TSDADC Working for Offsets in India

In almost every country, there is no meaningful difference between Direct vs Indirect Offsets. TTT Svipja Defence & Aerospace Development Company (TSDADC), will therefore stick to a uniform strategy:

• Maximizing the Financial Investment and Technology Transfer value of A&D Primes into any project.
• Maximizing the Local (Indian in this case) Partner's contribution so that it's not merely an offset project (ie one-sided offset credit pursuit) but a real long-term relationship and business cooperation, with a Business Plan meeting Gate 4 Investment Criteria.
• TSDADC 's involvement would ideally be as a part Owner, and not just a Consultant.

Bottom line is that any country wants to see economic development and infrastructure improvement, and whether that is by Direct vs Indirect Offsets is usually a matter of paperwork, and identifying the correct Govt agency.

Brigadier (Retired) Sukhwindar Singh

http://www.defenceoffsetsindia.com/

http://www.indiandefenceindustry.com/

FDI in the Defence Sector

Defence Industrial Sector needs heavy investments coupled with 'innovative' manufacturing to match international players. Also 'dynamics' of the Defence Sector further retards participation by the private players in ' defence manufacturing', for fear of not 'picking' of the manufactured products / services by the Clients -- all this adds to Industry Success Probability Factor.

Private Sector has a definite role in the Defence Sector. It could bring the Industry to global standards provided level playing field is ensured. DPSUs, OFB, DRDO and Other Agencies have a distinct edge in the matter for various reasons, and especially the fact that they have been on the 'scene' for long.

It is these reasons that has kept the Private Defence Participation limited since the opening of the Defence Sector for Private participation in 2001. What are the chances of my selling to the Defence even if my product / service is of global or high standard, homegrown, and price-competitive ? Are there any factors beyond pure competition at play ?

Access and Openness of the Govt. Executives to the Private Sector still remains elusive. Can we set-up an Organisation open to the Industry located somewhere in the private domain, like Pragati Maidan, CP and the Like nation-wide within security constraints ; after all everything is not SECRET. That would definitely usher a new era in the Sector.

Use e-Governance extensively in non-strategic areas. We do so much of 'black-collared' work for the world in IT, let Us do it for ourselves also to bring efficiency, transparency, and best-of-the-breed-practices for the Indian Defence.

Defence Minister's recent thoughts on permitting 49% FDI in the Defence Sector on case-to-case basis in case the Industry can convince the Govt is welcome ! But let it also reach the Private Sector and be not 'cornered' by the Govt Agencies which are already funded heavily by the Govt. And do not forget the MSMEs which are the vehicles for innovative, high-tech, and knowledge economy. 49% FDI would help in Offsets greatly.

Presently, 26% FDI is permitted in the Defence Sector.

Brigadier (Retired) Sukhwindar Singh

http://www.indiandefenceindustry.com/
http://www.defenceoffsetsindia.com/

ARMED FORCES TO BE STAKEHOLDERS IN THE DRDO PROJECTS

It is a 'strategic thought and a welcome decision' to involve the Indian Armed Forces as stakeholders in Defence Projects to be developed by the DRDO. This will check 'free wheeling' by certain agencies and put an onus on all the Defence Establishments to make India self-reliant and self-sufficient; a target that has been eluding Us for variety of reasons. Also the main Users, the Indian Armed Forces, would feel obliged to 'accept' home-developed systems. It is 'Users-Industry-DRDO/Govt.' that need to work in total sync to achieve something substantial by the Indian Defence Industry, and make it competitive globally. My congrats to DAC !! The news reads like this:

'The DAC has agreed in principle that such(DRDO) projects should be funded in a 70-20-10 per cent ratio: 70 per cent by the DRDO, 20 per cent by the industry partner that will manufacture the developed product; and 10 per cent by whichever of the three services the product is being developed for”.

We need to increasing involve 'operational armed forces personnel' in the developmental projects rather than greatly depending on military staff loaned to DRDO, DGQA and Other set-ups that support the Dept. of Defence Production(DDP)/MOD which at best gets outdated after 1 year of tenure in DDP Agencies. You need to mesh-in current operational thinking in the Armed Forces in the developmental projects--'file pushing' and 'I am an indep agency/boss' attitude would not help. Could achieve it through the DAC!

We should accept no argument contrary to this decision; bottom line is that it is in our national interest. Defence Offsets could be suitably utilised in such projects.

