It is a myth that the Indian industry does not have the technical capability and physical manufacturing capacity to take the business opportunities that arise out of Defence offsets, says Mr Rajinder Singh Bhatia, Executive Vice-President & CEO (Defence & Aerospace), Bharat Forge Ltd. ‘Offset' basically refers to mandatory purchase of components from the domestic industry of a country that imports equipment by the exporter of the equipment.
Speaking at a conference on ‘Indigenisation and Offset Opportunities' organised here by the Confederation of Indian Industry (CII), Mr Bhatia noted that the annual offset opportunities arising out of the ‘Dassault Rafale order' would work out to around $200 million annually over a ten-year period, which is “no big deal for the Indian industry.”
Dassault Rafale of France has emerged the lowest bidder for the supply of 126 Medium Multi-Role Combat Aircraft. The $10.6 billion contract, said to be India's largest Defence purchase, is expected to be signed in a year. The aircraft would be supplied over a ten-year period. The deal envisages a 50 per cent ‘offset', which means that half the value of the contract would have to be sourced from the Indian industry.
Some have expressed doubts over the ability and capacity of the Indian industry to take such a chunky business opportunity. For instance, experts from McKinsey & Company, USA, Mr John Dowdy and Mr Jerrold Lundquist, had told
But Mr Bhatia on Saturday stressed that the industry has both the technical capability and manufacturing capacity. The industry has done it (at least) in two other industries — nuclear and space. In both these instances, however, there had been clear indication from the Government that technology and products would need to be developed within the country and the industry rose to the challenge.
“I can assure you that making rocket motors for ISRO is far more complex than making them for BrahMos or Aakash missiles. Trust me, I have made both,” Mr Bhatia said.
Conflict of interest
Mr Bhatia was also unhappy that the ‘Defence Offset Facilitation Agency (DOFA)' was both a regulator as well as a facilitator. “The two roles cannot co-exist,” he said. He said that DOFA should also not be a part of the Department of Defence Production.
Mr Bhatia further noted that the private sector industry was kept out of DOFA. “Why? Because the private industry would not allow the nomination (of business orders) to the defence public sector companies,” he said.
Speaking at the seminar, Wing Commander D. K. Sharma said that it reflected very poorly on the Indian industry that there should be only 178 companies registered with DOFA.
Even the 178 has many repeats – for example, companies like Tata Power, BHEL and L&T have multiple mentions. There are many notable absentees too — for instance, there is no mention of Ashok Leyland, which supplies armoured vehicles.
“If (say) Dassault wanted to check-out the DOFA Web site, what would it think?” Mr Sharma asked.
Dr Vinod Surana, Partner, Surana & Surana, a law firm, noted that valuation of technology was a very ticklish area which often gives rise to many disputes in offset-related business agreements. He suggested that dispute resolution experts be involved right at the time of forming the agreement.