Wednesday, September 16, 2009

Bringing Order to Chaos: India’s Offset Procedure


Aero India

Defense News

Bringing Order to Chaos: India’s Offset Procedure


India’s Ministry of Defence adopted its Defense Procurement Procedure in June in an effort that put in place a procurement guideline for the defense industry, said Saurabh Kumar, director of the Department of Defence Production’s Directorate of Planning & Coordination.

The Defense Procurement Procedure calls for a local industry to receive offsets — or work — worth 30 percent of the value of defense contracts, defines procedures for “buy” and “buy & make” categories, establishes fast-track procedures as well as standard contract document guidelines and indigenous naval shipbuilding procedures.

“They came out with a policy in 2005 for offsets but it was imperfect, and in June 2006 a new procedure was adopted to clarify the offset procedure,” he said.

The problem, said Kumar, was a matter of definition. “What constitutes an offset? What is the framing of offset proposals? What Indian companies are eligible to participate? India is such a big country that foreign defense contractors didn’t know where to go. So in 2006 a change was made.”

In September, the Defence Offset Facilitation Agency (DOFA) was created as part of the Defense Procurement Procedure to help facilitate the policy.

DOFA provides foreign defense contractors with a database of qualified Indian companies.

“Now that foreign defense contractors are coming to India they are discovering an abundance of qualified suppliers and partners,” said Kumar. “We want to create a win-win situation for both the Indian company and the foreign defense contractor. Prior to 2005 there was no offset policy.”

This is part of a new attitude in India’s defense environment.

“I want to emphasize in the future we want to establish a new relationship with foreign companies,” said Kumar, adding that the potential spin off technologies for Indian industries working offsets for foreign defense companies is large.

“The first contract under this new policy is a $55 million offset contract with Israel’s Elta for medium-power radars, expected to be signed in March,” said Kumar.

It is a process that Defence Minister A.K. Antony called “Indianization” of the defense industry. “It takes some time, but we cannot depend on foreign arms forever,” he said.

Antony warned that procurement policy is bound to change over time as more foreign defense contractors begin interacting with India.

“Nothing is permanent,” he said. “The procurement procedure set in 2006 was 30%. But in the future that could change. In the future our mind is open. I only feel there is room for improvement.”

He emphasized that “transparency” was the key to future relationships between India and foreign defense contractors.

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