Brigadier (Retired) Sukhwindar Singh

http://www.defenceoffsetsindia.com/

http://www.indiandefenceindustry.com/

DPP 2008 & Defence Offset Policy

Here is Defence Procurement Procedure (DPP 2008) including Offsets Policy! You could read the complete DPP 2008 on the MOD/India website at link :

http://mod.nic.in/dpm/welcome.html

Defence Offsets

Rationalisation of licensing condition, introduction of offset banking listing of defence products and exemption from offset of acquisitions under fast track procedures are some of the salient features of the New Defence Offset Policy as envisaged in the Defence Procurement Procedure (DPP) - 2008 .

Under the existing offset guidelines, a private industry was necessarily required to have an industrial license for being entitled to participate in the offset programmes. In the revised guidelines a private industry will be required to have an industrial license only if so stipulated under the guidelines/licensing requirements for the defence industry issued by the Department of Industrial Policy and Promotion.

Offset policy has been revised to include offset credit banking enabling foreign vendors to create offset programmes in anticipation of future obligations. This will also enable foreign industry and their Indian offset partner to have long term arrangements to discharge offsets and will thus enhance the capacity of the Indian industry to absorb offsets. Under the banking guidelines, a vendor will be able to discharge the banked offset credits for the RFPs which have been issued within two to two and half years depending upon the date of issue of RFP.

The offset obligations are to be fulfilled coterminous within the period of main contract.

If a vendor is able to create more offsets than his obligations under a particular contract, the surplus offset credits can be banked and would remain valid for the period of two financial years after conclusion of the said contract.

A list of defence products has been added to facilitate the foreign vendors in implementing their offset obligations.

Acquisitions under the Fast Track Procedure have to be implemented in a short time to meet imminent operational requirements. These have been exempted from the requirement of offset.

Offsets are compensatory, reciprocal trade agreements for industrial goods and services applied as a condition of military-related export, sales and services.

http://www.defenceoffsetsindia.com/
http://www.indiandefenceindustry.com/
Credits: MOD, India, Website, and the Govt. Press Release.

Defence Offsets: In Spirit of Long-Term Commitment

One wonders, why would a Vendor agree to provide Defence Offsets? That too ranging over 100% in certain cases. And Direct ! It needs an understanding of the 'Offset Concept' in totality.

Countries, and Major Vendors from these Countries, with Govt's nod, wish to create a 'goodwill' in line with their strategic needs and interests through offset offerings. How much a Vendor is willing to provide, may not be in direct relevance to profits he makes in the deal? It is 'entirely the Relationship & Commitment' for long-term Partnership that he has in mind. And in which sphere are these offsets to come is 'jointly agreed' by the concerned Parties, of course keeping in mind the strategic and commercial interests.

It is pertinent for the Offset Negotiators to keep quantum, and area of offsets in focus in all their discussions. Finally it has to be a 'win-win' game!!

Brigadier (Retired) Sukhwindar Sngh
http://www.defenceoffsetsindia.com/
http://www.indiandefenceindustry.com/

Defence Offsets India Fund

Not in very distant future, India may start offering offsets against it's Defence Exports. As it is, we are seeking offsets against Defence Imports. These offsets could be in 'Cash , and /or Kind'.

It is prudent to create 'Defence Offsets India Fund' for better management of the Offset Fund. Would keep the acctg 'clean' without mixing-up with other Sub-Heads. Also helps the Indian Industry, especially MSMEs greatly.

Point to Ponder ! Indian Approach !!

Brigadier (Retired) Sukhwindar Singh
http://www.defenceoffsetsindia.com/
http://www.indiandefenceindustry.com/

Offset Banking

Defence Contracts fulfillment is a long drawn process, takes years. We have raised a very high expectation in the Indian Defence Industry, especially in high-tech MSMEs , wrt defence offset funds that could flow to fuel their growth. But in what timeline ?

This needs an intelligent deliberation, and policy articulation.

Major Defence Vendors interested in the Indian Market are willing to invest in India without waiting for finalisation of the contracts, provided offset banking is allowed and they are given free-hand to utilise revenues created from these ventures/ investments as 'offset credits' for future contracts bagged by them , or are allowed freedom to trade these offsets with other Vendors in fulfilment of their obligations. It does not 'hurt' anyone. In fact, it is an opportunity to gather investments for the Indian Industry with no obligations relating to the ongoing contractual processes.

We should permit offset banking, and its trading. It is NOT very easy to understand anything contrary to this Idea.

