Defence offsets cross Rs 25,000 cr bigger contracts loom

Minister of State for Defence, M M Pallam Raju, told Parliament on Monday that Indian companies had signed 19 offset contracts with foreign vendors since the offset policy came into effect in September 2005. Indian Air Force (IAF) procurements have generated 80 per cent of all offsets, with naval procurements accounting for the other 20 per cent. Army procurement have yielded no offsets so far.

Business Standard has calculated, from MoD figures released over time, that the total value of these offsets has just crossed the Rs 25,000 crore mark. Starting from a modest offset contract worth $5.4 million (Rs 30 crore), linked to the procurement of Medium Power Radars (MPRs) from Israel in 2007, offsets have accelerated sharply, particularly over the last two years. In 2011 and 2012, offset contracts worth $2.2 billion (Rs 12,350 crore) were signed.

The most recent signing was a $150 million (Rs 830 crore) offset contract this summer with Swiss aircraft builder, Pilatus. This was linked with Pilatus’ contract to supply the IAF with 75 trainer aircraft.

ARMING INDIA
Scheme	Date of signing	Offset ($mn)
Mig-29 Upgrade	Mar 07,’08	308
Mi-17 V-5 Helicopters(MLH)	Dec 15,’08	405
P-8I maritime aircraft	Jan 01,’09	641
C-130 J-30	Mar 06,’09	219
AW-101 VVIP Helicopter	Feb 08,’10	224
C-17 Aircraft	Jun 14,’11	1092
Mirage-2000 Upgrade	Jul 29,’11	593
MICA Missile for Mirage-2000	Jan 31,’12	386

The defence offset policy requires international arms vendors who win contracts worth Rs 300 crore or more to plough back at least 30 per cent of the contract value into India in the form of defence orders, technology or infrastructure. Offsets were first made mandatory in the Defence Procurement Policy of 2005 (DPP-2005) and then revised periodically, most recently on August 1.

The biggest offset contract signed so far has been with The Boeing Company, a massive $1092 million (Rs 6,050 crore) contract, linked with the purchase of C-17 Globemaster III transport aircraft for the IAF. Close on its heels are the $979 million (Rs 5425 crore) offsets linked with the upgrade of Mirage 2000 fighter aircraft. This includes a $592 million (Rs 3,280 crore) offset contract with Thales for the aircraft upgradation; and a $386 million (Rs 2,140 crore) offset contract with MBDA for new missiles for the Mirage 2000.

Looming ahead is the mother of all offset contracts. French aerospace major, Dassault, and its major sub-vendors like Thales, will be liable for offsets worth 50% of the value of the contract to supply 126 Rafale medium multi-role combat aircraft (MMRCA) to the IAF. With the Rafale contract conservatively expected to be worth some Rs 75,000 crore, it would generate another Rs 37,500 crore in offsets.