jeypore
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That India is a weapons merchants paradise is to state the obvious. Consider this: from Rs 12,000 crore in 2002-03, Indias capital defence procurement budget is expected to touch an estimated Rs 54,000 crore in 2009-2010.
If the projected estimations are any indication, India is likely to spend nearly $100 billion on military procurement during the current five year plan (2007-12) and $120 billion in the next plan period (2012-17), the latter coinciding with the last phase of Indias ambitious military modernisation plan. It is thus no surprise that global arms companies have smelt big money in India.
India has always been dependent on foreign sources for arms supplies since Independence. Western suppliers had dominated the scenario from 1940s till mid-1960s, only to be replaced by the Soviets who in turn have been the dominant supplier since then.
The Russians are now closely followed by the Israelis who have supplied $10 billion worth of weaponry in the last ten years. The multi-billion dollar arms procurement agreements signed with countries, including the US, in recent times have only expanded the basket of import choices.
On the other hand, the story of Indias efforts in indigenous defence production has been a pathetic one. Despite having a sizeable state-owned defence industrial base, the indigenous contribution to meeting military requirements is pegged at less than 30%. The growing gap between imports and indigenous supply will not reduce unless the state comes out with prudent policies to deal with strategic implications of import dependency.
A set of policy initiatives have followed since 2002, when the government decided to open up the defence sector for private participation and allowed 26% FDI. The government also started implementing many recommendations made by the Kelkar Committee in 2004 toward strengthening self-reliance in defence.
It consequently introduced direct offsets in large defence contracts under defence procurement procedure in 2005 (DPP, 2005). Offsets provisions have further been elaborated in DPP, 2006 and DPP, 2008 respectively, with offsets banking clause being the latest addition in the latter.
Ever since offsets in defence were announced, there has been excitement all around. While the government babus engaged in braggadocio, the private industry also joined the bandwagon. It was argued at least 30% of the resources allocated to military procurement would be ploughed back to India in the form of offsets work roughly $30 billion in the next five years which would benefit the Indian industry.
Unfortunately, this has not been the case so far. Why has this not happened? What went wrong in the implementation of defence offsets? First, DPP, 2008 has not defined offset obligations properly, emphasising only the monetary value of obligations, leaving the implementation portion for negotiations, presumably on a case-to-case basis.
Unless the supplier and the recipient know what they want from each other and how much can they negotiate to get mutually desirable results, offsets may prove to be a bane than a boon.
Second, defence offsets include joint/licensed/sub-contractor production, FDI, technology transfer and counter-trade as prime choices. Each of these carries its own implications for cost, programme risks, control over specifications and wider industrial and economic benefits.
What the offsets obligations require in Indian case are not very clear. The DPP, 2008, for instance, states that offsets obligations within buy
and make with transfer of technology category will be carried through licensed production arrangements. However, licence production experience has been a failure as the state-owned industry has benefited little in terms of technology sharing or gain from design and development knowledge from the supplier.
Third, as offsets mostly depend on consensual agreements between supplier and recipient, the results are seldom quantifiable. Although India has signed or agreed to a few major procurement deals in the last three years, no details on value of offsets work are available to prove even qualitative values.
Fourth, offsets work primarily engages foreign supplier on the one hand and domestic industries on the other. In India, the foreign supplier seems clueless, the Indian private sector seems frustrated after initial euphoria and the government officials are showing no signs of shedding establishmentarian mindsets of treating the private participants with suspicion. It must be emphasised unless the supplier develops long-term interests in the Indian defence market, neither sharing of military scientific knowledge nor investment through FDI would be forthcoming in the near future.
Last but not least, offsets actually benefit two categories of recipients: a trusted strategic partner (preferably a close ally) on the one extreme; and recipient countries in dire need of economic development on the other. Aspiring regional or global powers like India fall in neither category. Offsets, thus, becomes a tricky choice for policymakers, which must be implemented with prudence.
Offsets in Indian defence sector- Opinion-The Economic Times
If the projected estimations are any indication, India is likely to spend nearly $100 billion on military procurement during the current five year plan (2007-12) and $120 billion in the next plan period (2012-17), the latter coinciding with the last phase of Indias ambitious military modernisation plan. It is thus no surprise that global arms companies have smelt big money in India.
India has always been dependent on foreign sources for arms supplies since Independence. Western suppliers had dominated the scenario from 1940s till mid-1960s, only to be replaced by the Soviets who in turn have been the dominant supplier since then.
The Russians are now closely followed by the Israelis who have supplied $10 billion worth of weaponry in the last ten years. The multi-billion dollar arms procurement agreements signed with countries, including the US, in recent times have only expanded the basket of import choices.
On the other hand, the story of Indias efforts in indigenous defence production has been a pathetic one. Despite having a sizeable state-owned defence industrial base, the indigenous contribution to meeting military requirements is pegged at less than 30%. The growing gap between imports and indigenous supply will not reduce unless the state comes out with prudent policies to deal with strategic implications of import dependency.
A set of policy initiatives have followed since 2002, when the government decided to open up the defence sector for private participation and allowed 26% FDI. The government also started implementing many recommendations made by the Kelkar Committee in 2004 toward strengthening self-reliance in defence.
It consequently introduced direct offsets in large defence contracts under defence procurement procedure in 2005 (DPP, 2005). Offsets provisions have further been elaborated in DPP, 2006 and DPP, 2008 respectively, with offsets banking clause being the latest addition in the latter.
Ever since offsets in defence were announced, there has been excitement all around. While the government babus engaged in braggadocio, the private industry also joined the bandwagon. It was argued at least 30% of the resources allocated to military procurement would be ploughed back to India in the form of offsets work roughly $30 billion in the next five years which would benefit the Indian industry.
Unfortunately, this has not been the case so far. Why has this not happened? What went wrong in the implementation of defence offsets? First, DPP, 2008 has not defined offset obligations properly, emphasising only the monetary value of obligations, leaving the implementation portion for negotiations, presumably on a case-to-case basis.
Unless the supplier and the recipient know what they want from each other and how much can they negotiate to get mutually desirable results, offsets may prove to be a bane than a boon.
Second, defence offsets include joint/licensed/sub-contractor production, FDI, technology transfer and counter-trade as prime choices. Each of these carries its own implications for cost, programme risks, control over specifications and wider industrial and economic benefits.
What the offsets obligations require in Indian case are not very clear. The DPP, 2008, for instance, states that offsets obligations within buy
and make with transfer of technology category will be carried through licensed production arrangements. However, licence production experience has been a failure as the state-owned industry has benefited little in terms of technology sharing or gain from design and development knowledge from the supplier.
Third, as offsets mostly depend on consensual agreements between supplier and recipient, the results are seldom quantifiable. Although India has signed or agreed to a few major procurement deals in the last three years, no details on value of offsets work are available to prove even qualitative values.
Fourth, offsets work primarily engages foreign supplier on the one hand and domestic industries on the other. In India, the foreign supplier seems clueless, the Indian private sector seems frustrated after initial euphoria and the government officials are showing no signs of shedding establishmentarian mindsets of treating the private participants with suspicion. It must be emphasised unless the supplier develops long-term interests in the Indian defence market, neither sharing of military scientific knowledge nor investment through FDI would be forthcoming in the near future.
Last but not least, offsets actually benefit two categories of recipients: a trusted strategic partner (preferably a close ally) on the one extreme; and recipient countries in dire need of economic development on the other. Aspiring regional or global powers like India fall in neither category. Offsets, thus, becomes a tricky choice for policymakers, which must be implemented with prudence.
Offsets in Indian defence sector- Opinion-The Economic Times