Brigadier(Retired) Sukhwindar Singh
http://www.defenceoffsetsindia.com/
http://www.indiandefenceindustry.com/

TTT Svipja JV, USA, for Offset Projects

TTT Svipja Defense & Aerospace Development Company (TSDADC) established on May 07, 2008, a 50:50 JV, based in Tucson, Arizona/USA between Tucson Trasatlantic Trade Inc. Holding Group, USA, http://www.ttthg.com/ and Svipja Technologies, will support development of JVs, Offsets, TTs, e-Procurement, etc, globally with India focus.

Tucson Transatlantic Trade Inc. (TTT) Holding Group, Tucson, Arizona/USA

Started in 1985 as Tucson Transatlantic Trade to service the interests of banks and economic development agencies in Belgium and the Netherlands, in locating fast growing USA technology firms interested in their European HQs in the Benelux countries, TTT quickly grew into a firm specializing in serving the Offset Program needs of the McDonnell Douglas Aerospace (now Boeing) Company, and its Tier I/II/III global Supplier Base. Over the years this has led to intensive TTT cooperation with other major Southwestern USA technology leaders on similar programs: Northrop Grumman/TRW, GE, Honeywell/Allied Signal, Raytheon, Intel and Motorola.

In the late 1980's, TTT increasingly migrated to technology development and transfer between USA and developed countries in Europe and Asia, followed in the early 1990's by establishment of trade and joint venture links with Central, East and Southeast Europe, India, Mexico and, since 2000, throughout Africa.

With a special focus on high/intermediate/appropriate technologies dealing with physical infrastructure development, and learning the intricacies of global cultural, political and economic differences, TTT Inc has participated in more than 200 different business projects and established 30+ Joint Venture partnerships with companies of various size and in different industry sectors worldwide.

In the process TTT has learned to carry out sophisticated 'Due Diligence' on dozens of business services, products, patents and technologies. TTT projects range from new market evaluation/development to joint venture evaluation/structuring, to development and/or introduction of new technology and/or services and business models.

Today, TTT offers its partners access to an international customer base of almost 6,500 companies with particular strength in the key Southwestern USA States and Northern Mexico.

TSDADC, the USA JV, will initially promote the 3 web-portals developed by Svipja to their customer base of 6500+ globally, and expand co-operation in other areas progressively:

1. http://www.svipja.com/ / http://www.defenceoffsetsindia.com/
2. http://www.freemarketsdefence.com/ / http://www.indiandefenceindustry.com/
3. http://www.indiandefenceindustry.blogspot.com/

TSDADC Offerings

1. Offset Programs

For nearly 20 years, TTT has assisted MSMEs from Belgium, Netherlands, France, Switzerland, Finland, Germany and Spain to qualify for participation in Offset Projects associated with the US Majors. In the past 5 years, this has been extended to firms from Former Soviet Union nations that have become members of the European Union and/or NATO, ie Croatia, Slovenia, Hungary, Romania and Bulgaria. It has also been extended to Taiwan and the Philippines.

TSDADC brings expertise of Offset Programs to India.

2. System Integration Program(s)

With a special focus on India Aerospace, Defense & Homeland Security Sectors, TSDADC & Svipja Web Portals will offer any Aerospace & Defense firm globally the opportunity to structure:

• JVs: All Types for Co-development and Co-production.
• Offset Projects.
• e-Procurement.

3. High - Tech Co-operation

TSDADC will also offer High - Tech Co-operation in the areas of expertise of TTT Inc, USA. http://www.ttthg.com/ refers.

For further information, pse contact:

India: svipja@airtelmail.in
USA: aavila@ttthg.com

Brigadier (Retired) Sukhwindar Singh

Defence Offsets India: Strategic Thoughts

I feel that we should:

1. Permit offset banking. Will encourage Prime Contractors to invest in projects of relevance for India with long gestation period. And also Provide 'X Factor' of more than one in technologies relevant to India in short-term for credit.

2. Permit Indirect Offsets in Dual-Usage Sectors of strategic relevance to India.

3. ‘High-Tech, High-Worth, Knowledge-Based’ incubation are in Start-Ups & MSMEs. Would be more so in future. At least 40% of the offset funds be targeted for investment in such units. Large Enterprises tend to be ‘wasteful’. They must grow ‘organically’, or seek funds from the FIs.

4. ‘Defence Offsets India Fund’, if created, would help in better Control & Management.

5 . We must accept offsets both in ‘Cash & Kind’.

6. Prevent Leakages.

7. ‘Multi-Expertise’ Agency to manage Defence Offsets.

8. See through 'lobbying'.

These thoughts could help.

We could fine-tune Indian Offset Policy as we gain experience ; at least every 2-3 years.

