Offsets are the reverse business or export opportunities that Indian companies get from MNC partners when the latter bag large defence purchase orders of above Rs 300 crore.

The defence offset policy should be revamped to allow small and medium industries to contribute significantly to the aerospace and defence sectors, one of the prominent voices from the aerospace sector, Dr C.G. Krishnadas Nair, has suggested.

The present format excludes promising SME players from being part of the offsets programme as it requires licences, large investments and infrastructure from Indian companies. “Reforms are required for removing the restrictions and allow the free market forces to play and allow the foreign vendor to choose the right offset partner (from among Indian companies) and discharge the offset obligations,” the former Chairman of HAL said at a seminar on SMEs here on Friday.

These industries which have built up manufacturing and R&D expertise over the years need to be nurtured with suitable policies. Defence public enterprises which hog the offsets benefits should outsource at least half of their orders to SME, he said. Dr Nair is also the Honorary President of the 330-member Society for Indian Aerospace Technologies and Industries (SIATI).

Dr Kota Harinarayana, former Director, Aeronautical Development Agency, suggested that small companies should team up into consortia to get offset benefits.

Offsets are the reverse business or export opportunities that Indian companies get from MNC partners when the latter bag large defence purchase orders of above Rs 300 crore. In the next three-five years, an estimated $3 billion worth of defence offsets is expected to accrue to industry from purchase of fighters, surveillance and transport aircraft. The offset policy of the Ministry of Defence sets 30-50 per cent of the deal value to flow back to domestic industry as offset benefits.

Guidance and support

Dr Nair suggested that a permanent corporate regulatory body of specialists should handle all defence purchase offsets as a single window and it should be empowered to take decisions and guide local suppliers and MNC vendors.

“We lack a committed establishment in the MoD to assist and monitor the implementation of offsets. The government machinery for offset management must change from one of control to one of guidance and support; while being fair and firm with foreign vendors about discharging their offset obligations.”

Global hub

According to him, Malaysia and China had less aerospace expertise than India. Yet, they had used the offset route to emerge as hubs for aircraft landing gear and civil aircraft industry, respectively.

“India has a great potential to emerge as a global hub in aero structures, landing gear, brakes and wheels, avionics, IT-based design and analysis solutions.”

Dr Kota Harinarayana suggested that small companies can team up to form larger holding companies. “After which investments and collaborations will fall in place.”

(This article was published on June 3, 2011)
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