India’s MMRCA contract may force defence offsets policy change

 

(DefenseWorld )The Indian MoD may be forced to bring in an offsets multiplier clause in its defence offsets policy to conclude the estimated $10 billion procurement of 126 Medium Multi-Role Combat Aircraft (MMRCA). At least twoof the six bidders have demanded offset multipliers to bring in technology for fulfilling the 50% offsets amounting to about $5 billion.

      The Indian MoD has started the process of a likely policy change by holding discussions with industry bodies such the Confederation of Indian Industry (CII) and the Associated Chambers of Commerce & Industry (ASSOCHAM). The discussions held last week between senior MoD officials dealing with procurement matters and the industry representatives were mixed with some in favor of a more liberal policy and others wanting a continuation of the present policy, industry sources told Defenseworld.net.

      “The 50% offsets for the MMRCA cannot be fulfilled under the present policy of direct offsets”, said the industry source pointing out that international vendors have a pool of just about 160 companies including 9 government-owned firms to choose from as potential offset partners. From the private companies, only those which have been granted an industrial licence to manufacture a particular defence equipment or system can be partnered with.

      India’s DPP holds out the possibility of bringing in offset multipliers. The present policy states, “the advisability of giving additional weights to offers having multiplier effects in terms of exports generated or building indigenous capability in strategic technology products, or other issues may be considered after reviewing the experience of implementing the above (existing) policy”.

      For fulfilling the 50% direct offsets as per the MMRCA contract, international vendors would need to bring in high technology defence product manufacturing to India and find suitable partners to implement them. As things stand, private Indian firms are at the beginning of the defence equipment manufacturing curve and will take years before they are capable of executing an important sub-system of a fighter aircraft or armored vehicle. In the military aircraft domain, Hindustan Aeronautics Limited (HAL) is the only option and here too it has limitations in areas such as engines.

      In this context, a letter written by the aerospace and defence industry associations of the U.S., Canada, France, Germany and the U.K. in September to India’s defence minister A.K. Antony demanding the offsets multiplier clause besides other concessions gains significance. All the MMRCA bidders with the exception of the Russian Mikoyan MiG, are members of the associations which have authored the letter.

      Offset multipliers will enable the MMRCA contract winner to partner with India’s Defence Research and Development Organzation (DRDO) to develop technology in areas which the DRDO is currently lacking in and claim multiplier effects. However, DRDO is not included in the list of Indian offset partners and the potential policy change may have to address this issue too.