Defence offsets to bring in USD 10 bn in 11th plan: Assocham

New Delhi, Apr 9 (PTI) India's new defence procurement
policy, which eased licensing conditions for private sector
and allows foreign players to bank offsets on contracts, is
likely to bring in USD 10 billion to the country during the
11th five-year plan period, a study has said.

The study carried out jointly by Assocham and Ernst &
Young said the investor-friendly policy is also expected to
hugely benefit the small and medium enterprises in the
country.

The new Defence Procurement Procedure (DPP-2008) was
unveiled by Indian Defence Minister A K Antony in August last
year, but India has been pursuing the offsets policy since
2006. The DPP-2008 overrides the policies set forth by the
Defence Ministry for procurement in 2006.

"As India has a large industrial base, offsets will
further develop its technical and manufacturing potential and
they will also help to increase investments in domestic
research and development," the study said.

It said the offset policy was expected to generate
market-entry opportunities for private companies to invest in
research and development and manufacturing of defence goods.

Currently about 70 per cent of the procurement in value
terms, is from foreign sources because the Indian public
sector cannot deliver in terms of quality or speed on either
research or production.

Under the offset policy, all foreign firms have to invest
30-50 per cent of the contract value in India on all deals of
more than Rs 300 crore.

However as per the new policy foreign multinational
companies are allowed to park money with banks in anticipation
of future contracts so that they need not have to manage money
for the offset policy when the deal is clinched.

The study said the Navy has increased its share of
imports over the years whereas the Air Force has started
focussing on indigenisation as well.

As far as the spending pattern of the Army is concerned,
the focus has shifted between imports and indigenisation over
the period 2001 to 2006, it said.

"The public sector is facilitating greater private sector
participation in the area of defence goods production which
will also contribute to the growth of domestic industries.

There are more than 5,000 companies supplying around 20
per cent to 25 per cent of components and sub-assemblies to
state owned companies.

"The current defence market for private sector firms in
India, which includes outsourcing from Defence Public Sector
Units and Ordnance Factories is estimated to be USD 700
million," it said.

This spend will further increase since the Indian defence
industry is determined to increase the participation of
private players. PTI MPB
SAK
NNNN