Offsets Exasperation Peaks, Defence Minister Listens

It was the angriest, most scathingly direct session on offsets thus far, says an India executive with a global aerospace firm. On Feb 19, as the Aero India 2015 show entered its second day in Bengaluru, an interactive session on the deeply contentious issue of defence offsets organized by Confederation of Indian Industry (CII) turned out to be more aggressive than anyone present expected, with the exasperation of foreign (and Indian) firms on full, unapologetic display. The truth is, this was waiting to happen. Raised voices, included.

Defence offsets policy in India has been many things: mystifying, incremental, sometimes self-defeating, contradictory, ambitious, obtuse. The one thing everyone agrees on, though, is that the success or failure of Prime Minister Modi's 'Make in India' proposition will depend in large measure on how India manages offsets. Livefist learns that proceedings at the CII session on Feb 19, attended by over 300 CEOs/MDs and top regional executives of global aerospace and defence firms, was proof that the effort so far only served to frustrate companies looking to expand and get only deeper into the business in India. The session, in many, was cathartic, says another executive who attended.

And here's the good news. Defence Minister Parrikar, who sat through the entire CII session, had one message: 'I'd like to talk less today, and listen more.' And for the next 90 minutes, Parrikar is said to have done just that: he sat rapt, listening carefully, even taking notes, absorbing the proceedings, as executive after executive took the stage to detail how current offsets policy frustrates, rather than facilitates the defence business in India, and provides little by way of a fair way to attract local investment.

Among an enormous number of recommendations, there was also the observation that since offsets commitments in India needed to be completed in a 5-7 year period, it wasn't quite enough for advanced technology sharing and transfer, forcing companies to opt for low-tech manufacturing that didn't benefit either side.

Baba N. Kalyani, chairman of the Kalyani Group (which announced a joint venture with Israel's Rafael a day previous) and chairman of CII's National Committee on Defence said, "In India, defence offsets are one of the lowest in the world at 30 percent of the contract value. Offset banking is a good idea. Offset banking can be utilized to engage with the foreign OEMs well in advance."

Top executives who had a chance to speak at the interaction included Boeing India president Pratyush Kumar, Textron India president Inderjit Sial and Honeywell Aerospace India president Pritam Bhavnani.

The other good news is top executives from Indian and global firms that included Boeing, Airbus, Lockheed-Martin, BAE Systems, Honeywell, Textron and several others, came away with what is possibly the first positive guidance and sentiment on offsets. (It was the first heartening, reassuring message we've had on offsets in years, said one executive with a European conglomerate). Minister Parrikar is said to have told the gathering, 'I'm a man of few words. But I'm a man of action.' He also promised the 300 CEOs/MDs that the government had taken note of industry anxieties, and would move quickly to get them things going.

Parrikar said after the session, "Defence offsets are a catalyst to kick-start defence manufacturing. There is a need to effectively implement the existing policies and procedures. There is a need to compress the procurement time frames. This session has brought to light many issues particularly the time line, lack of flexibility of selecting a partner and of no proper grievance redressal platform. I assure you I will look into everything that has been highlighted and take action as soon as possible."

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