Brigadier (Retired) Sukhwindar Singh
http://www.defenceoffsetsindia.com/

http://www.indiandefencindustry.com/

Defence Offsets India Fund

Offsets could come in both 'cash & kind' with a fair mix. Defence Offsets in India would involve large funds, initially to generate and then to pay-off against contracts for Exports, FDI, JVs, TTs, etc. There is an inevitable need to regulate, account and monitor this Fund.

One effective way is to create 'Defence Offsets India Fund', and an Agency to manage Defence Offsets in totality. All the offset funds, incoming and outgoing, should be managed by this entity. Once the Funds are held by this Agency, these could be appropriately disbursed as per the Offset Policy.

These funds could be generated back-to-back relating to the pay-outs by the MOD to the Vendor(s) for contracts in vogue, and should conform to the timeline of the Project (s). Needless to mention that offset projects themselves, in most cases, should adhere to the Main Contract time frame, if not completed earlier.

Defence Offsets in India are likely to flow from Russia, Israel, European Union (EU) mainly France, UK, Germany, Italy & Sweden, and USA mostly. We need to ‘harmonize' this. NO 'leakages' please!!

Brigadier(Retired) Sukhwindar Singh
http://www.defenceoffsetsindia.com/
http://www.indiandefenceindustry.com/

Defence Offset Banking - Indian Way?

We are to get almost 10b USD in Defence Offsets in next 5 years. There are large issues related to defence offsets not yet resolved. And the important of them all is ‘Defence Offset Banking’.

In the absence of a ‘National Offset Policy’, it is presumed that the Policy articulated by MOD, and its Working Hub, Defence Offset Facilitation Agency (DOFA) discussed till date remains in vogue.

A new DPP 2008 is expected shortly. Hopefully all inclusive!!

There appears to be ‘high profile’ lobbying wrt ‘Defence Offset Policy’. This should be seen through. We feel that our national interests should not get ‘choked’ in the process and we retain liberty to utilise the funds properly; field the Equipment/Systems/Sub-Systems locally manufactured using the offset funds for the Armed Forces as the need be; and also export unconditionally products & services coming from co-design, co-production, TTs, JVs, etc.

I wish to bring focus on ‘Banking of Defence Offsets’ in this Post.

I feel that we should permit banking of defence offsets. This provides more time and opportunities for the Vendor(s) to select suitable partner(s). This will speed-up development of Indian Defence Industry, especially Defence MSMEs. This also brings addl commitment from the Vendor(s). Once ‘banked’, the Vendor(s) should be ‘free’ to expend these offsets as per the Policy in vogue. Utilisation of ‘banked offsets’ should follow the timeline of the Main Contract, or shorter than that. These ‘offset funds’, should be utilized and monitored appropriately. These could be invested in any defence projects if only Direct Offsets are permitted. Inclusive Growth! Defence MSMEs participation!! Transparency Issues!!!

We need Indian definition of ‘Defence Offset Banking’; of course drawing experience from Others.


Brigadier (Retired) Sukhwindar Singh
http://www.defenceoffsetsindia.com/
http://www.indiandefenceindustry.com/

Defence Offsets India: DOFA (MOD)- Defence Offsets Management Challenges

Offsets value for Indian Defence Industry are astronomical, which means that each foreign vendor will need multiple Indian Partners to meet offset obligations. The MOD estimates that offsets will generate approx Rs 40,000 crores (US $10 billion) worth of business for Indian Defence Industry over the next five years. Just one forthcoming purchase, the acquisition of 126 Multi-Role Combat Aircraft (MRCA) for about Rs 42,000 crores, will generate offsets worth Rs 12,600 crores.

Other purchases in the pipeline include artillery guns for over Rs 10,000 crores, 317 light utility helicopters for Rs 4000 crores, 12 VIP transportation helicopters for Rs 1000 crores, mid-life upgrades for 52 Mirage-2000 fighters for Rs 8000 crores, and 12 heavy lift helicopters for Rs 2500 crores. The Indian Navy is shopping for up to 30 Long Range Maritime Patrol (LRMP) aircraft, and 16 Anti-Submarine Warfare (ASW) helicopters to replace its antiquated Sea King fleet.

To meet offsets liabilities that will arise from these purchases, prospective vendors signed a large number of MoUs with Indian companies during the Aero India 2007, and later. Defexpo 2008, now provides opportunities for negotiations to translate those MoUs into action plans. DPSUs are likely to be major beneficiaries of offsets business, but foreign producers are however keen to partner with private sector companies, which may be more flexible and responsive.

