CII recommends a constructive framework for implementation of Defence Offset Policy
On the sidelines of the 2nd International Seminar on Energising Indian Aerospace Industry – New Opportunities, New Partnership organised by CII and the Centre for Air Power Studies in association with the Indian Air Force, a CII Delegation met Shri A K Antony, Defence Minister of India; Rao Inderjit Singh, Minister of State for Defence Production and key senior officials in the Ministry of Defence. The CII delegation, led by Mr Atul Kirloskar, Chairman CII National Committee on Defence and Chairman and Managing Director of Kirloskar Oil Engines Limited, represented many leading Indian companies.
India is among the top ten countries in terms of defence expenditure and third largest importer of defence hardware in the world. In spite of having elaborate defence R&D and production facilities in place for over five decades, the country has fallen well short of its goal of meeting the weapon and systems requirements of the armed forces indigenously. Even after, 60 years of independence, India remains, one of the largest importers of defence related equipment in the world. The geostrategic location of the country demands long-term defence requirement by the country. India has been dependent on foreign sources for defence procurement far too long. India needs a confident, pro-active and self-sufficient defence industry to meet domestic and export requirements. For this to happen, there is a need to ensure the full and wholehearted participation of the private sector in defence production. The objective of the delegation was to assist the Ministry of Defence to enhance Indian industrial capabilities to meet the strategic requirements of the company indigenously.
The delegation complimented the Ministry of Defence for initiating several reforms to strengthen the indigenous defence industrial base using the capabilities of both Public and Private Sectors such as opening up of defence production to private sector, announcing Defence Procurement Procedures, constituting the Kelkar Committee, announcing the offset policy, setting up a process for identification of Raksha Udyog Ratnas etc. The delegation also complimented the Ministry of Defence for publishing the very comprehensive Defence Procurement Procedure (DPP 2006)
During the meeting members of the delegation highlighted several measures, which could be taken up by the Ministry of Defence to further enhance the capabilities of Indian Industry in Defence Production. Some of these suggestions include, involving capable Indian companies as partners for development of Defence Equipment, by involving them at the time of conceptualisation of the requirements of the equipment / capabilities itself. While the Ministry of Defence announced the Policy for identification of Raksha Udyog Ratnas (RURs) – the system integrators identified by the Ministry of Defence based on their capabilities – the Ministry of Defence is yet to publish the list of RURs. The CII Delegation suggested an early announcement of the list of RURs. The Offset Policy announced by the Ministry of Defence has the potential to make India the global manufacturing hub for the Defence and Aerospace sector. Hence, the need to optimise utilisation of the offset policy with an objective of strengthening the local defence industrial base is imperative.
CII recommended a formula for sharing of offset business between the Public and Private sectors. The Indian Offset Policy is expected to generate business worth US$ 10 Bn in the next 5 years besides the large acquisition / procurement programmes in the pipeline, and it was unanimously agreed that sufficient space is available for both the Public and Private Sectors to take advantage this policy. Further, the delegation also urged the Ministry of Defence to implement ‘Banking of Offsets’ at the earliest, as it would create a win-win situation for both Indian Industry and foreign vendors. Some members also expressed their concern with the current practice of ‘nomination’ of a particular production agency either from the Defence Public Sector Undertakings / Ordnance Factories or Private Sector companies to design, development or product a defence system / equipment. CII recommended that this practices should be discouraged and selection of production agencies should be transparent and based on competitive bidding process.
While welcoming suggestions made by the CII Delegation, the Defence Minister informed that, the Defence Procurement Procedure (DPP) will be reviewed and the new procedure will be in force by 1st April 2008. The Ministry of Defence has sought inputs from CII with respect to Banking of Offsets, Technology Transfer and recommendations on DPP 2006 for consideration for incorporation in DPP 2008.
The CII delegation assured the Minister, its keenness to work with the Ministry of Defence, Defence PSUs and Ordnance Factories towards strengthening of the Defence Industrial base. While citing the examples of other sectors such as telecom, power, civil aviation etc. wherein opening up resulted in higher productivity, global competitiveness and employment generation, the delegation also commented that the current apprehensions expressed by the trade unions on RURs are mis-guided and opening up of defence production to the Private Sector and announcement of RURs would only enable both the Public and Private Sectors to grow and to become global players.
CII recommended that if a major share of the defence purchases and acquisition could be spent in the country, this would have a multiplier effect on the overall economic growth and create more employment, saving valuable foreign exchange as also reduce dependence on foreign sources for strategic requirements, provide benefits in terms of R&D, technological spin offs, higher industrial growth, higher exports, increased competition, besides providing strategic depth for defence preparedness.