has calculated, from MoD figures released over time, that the total value of these offsets has just crossed the Rs 25,000 crore mark. Starting from a modest offset contract worth $5.4 million (Rs 30 crore), linked to the procurement of Medium Power Radars (MPRs) from Israel in 2007, offsets have accelerated sharply, particularly over the last two years. In 2011 and 2012, offset contracts worth $2.2 billion (Rs 12,350 crore) were signed.

The most recent signing was a $150 million (Rs 830 crore) offset contract this summer with Swiss aircraft builder, Pilatus. This was linked with Pilatus’ contract to supply the IAF with 75 trainer aircraft.

The defence offset policy requires international arms vendors who win contracts worth Rs 300 crore or more to plough back at least 30% of the contract value into India in the form of defence orders, technology or infrastructure. Offsets were first made mandatory in the Defence Procurement Policy of 2005 (DPP-2005) and then revised periodically, most recently on Aug 1st.

The biggest offset contract signed so far has been with The Boeing Company, a massive $1092 million (Rs 6,050 crore) contract, linked with the purchase of C-17 Globemaster III transport aircraft for the IAF. Close on its heels are the $979 million (Rs 5425 crore) offsets linked with the upgrade of Mirage 2000 fighter aircraft. This includes a $592 million (Rs 3,280 crore) offset contract with Thales for the aircraft upgradation; and a $386 million (Rs 2,140 crore) offset contract with MBDA for new missiles for the Mirage 2000.

Looming ahead is the mother of all offset contracts. French aerospace major, Dassault, and its major sub-vendors like Thales, will be liable for offsets worth 50% of the value of the contract to supply 126 Rafale medium multi-role combat aircraft (MMRCA) to the IAF. With the Rafale contract conservatively expected to be worth some Rs 75,000 crore, it would generate another Rs 37,500 crore in offsets.

Major offset deals:

Ser No

Date of signing

Mig-29 Upgrade

$308 mn
Mi-17 V-5 Helicopters(MLH)

$405 mn
C-130 J-30

$219 mn
AW-101 VVIP Helicopter

$224 mn
C-17 Aircraft

$1092 mn
Mirage-2000 Upgrade

$592.8 mn
MICA Missile for Mirage-2000

$386.4 mn

P-8I maritime aircraft

 $641.3 mn


Anonymous said...


So, which companies have they partnered for the offset programs? Dont see any company that seems to have benefited so far. Is there a matching list of which companies are handling orders of what amount?

Anonymous said...

yeah... offset column is filled... the vacant column... must have been the % ploughed backed... or let us say reaslized offsets stats... but seems it is... Nil/Zero...

Anonymous said...

the offsets will be on only pen and paper.

Brig Vivek Mehta, Veteran said...

Setting up of a Monitoring Wing as an adjunct to the DOFA or Independent to it is a good initiative by the MoD. However, to date most agencies set up to assist/facilitate Defence Acquisition, have been ineffective and found wanting in the execution of the envisaged task. To limit this to the Offsets Procedure, the following lacunae exist:-
1. The DOFA stopped registering Indian Industry for manufacturing of Arms and Ammunition over a year ago, saying that they did not have the staff and wherewithal for it. As a result, a number of Indian Defence Industries who are already suppliers of Equipment to the Armed Forces and have the intent to widen their scope, are not in the list displayed on the relevant MoD, DOFA Web Page.
2. The DOFA as well as the DOMA/DOMW must accept Letters of Intent/Industrial Licences or some sort of Registration of Indian Defence Industry, and maintain a record of Defence Products, allowed under Defence Offsets for the following reasons:-
(a) The Foreign Vendor would be facilitated and would have a number of options to choose his Offset Partner. Even if he has chosen one, he still has an option for more partners in case he is unable to fulfil his obligations from only one partner.
(b) There are a number of unfulfilled Offset Obligations, prompting the Foreign Vendor to ask for additional time or extension to fulfil the obligations. With the DOMA/DOMW promulgating a list of Offset Obligations once the Contract is signed and de-classified, as well as list of Outstanding Obligations, the Indian Industry will be facilitated in offering products to the Foreign Vendor thus helping him in timely execution of his Offset Obligation.
3. The DOFA is under the DDP, who has a stake only till the Offset Partner is selected. Thereafter, the Acquisition Wing of the MoD takes on the Process of Technical Eligibility, Trials, Evaluation, Contract Negotiation and Monitoring of Execution of Contact. The DOMA/DOMW must therefore be under the Acquisition Wing to coordinate, facilitate and implement execution of Offset Obligations, as it has a direct stake in this process and is in a position to coordinate the implementation of various actions post contract.
Unless there is facilitation of both the Foreign Vendor and Indian Industry by Transparency in promulgation of eligible Offset Partners as well as outstanding/ongoing Offset Obligations, any new initiative is bound to fail or stagnate due to lack of vision and empowerment.
Brig Vivek Mehta, Veteran.