Important amendments to the offsets policy are awaited. Vendors are being assured that the MOD is likely permit “offsets banking”. This would allow vendors to go ahead with setting up partnerships with Indian companies, with the assurance that offsets generated would be credited towards future defence contracts.

The MOD may also allow foreign vendors to credit TTs to Indian manufacturers as offsets.

The MOD is still to establish a fully-equipped department which can handle the enormous workload that will arise from offsets. Presently a small cell, Defence Offsets Facilitation Agency (DOFA), under a Joint Secretary, my find it difficult to handle offset-related workload.

DOFA (MOD) could be expanded into a multiple-discipline Defence Offsets Management Agency (DOMA) or whatever name, which will be equipped with the policy managers, legal personnel, accountants, and the technology and production specialists that will be required for handling the entire gamut of offsets. This may happen progressively.

The evolution of offsets policy and the constitution of DOMA are being watched keenly by foreign vendors, as well as by private Indian Defence Industry. The Private Sector has lobbied actively for a role in such an Agency; which the MOD has not accepted. But with so much money at stake, global defence industry has its eyes focused on the MOD, waiting for the policy announcements that could open the floodgates for offsets.

Brigadier (Retired) Sukhwindar Singh
http://www.indiandefenceindustry.com/
Credit: Business Standard, 16 Feb 2008, Preview Defexpo 2008.

Defence Offsets India: Flip Side Re-appreciated

A lot has been said and discussed wrt to Offsets especially relating to Direct, Indirect and Banking of Offsets. All this goes well at a conceptual level. What should concern Us all is the Implemenation of Offset Projects. How do we ensure that the Offsets flowing back are credible and worth-while?

To my mind, following are cardinal parameters to check and ensure implementation:

1. Technology Needs of the Importing Country. Are these being met? Do we become self-reliant by getting these technologies, and are able to set-up manufacturing facilities in India to meet our future needs? And export part of our production without any restrictions? Is the up-graded technology from the Vendor(s) assured all the time at a future date?

2. Exporters/Vendors are not holding back the state-of-the-art Equipment, Systems and Technology. Why would the Vendors create a Competitor?

3. The Products on offer are NOT over-priced, both Main and Offset products & services.

4. Banking of offsets? 'Lobbying' and 'Pressure Points'! Govt. should be able to handle these!!

5. TT & IP Costs. Inflated !!

6. Effective Monitoring. 'Watchdog' Approach.

Transparency, and Related Corruption Issues. Let there be any views, but these are some of the major points for consideration, discussion, and implementation in the Offset Projects.

Brigadier (Retired) Sukhwindar Singh
http://www.svipja.com/
http://www.indiandefenceindustry.com/

Defexpo 2008, New Delhi, India

Credit: The Times of India, 04 Feb 2008. An Article by Rajat Pandit.

5th International Land and Naval Systems Exhibition is being held from 16 – 19 February 2008 at Pragati Maidan, New Delhi. The Exposition will be held by the Ministry of Defence, Government of India, in association with Confederation of Indian Industry (CII). It will cover Land, Naval and Associated Sub-Systems and Systems. It is a biennial exposition.

The Defexpo would showcase latest technologies in the field of marine and land systems. The Apex Committee of the Defexpo is Chaired by the Hon’ble Raksha Mantri.

The aim the Exposition is to showcase capabilities of the Indian Defence Industry, both Public and Private, and the DRDO to visiting delegations with a view to foster collaborations, promote exports, and tie-ups.

Defexpo 2008 assumes special significance in view of the impending acquisition of capital equipment and systems by the Indian Armed Forces to the value of approx 30 b USD in the next five years.

To enable industry to take full advantage of the Defexpo, a number of business events prior to and during Defexpo India 2008 have been planned. These business events would enable industry to take advantage of the presence of the end users and the defence companies to engage in business meetings.

Defexpo throws open vast opportunities for Defence Professionals to engage themselves with Indian & Foreign Defence Industry in various capacities. However, it should be done within Govt. Orders and Regulations on the subject, and in full transparency. Ex-Servicemen could engage themselves with Defence MSMEs, and Large Corporations for Offset Projects, JVs, TTs, etc, from their place of settlement. USD 10 b is likely to flow back to India as Defence Offsets in the next 5 Years. It presents tremendous opportunity for professionals with defence domain expertise.

