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/

Indian Aerospace and Defence Offsets

Indian Defence Offset Policy stipulates foreign suppliers to either invest-in or purchase from India 30% of the value of the Order for contracts above INR 300 Crores. It adds up to USD 5 billions (Approx INR 20,000 Crores) worth of Offsets Value from the Indian Defence Procurement already lined up. It is estimated that the defence offsets into India in the 11th Plan Period, 2007-2012, are likely to be around 10 billion USD. Some even estimate it at around 20 b USD depending on the defence contracts finalised during the Plan.

We have necessary expertise in defence technologies and markets to identify the Indian industry units to which these Offsets could flow meaningfully, without bias or favour, for a win-win situation both for the Indian Defence Industry and the Principals. We do the due diligence for You, and help You in the Implemation Phase of the Offsets.

We have large database of the industry on our B2B e-Marketplace. http://www.defenceoffsetsindia.com/ and http://www.freemarketsdefence.com/ http://www.indiandefenceindustry.com/ have maximum synergy for defence offset projects.

As a Managed Service, we aggregate information, develop Defence Offset projects as per Your need, and help fulfill Your offset obligations efficiently.

As a Self-Service, Svipja Technologies and FreeMarketsDefence.com provide an online solution to Aerospace and Defence companies to engage in a variety of offset business processes such as e-Sourcing, e-Procurement, Technology Transfer, JVs, etc.

This effort comes to You as a private initiative.

Brigadier (Retired) Sukhwindar Singh
http://www.svipja.com/ http://www.defenceoffsetsindia.com/
http://www.indiandefenceindustry.com/
93501 71232