Indian Military

New Delhi — Ahead of US President Barack Obama’s visit to India, Indo-US defence deals are gaining more momentum than ever before. While it has been suggested that no big-ticket defence deal will be formalized during the visit, the US has already claimed a substantial chunk of defence contracts from India in recent times.

During a recent seminar on the release of the KPMG-American Chamber of Commerce report on the “Indian Defence sector: The improving landscape for US business and Indo-US commercial enterprise”, India has acknowledged the fact that the US is a key partner in the defence arena because it fulfils developmental goals and aspirations.

While the US has already ousted Russia to be become the leading exporter of defence wares to India, US companies have bagged over 40 per cent of the recent defence deals in India. According to the KPMG-American Chamber of Commerce report on the Indian Defence sector, Boeing, Lockheed Martin and GE Aviation totally won contracts worth around $3.

New Delhi-- The Defence Acquisition Council (DAC), the Indian Defence Ministry’s apex body, is shortly expected to take some tough decisions regarding the Defence Offset Policy. The Defence Ministry has been wary of any changes in the policy since it would benefit foreign players and push back the local Indian industry. However, consistent pressure from international players and other industry bodies has forced the DAC to consider changes in the offsets.

The current offset policy stipulates that international firms that win defence contracts above $66.6 million must invest back at least 30 per cent of the value into Indian defence production or research and development in India. However, the international vendors as well as industrial bodies feel that India cannot absorb the over $10 billion worth of offsets that has been speculated in the next five years.

One of the key issues in the offsets policy that seeks amendments is the services that fall under the purview of the offset obligations.

New Delhi — In a recent move by the Indian government which may set a precedent in terms of the Foreign Direct Investment (FDI) norms in defence, the cap of 26 per cent FDI has been relaxed for Russia. The recent decision has been seen as an upsetting move for private firms.

The recent joint venture between state-run Hindustan Aeronautics Limited (HAL) and the Russian firm Rosoboronexport is a 50:50 venture for a transport plane and  the project cost is estimated at Rs 2900 crore. The plane will be created for the Indian defence forces and will cater to the cargo airlines as well. The HAL-Rosoboronexport venture will develop a prototype within 51 months after starting work and make the plane in six years.

Although the current FDI cap in defence ventures stands at 26 per cent, the Indian government has made a provision to support 49 per cent FDI as a special case in the HAL-Rosoboronexport. It may be noted that India had decided to raise the 26 percent cap on FDI in the defence manufacturing sector to enable the co-development with Russia of the multi-role transport aircraft (MRTA) in 2008.

New Delhi – Faced with criticism for maintaining a strict defence offset policy, the Indian government is now considering the modification of the offset policy and issues relating to foreign direct investment. The Indian government is also planning to bring dual technology products in civil aviation and encourage technology transfer to Indian joint ventures.

As of now, the defence offset policy stipulates that foreign contractors catering to the armed forces should source systems and components from local vendors for at least 30 per cent of the value of orders of more than Rs 300 crore. Nearly 80 per cent of offsets are in the area of aerospace. According to the Indian Defence Ministry, the offset opportunity will grow to $10 billion in the next five years.

The defence ministry’s offset programme has been active for the last three years. However, countries like the US, the UK and Germany has been seeking policy changes as well as amendments in the offset clause.

The Federation of Indian Chambers of Commerce and Industry (FICCI) has published a paper in response to the solicitation of views by the Department of Industrial Policy and Promotion (DIPP), arguing for conditional increase, if at all, in the limits to investment by foreign players in Indian defense industry beyond the current limit of 26 per cent, to 49 per cent. The DIPP, in its discussion paper, was considering hiking FDI limit up to 74 per cent, and even 100 per cent in some cases.

The Indian Ministry of Commerce allowed the participation of the private sector in the defense industry in May 2001, permitting 100 per cent equity with a maximum of 26 per cent of FDI, subject to licensing. Under the Defense Procurement Procedure (DPP) 2008, limit was raised to 49 per cent FDI on a case-by-case basis. But the Foreign Investment Promotion Board (FIPB) has not, so far, approved the formation of a venture with a 49 per cent FDI component.

FICCI sees little reason to permit FDI above 26 per cent, considering the existing FDI into the Indian defense sector, saying in a statement, “The 26% FDI cap in the defense sector has already attracted top overseas defense OEMs like BAe, EADS, Sikorsky, Lockheed Martin, Electtronica Defence Systems, etc to hugely invest in India’s defense sector.