Visit to the Show, Conferences and Seminars would be of particular interest to the Defence Community. You could Register FREE for Visit & Seminars online. Pse visit

http://www.defexpoindia2008/

Please read e-SP2 Concept on
http://www.freemarketsdefence.blogspot.com/


Brigadier (Retired) Sukhwindar Singh

http://www.svipja.com/

Defence Offsets are Spreading Protectionism Across Commercial Sectors

As is known, Offsets are industrial compensation packages required by foreign governments as a condition for purchasing defence systems. They include co-production, licensed production, sub-contractor production, technology transfers, counter-trade, and investment in foreign firms.

Foreign governments use offsets to expand their own economic capabilities, gain technology, and create skilled jobs. Developed countries with established defense industries (i.e.,Europe) use offsets to channel work and technology to their domestic high-tech firms. Countries with newly industrialized economies utilize both military and commercial-related offsets to gain new technology and build manufacturing capacity. Offsets can displace U.S. subcontractors when they require work to be outsourced. Foreign competitors may also use transferred capabilities to bid away future contracts from the firms.

At both the 2006 and 2007 London Conferences, there was considerable interest shown in expanding offsets beyond defence procurement to cover government purchases in the Commercial Sector. This is already happening in Civil Aviation, as a natural progression from Military Aerospace.

There is also interest in applying the same principles to light railways, power plants, medical equipment and other high-value sectors where governments feel they can extract technology, capital, and a share of the work from exporters.

Govts. Need to articulate their defence offset policies in best interests of their countries rendering the desired flexibility to meet the contract imperatives.

For full Article Click: http://www.americaneconomicalert.org/view_art.asp?Prod_ID=2729
(William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council).


Brigadier (Retired) Sukhwindar Singh
http://www.defenceoffsetsindia.com/
http://www.freemarketsdefence.blogspot.com/

Thoughts on Defence Offsets in US Firms

The U.S. Government's policy, as stated in Federal Acquisition Regulation (FAR) 225.7303, is that the Department of Defense does not get involved with a defense firm's offset commitments. The decision to engage in offsets, and the responsibility for fulfilling offset commitments, is purely the firm's.

It is known that transactions involving large defense purchases from U.S. firms by foreign governments most often involve Offset Agreements between the Selling Firms and the Buying Governments. Policymakers in the Buying Nations can use the Offset Agreements to address a variety of economic and political issues within the Buying Countries. The desired Motivation & Effects in Buying Countries, identified in various studies on seeking Offsets, are:

1. Labor Market Corrections.

2. Promotion of Capital Investment.
3. Support for Strategic Industries.
4. Adjustments for Asymmetric Information.
5. Reduction of Risk and Uncertainty.
6. Alternative Sources of Financing.
7. Political Support for Defence Purchases.

In some of these situations, the use of offsets appears to be an alternative form of commercial policy, replacing a more direct form of intervention.

Recently provided information from industry appears to validate the work done in the 1980s. The changes in the defence environment over the past two decades do not seem to have changed the motives behind the use of Offsets. Offsets are a reality of the existing competitive nature of the marketplace.

Please Click: http://findarticles.com/p/articles/mi_m0JZX/is_3_10/ai_109353417 for details.

Brigadier (Retired) Sukhwindar Singh
http://www.svipja.com/ / http://www.defenceoffsetsindia.com/
http://www.indiandefenceindustry.com/

Credit: Defense Acquisition University Press, USA.

Flip Side of Offsets : European Union's Perspective

Offsets are widespread in the Defence Sector, despite being banned under the WTO's 'Agreement on Government Procurement' in all other areas of commercial business. Also , there is a growing recognition in Europe that "in principle, offsets are hardly compatible with transparency and fair competition in open markets" ("Defence Procurement in the European Union", Report of an EUISS Task Force, May 2005, Refers).

Offsets as a practice are vulnerable to corruption and abuse. Transparency International UK's Background Note "Offsets" (2005) describes the main trends and practices in the use of Defence Offsets. It illustrates how and why offsets are so open to corruption and outlines recommendations to remedy the current situation. General assessment :

1. Offsets are viewed as ‘largely ineffective over the long term and have minimal lasting impact on economic or military capability’.

2. Offsets are estimated to increase sales price by some 15 - 30%.

3. Direct offsets very rarely work.

4. Current EU Opinion (2005) on Offsets : ‘They are here to stay, and need to be harmonised’.

5. European Defence Association’s Opinion (Jan 2006) on Offsets: The "Study on the effects of offsets on the Development of a European Defence Industry and Market " (2007) financed by the European Defence Agency notes that "there are indications in some cases of lacking transparency and professionalism, which in extreme cases may even offer opportunities for corruption". Further the authors note that "it seems indisputable that opaque and un-professional offset implementation provides scope for corruption potentially leading to another system being chosen that would have occurred in an open and transparent market".

