Military - Articles

Offsets in Indian Defence Purchases

The factor of offsets have emerged as a key policy projection in future Indian defence purchases. The practice needs to be examined. Officially enunciated in 2005, this policy provision of the Indian government will be in force for all orders to be placed on overseas vendors if the orders exceed US$65.2 million. Broadly, the principle of offsets would mean that the vendor should either invest in Indian defence companies or agencies engaged in defence R&D or directly purchase defence products from India's defence sector as a part of the overall contract.

The policy is clearly manifesting on ground with several projects underway or on the anvil, This philosophy has earlier been adopted even in earlier defence deals. There are several examples.

A joint US$100 million venture between Indian DRDO's Defence Avionics Research Establishment (DARE), Bangalore and Israel's Elisra Group, Ben Beraq is to develop advanced electronic warfare (EW) systems for each country's air forces' fighter aircraft. The ambitious three years plan is to utilize the products for India's Light Combat Aircraft (LCA) and the futuristic F-35 Joint Strike Fighter, which Israel proposes to buy from the United States. DARE will be the major investor providing 70 per cent of the outlay with Elisra holding the remaining 30 per cent. There is albeit, a history of co-development between DARE and Elisra for similar equipment for IAF's Mig-21 Bis and the Su-30 MKI fighters.

The Bell Helicopters, USA and the British Rolls Royce (RR) have signed several deals with Hindustan Aeronautics limited (HAL) to strengthen their position for the mammoth 197 aircraft light utility helicopters requirements of the Army Aviation Corps of the Indian Army. Towards the projects, Bell plans to set up US$100 million maintenance, repair and overhaul unit and a pilot training institute in India. There is a Memorandum of Understanding with HAL for possible cooperation in supply of air frame subassemblies and product support. HAL already manufactures tail rotor blades for Bell 206.

RR deals would be formidable. They want to join hands with HAL in design, manufacture and assembly of components for Model 250 engines for the helicopter. HAL already manufactures the Adour engines for the IAF's Jaguar deep penetration strike aircraft and will produce the Adour 871 engines for the Hawk advanced jet trainers. It is also engaged in supply of spare parts for commercial engines for the British firm and repair and overhaul of Adour, Avon, Dart and Gnome power plants and industrial turbines. Shortly and very obviously, RR plans to set up a supply chain office in the precincts of HAL facilities.

The other strong contender for the helicopter deal is the Eurocopter. It proposes to invest over US$1 billion within two years in a local subsidiary, a training school and a maintenance center. Although, this may be for a much larger ambit than merely defence deals, the European firm is already a contender for the 10-tonne Indian Navy and the VIP helicopter requirements.

The traditional arms acquisition relationship with the Russian manufacturers is being elevated to a strategically higher level. We are aware that except for the Mig-25, all the Mig and the Su variants of fighter aircraft were assembled at the HAL factories. Similarly the Indo-Russian Brahmos is a product of joint development between the two countries. Under a recent agreement, The Russian Illyushin design bureau is joining hands with the design team at HAL to jointly develop a medium transport aircraft for air forces of both countries perhaps for a suitable replacement for the IAF's An-12 and An-32 fleet.

There is an Indian proposal under consideration by the Russian government to jointly develop a 10-tonne class battlefield helicopter to replace the Mi series of helicopters in service with the IAF. A Russian offer of an outright sale of Russian Helicopters as a replacement has not been accepted. Of some importance is the proposal to establish a facility in parts of Orissa to annually supply 40,000 tons of titanium dioxide for the Russian aerospace industry.

The offset policy needs to be seen in the backdrop of the total outlay proposed for India's 11th Five Year Plan (2007-12), pegged at US$142 billion. On the other hand, the offset potential for the next ten years is assessed at US$10 billion. At over 7 per cent of the overall expenditure for the plan period, it could be formidable, if it is able to fill the gaps in the technological prowess of the country. For some time now, India has been going through a difficult phase in completing its defence projects. Several of its programmes have been vastly delayed and have under performed. The LCA and the main battle tank (MBT) are examples.