India projected to spend $30 billion on defence hardware

Defence procurement policy set to be revised

July 08, 2008 NEW DELHI: With India projected to spend a whopping $30 billion for acquisition of military hardware and software from abroad during the 11th Plan period (2007-2012), the defence ministry is now finally all set to revise its defence procurement policy (DPP). The new DPP, which will try to cut down on procurement delays, bring in more transparency, rework the "offsets" clause and provide for "offset banking", is slated to be approved by the Defence Acquisitions Council headed by defence minister A K Antony on Wednesday. Introduced for the first time in the 2005 DPP, the "offsets" clause mandates that a foreign vendor who bags a deal over Rs 300 crore must plough back at least 30% of the contract value back into India or source defence products or services from the country of that value. There is likelihood of the defence ministry actually increasing the offsets obligation to 50% in the new DPP. The RFP (request for proposal) issued last year for the mother of all defence deals, the Rs 42,000-crore project to acquire 126 multi-role fighter jets for IAF, in fact, lays down a 50% offset provision. While offsets are the norm internationally, armament manufacturers and others have petitioned the defence ministry that its policy of allowing only "direct" offsets — that is, only in the defence arena - is restrictive and needs to be re-examined. "The offsets policy will be fine-tuned but allowing of 'indirect offsets' is unlikely since the ministry is extremely keen to build the indigenous defence sector," said an official. The ministry, in fact, feels India's "high" purchasing power should be leveraged to boost the fledgling domestic defence industry, and the best way to do it is through the successful implementation of the offsets policy.