Corruption Risks

a. They are subject to less study than the main contract.

b. Their influence in the evaluation of bidders is often completely unclear.

c. They offer huge scope to reward intermediaries anonymously .

d. They are not settled until long after the contract is signed .

e. They are not well-monitored.

f. ‘Auditing’ and ’Value for Money’ assessments are almost never done.

Transparency International (UK) views Offsets as a significant and uncontrolled corruption risk. For details, pse Click : http://www.defenceagainstcorruption.org/index.php?option=com_content&task=view&id=26&Itemid=102


Brigadier (Retired) Sukhwindar Singh

http://www.svipja.com/ http://www.defenceoffsetsindia.com/ http://www.indiandefenceindustry.com/

93501 71232

Credit : Defence Against Corruption - A Project of Transparency International (UK).

Govt. Decison Process Under 'Three Cs' (the CVC, the CAG and the CBI)

Mr KP Singh, Secretary, Defence Production, has retired from Service on 31st December 2007. His three years in the Ministry of Defence (MoD) have seen some major policy changes, flowing from the decision in 2001 to allow the private sector into defence production, subject to licensing and an FDI cap of 26%.

There is speculation that Mr KP Singh might head a new regulatory body that is being set up to manage offsets at the MoD. He spoke exclusively to Business Standard about impending changes in the new offsets policy.

Full Text of the interview can be read on http://www.business-standard.com/lifeleisure/storypage.php?leftnm=5&subLeft=3&chklogin=Y&autono=309073&tab=r

Brigadier (Retired) Sukhwindar Singh

http://www.svipja.com/http://www.defenceoffsetsindia.com/ http://www.indiandefenceindustry.com/

93501 71232

Credit: Business Standard

Defence Offsets Management in the Indian Context : Some Strategic Thoughts

We are likely to have about 10 b USD flowing back as Defence Offsets during 2007-2012 and more would follow in the Years ahead. This ‘flow’ needs to be managed efficiently keeping in view the corrupt practices in defence deals. Lobbying, Personal Interest Groups, Sector-Specific Deployment of this Fund, Monitoring, are some of the important factors that would go in making an effective Offset Policy for Defence, or an Offset Policy in general.

Some thoughts that may help in developing the Apex Organisation for the Offsets are listed as under:

1. Whose ‘Money’ is it Anyway? Why should only Defence have a claim on it ?

2. Can we ignore ‘Dual-Usage’ Industry and ‘Infrastructure in Select Areas Used by Defence’?

3. Why should offset funds only flow to PSUs, DRDO, OFB or Large Private Sector Companies ? Their 'Efficiency Index' & 'Costing' needs to be evaluated stringently.

4. How could benefits of direct investments of the offset funds go to MSMEs which drive innovation & are credible ‘feeder’ industry to the Large Enterprises ?

5. Is there a need to develop special MSMEs Clusters of ‘Defence R & D’ and ‘niche’ dual-usage technologies. ‘Knowledge Power’ is with highly qualified entrepreneurs !!

6. Can the Defence Forces get ‘more-bang-for-the-buck’ ? Or they remain saddled with the profit-oriented pricing policy of the production agencies. Does ‘Defence Offsets Investment Policy’ have a Role in getting the products & services for the Defence Forces at the ‘right price’ ?

7. ‘Offset Banking’ and India's Concerns ?

8. Why would Global arms exporters allow India to develop as a defence suppliers' hub ? Create a Competitor ? What strategy are they adopting in ‘scuttling’ this’.

9. Organised ‘lobbying’ by the Chambers & Industry Association(s) needs to be seen through.

10. Interests of the Principals / Defence Vendors also needs to be monitored.

11. How could the offset funds be used as an ' indigenous technolgy development tool' in concert with the main contract?

12. How do we monitor correct usage of the Offset funds provided to the Industry ?

13. How do we involve ex-Defence Experts as Enterepreneor(s) for their self-employment with the Offset Agency utilising the vast expertise they have ?

---- And Many More Inter-related Strategic, Security & Governance Issues !!

We need to devise an Offset Policy that is all ‘Inclusive’, and devoid of any ‘tilt’ which should stand ‘tall’ in the long term. Defence Offset Facilitation Agency (DOFA) has just served Us about 2 years.

