India’s offsets policy could prove sticky, says French firmNovember 5th, 2008 - 3:39 pm ICT by IANS
Paris, Nov 5 (IANS) India’s offsets policy that mandates the reinvestment in the country of a percentage of all defence deals could prove to be a sticky issue as the country is not fully ready for absorbing the levels of investment or technology that would flow in, French aviation major Dassault says.”The rules of play are not entirely clear,” J.P.H.P. Chabriol, Dassault Aviation’s senior vice president for military sales, told a group of visiting Indian journalists at the company’s headquarters here.
“The amount required is very, very huge. It is not easy to be sure we will do it within the stipulated period,” he said of the 50 percent offsets mandated in a Indian Air Force (IAF) tender that has been floated for 126 combat jets. Dassault’s Rafale is one of the six jets in contention.
The offsets clause was introduced in India’s Defence Procurement Policy (DPP) enunciated in 2006 to govern big-ticket purchases of military hardware.
While the DPP laid down offsets of 30 percent in all deals worth over Rs.3 billion (Rs.300 crore), the IAF tender raised the bar to 50 percent, “given the large size of the order”, as an Indian defence ministry official explained.
US Ambassador to India David Mulford had led the charge against the clause soon after DPP-2006 was announced, describing it as “restrictive”. The principal objection was not to the policy but to the fact it bucked the international trend by stating that the reinvestments had to be made in India’s defence sector alone.
There was a universal demand from major international defence contractors that they be given the freedom to also reinvest in other sectors, and that the offsets be made bankable, meaning that the money could come in at a later stage and not necessarily during the implementation of a contract.
The DPP was partially revised earlier this year to introduce the concept of bankable offsets - and that too within a two-year period of the contract being signed - but insisted these be in the defence sector alone.
“It won’t be easy to achieve this goal (because) it is a general proposal and the scope of application is very, very restricted,” Chabriol maintained.
“The validity of the bankable offsets is only two years. We cannot achieve this within this period (given the huge differential of the technology levels of India’s defence public sector units and their foreign counterparts),” he added.
Chabriol was also upset that the costs relating to transfer of technology - another key clause of DPP-2006 - could not be considered to be an offset.
“The offsets have to be through direct purchases of military goods and services, foreign direct investment or through setting up joint ventures. The question is: ‘What can India’s defence manufacturing sector bring to the table?’” he wondered.
Apart from the Rafale, the other jets in contention are the Boeing F/A-18 Super Hornet, the Lockheed Martin F-16, the Eurofighter Typhoon, the Saab Grippen and the Mig-35.
The IAF had floated its global tender for the jets in September 2007 and bids were opened earlier this year. The technical bids are currently being evaluated after which all the six aircraft will be put through a rigorous testing process in Bangalore, Jaisalmer and Leh.
The first test is meant to gauge the aircraft’s ability to operate in the humid conditions of south India, the second to assess their effectiveness in the deserts of Rajasthan, and the third to study their suitability in the icy Himalayan heights of Ladakh in Jammu and Kashmir.
By the time the evaluation process is complete, the size of the order is likely to rise to around 200 jets, as the IAF, which is down to 32 squadrons from a high of 39 and half, is expected to see a further depletion of its fleet due to the retirement of some its ageing Soviet-era MiG-21 aircraft.
The IAF has a sanctioned strength of 45 squadrons.
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