Aerospace players welcome India’s new offset guidelines

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India has revised its defence offset guidelines, making it easier for international defence contractors to dispense their offset obligations.

The changes were announced by India's ministry of defence on 2 August 2012 in a revised offset document that runs to 38 pages. Foreign defence contractors who Flightglobal spoke to are still absorbing the changes, but generally feel the revisions are an improvement.

New Delhi sees defence offsets as playing a crucial role in the development of a strong defence sector. Contractors are required to invest 30% of a deal's value back into India through offsets, although in the recent case of the medium multi-role combat aircraft (MMRCA) competition, the offset value was 50%.

One industry source said a revision that allows parties to change an offset project following its approval is a major improvement. This is especially relevant for offset deals involving high technology systems.

"In exceptional cases, the competent authority may permit change in offset partners or offset components, provided the value of offset obligations remains unchanged," said the ministry. "This will provide greater flexibility in implementation."

The revisions affect a number of other key areas. The government now distinguishes between an equity and non-equity investment route for offset obligations, with "investment in kind" now recognized for offset credits.

One welcome change appears to be a revised approach to the transfer of technology, which is now eligible for the discharge of offset obligations.

The new policy also lends a hand to India's small and medium enterprises. Direct export, foreign direct investment, and technology and transfers to such firms through a non-equity route will receive a higher weighting compared with a contractor's offset obligations.

Contractors, however, are now liable for penalties up to 20% of total offset obligations if they fail to meet offset requirements during the main contract period. Beyond the main contract period however, there is no 20% cap.

"We're still looking at the fine print," said an executive at one contractor. "Generally people are saying it's positive."

India is among the world's largest arms importers. In recent years, it has made a number of major purchases, including aircraft such as the Boeing P-8I and C-17, as well as the Lockheed Martin C-130J.

New Delhi is in negotiations with France's Dassault for the 126-aircraft MMRCA contract, for which the Rafale was designated as the final contender. India also has large requirements for transport aircraft, helicopters and training aircraft.