Brigadier (Retired) Sukhwindar Singh
http://www.svipja.com/ / http://www.defenceoffsetsindia.com/
http://www.indiandefenceindustry.com/

93501 71232

MOD to Announce a New High-Powered Offset Organisation

The MoD is planning to expand DOFA . A high-level committee has worked out what DOFA will need to include, and the announcement will take place shortly.“There is unanimity in the MoD that neither DOFA, nor the Director General (Acquisitions) can handle such a large volume of independent work”, said Secretary, Defence Production.

The expanded version of DOFA, according to the Secretary, Defence Production, will perform the following roles:

• Evaluating offsets proposals submitted by foreign vendors, during the bidding process.
• Keeping an account of the fulfilment of the offsets contracts, including the value of defence products manufactured, and exported, and the offsets liability carried forward each year.
• Once offsets banking is permitted, DOFA will perform the role of the bank, keeping a track of the offsets banked, encashed, and carried forward.
• When grey areas exist in the policy, the expanded DOFA will interpret and provide policy clarifications.
• When certain cases fall outside existing policy, decisions on those cases will be made by the expanded DOFA.

“This organisation will play a very important role in advising the Govt. what is in the best interests of the country. But foreign vendors and private companies --- they have no role to play in this body. This is a purely MoD housekeeping function”, said the Secretary.

The expanded DOFA will include a technology evaluation cell, consisting of Defence R&D Organisation (DRDO) personnel, a legal cell that is qualified in law relating to commerce and foreign trade, and a greatly expanded accounting capability in order to keep continuous track of individual offsets liabilities that are discharged over several years.

It is still unclear whether the expanded DOFA will continue to form a part of the Department of Defence Production in the MoD, or whether it will evolve into a separate regulatory-cum-advisory body, in which case a legislative framework will have to be enacted.

Brigadier (Retired) Sukhwindar Singh
http://www.svipja.com/ http://www.defenceoffsetsindia.com/
http://www.indiandefenceindustry.com/

Credit: Broadsword, Ajai Shukla.

L & T , and Astra First Two Beneficiaries of the Offset Policy

India’s new defence offset policy has started rolling with major private sector firms Larsen and Toubro and Hyderabad-based Astra defence software becoming the first beneficiaries. However, reports suggest that these deals are yet to be executed.

The two firms were chosen by Israeli defence major Elta as offset partners after it was awarded a Rs 833.4-crore deal to supply medium range radars to the IAF.

“This is the first major defence procurement in which the government has enforced the offset clause,” Secretary, Defence Production reporters here today. Without spelling out the details of the deal, he Secretary said Elta had agreed to plow back Rs 250 crore as offsets into these two companies.

India’s new defence procurement policy incorporates a 30 per cent offset clause for all deals worth over Rs 300 crore.

Brigadier (Retired) Sukhwindar Singh

http://www.svipja.com/ http://www.defenceoffsetsindia.com/

http://www.indiandefenceindustry.com/

Defence Imports in India

India's military imports are expected to reach $30 billion by 2012 with its armed forces expected to ink defence deals for multi-role fighter jets, 155mm howitzers, and a variety of helicopters and long range maritime reconnaissance aircraft over the coming years. A leading Industry Chamber has made these projections in a report on `Avenues for Private Sector Participation in Defence' in Dec 2007. The report points out that over the past three years, India has spent as much as $10.5 billion on military imports, making it amongst the largest arms importers in the developing world.

The report also points out that with an ever increasing demand for higher allocation for defence budgets, and with a limited capacity on the part of the government to meet the demand, the defence sector needs to re-think how it could procure its goods and services from existing allocations in a more efficient manner.

According to Assocham President, Venugopal N Dhoot, the Indian military spend was about $20 billion in the last fiscal and is expected to grow 7% annually over the next 5 years.

The country's military spend amounts to roughly 2% of GDP, which is without accounting for expenditure on Defence Pensions, PMFs and the MOD itself as part of budgeted Defence Expenditure.

The report points out that despite the MOD setting a target of achieving 70% self-reliance in defence production ten years ago, the country has only achieved about 30 % of self-sufficiency. Some of key civil industry players supplying defence equipment and services include Tata Group, Mahindra & Mahindra, Kirloskar Bros., Larsen & Toubro, Ashok Leyland, Jindal, Max Aerospace & Aviation and Ramoss India.

The report essentially argues that competitive bidding must be introduced for all defence tenders in order to generate greater involvement of the Private Sector in the Defence Sector and, in the process, reduce the burden of imports.

Brigadier (Retired) Sukhwindar Singh

http://www.svipja.com/ http://www.defenceoffsetsindia.com/
http://www.indiandefenceindustry.com/