ASSOCHAM Defence Procurement Policy

Let DOFA Execute Defence Offset Guidelines] : ASSOCHAM
Saturday, August 15, 2009

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has called for empowering Defence Offset Facilitation Agency (DOFA) with regulatory power to facilitate defence purchases and procurements as it would work a proper catalyst for being unbiased and stand-alone entity to conclude future defence deals.

In a Paper brought out by ASSOCHAM on Defence Procurement Policy and submitted to Defence Ministry, the Chamber President, Mr. Sajjan Jindal said, �empowering single defence offset authority will result in consistent interpretation and implementation of offset guidelines�. The operational structure will allow the prime contractor to focus on
priorities of offset guidelines and avoid confusion that can result when different bodies have responsibility for evaluation and implementation of offset programmes, pointed out Mr. Jindal.

The ASSOCHAM has further emphasized that DOFA, which currently works under patronage of Defence Ministry need to be authorized to involve Indian Inc. to participate in defence deals, as in next 4-5 years, domestic defence market would grow over US$ 700 million.

Since the new Defence Offset Policy calls for larger private sector participation in defence purchases and procurement including imports, DOFA is the right body that can have parleys with Indian industry to strengthen and indigenise defence sector and thus, it should be empowered to regulate this sector by making suitable recommendations to highest authorities.

According to ASSOCHAM, �India�s arm imports alone would rise to US$ 30 billion by 2012 for which DOFA, armed forces in consultation with Indian Inc. should work out a comprehensive strategy to ensure that defence imports happen at extremely competitive rates�.

The Chamber has recommended that manpower at DOFA should be substantially increased to reflect the growing importance of Indian defence industry and the ever-growing role of the private sector in it as the body is deemed to be more accessible to Indian Inc.

The ASSOCHAM Chief pointed out that the worth of Indian defence sector is US$ 5-8 billion annually and if Indian economy continues to grow at a steady rate of close to 7%, its spending would exceed 3% of GDP in future. This could be used to finance additional capital outlays for modern equipment. Currently, around 2.5% of national GDP is spent on defence.

India is the world�s largest importer of defence articles as its services buy over US$ 6 bn worth of military hardware. As compared to India, Saudi Arabia and China are the next two large armament buyers in the developing world.

The paper highlights the fact that in 2001, the Indian government opened up the defence production industry by allowing 100% investment by private sector firms and at the same time, also allowed FDI of 26% in select areas in the defence production. This needs to be further accelerated to 49%, says Mr. Jindal as it would help procurement of latest technologies as per provisions of latest Defence Offset policy.

The Defence offsets policy is expected to bring in USD10 billion during the 11th five-year plan period as every foreign company is required to spend 30% of the value on offsets goods or services purchased from Indian defence companies and if DOFA is conferred upon with powers of regulator, the FDI�s element in defence sector would accelerate.

It has been stated that as India has a large industrial base, offsets will further develop its technical and manufacturing potential and they will also help to increase investments in domestic research and development. The policy is also expected to hugely benefit the Small and Medium Enterprises and is conducive for the private companies to have a larger presence in the defence set up.

Host of Indian companies can get the benefit of offset policy and such a scenario will further boost country�s economy in the near future. The offset policy is expected to generate market-entry opportunities for private companies, to invest in research and development and manufacturing of defence goods.


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