Arms Suppliers Cashing on Offset Clause Face Challenges

Chennai: While the $10 billion order to French company Dassault to supply 126 fighter planes is expected to generate around $5 billion worth of business for Indian manufacturers under the offset clause, there are several challenges faced by the latter, participants at a seminar said. Defence offsets means compulsory local sourcing of components by the supplier of defence equipment. "India need not be apologetic about its offset clause as some developed nations have stipulated 100 percent offset condition in their defence imports. However, there are several challenges before the Indian defence industry - Long term military needs are not known; valuing the offset contract; preference given to Indian defence PSUs; rigid tax regime are some of them," said Wing Commander D.K. Sharma of the Indian Air Force Maintenance Command at the seminar on 'Indigenisation and Offset Opportunities' (Indian Air Force-Industry Meet) organised by Confederation of Indian Industry (CII). He said arriving at the value of the offset contract and the technology that is offered for local manufacturing is the weakest area for the Indian defence establishment. "There is no representation of the private sector in the offset contract valuation group," Sharma remarked. According to him, the fighter plane deal with Dassault is expected to be signed in 2013 and the delivery to start in 36 months/by March 2016. The whole contract will be executed by 2023. Sharma said: "Representation of the private sector in the technical valuation of offset proposals would bring in transparency as to what we have and what we need. Dialogue with Dassault is a must and private sector can have a dialogue on its own with Dassault," he remarked. Speaking about India's import dependence for military ware Rajinder Singh Bhatia, executive vice president and ceo (Defence and Aerospace), Bharat Forge Ltd said: "India is the only country where its industrial capability is not aligned with the defence capabilities whereas in all other countries it is not so." Citing India's achievements in the nuclear and space fields, Bhatia said: "Right from the day one, the government recognised these two sectors are of strategic importance and there was force self reliance due to technology denial regime." Speaking about the legal challenges Vinod Surana, ceo, Surana and Surana International Attorneys said: "The offset contracts are complex and companies face issues in the areas of co-production, licensing, technology transfer, technical valuation and others." He said the contracts should have suitable clauses where there is no domestic legislation covering certain issues and dispute resolution experts should be involved when the offset contract is being drafted.