SO PAPA DON’T PREACH
(On Defence Offsets)
“We have the “once-in-a-century” opportunity to get it right when it comes to changing how we buy defence equipment.” Honourable Diane Finley, PC, MP, Minister of Public Works and Government Services, Announcing the Defence Procurement Strategy, Ottawa, Ontario, February 5, 2014
The High Tech Forum on Defence Innovation, which comprises experts in various fields related to enhancing indigenous high-tech capabilities, had concluded that Defence Offsets provide a huge opportunity to kick start India’s defence industrial base.
Successfully leveraging defence purchases to build indigenous capabilities is a worldwide trend. On the VISTAS-भारत Facebook page we had mentioned many countries implementing 100% Offsets – not just the 30% provided in our own laws. Some countries even apply 400%!
So first of all, “Papa Dont Preach!” 30% is not too Onerous considering how many countries practice 100% and above. 100 percenters:
Canada is insisting on 100% REAL Offsets. Check out our earlier post on the subject – because of their “consistent” insistence, both Boeing and Dassault are either “promising offsets for Canadian industry worth 100 percent of the purchase contract value, or providing full transfer of aircraft technologies to the Canadian government, with no restrictions”.
Contrast this with the tough stance reportedly being taken with India on the MMRCA offset clause. India should straightaway jack up Defence Offsets to 100% at least and derive the maximum out of this once in a century opportunity. India is also right to insist that lifecycle costs and not just the initial purchase price, should be taken into account while calculating Offsets, as lifecycle costs can be extremely high.
Now, Canada has just overhauled its defence procurement strategy to strengthen indigenous high-tech defence industry and take advantage of the fact that “Defence-related industries are unique in that governments are essentially the only customers, and have flexibility under international trade agreements to favour domestic suppliers.”
Since advanced nations are constantly brandishing the WTO against us – we must at least take advantage of the flexibilities provided for the defence sector. Wasn’t the WTO meant to facilitate our industrial development? But we had to withdraw the Preferential Market Access Policy for private sector procurements which would have benefited our manufacturing industry.
Thus, many countries have leveraged Offsets to become part of the sophisticated global high-tech aerospace supply chain. But at every turn we have failed to leverage our civil and military aircraft purchases and our considerable air travel market to build our own aerospace industry which can be part and parcel of an exciting high-tech global supply chain.
India also needs to develop the MRO market. A presentation by HAL is being posted which outlines the full potential of the market that can be exploited by Indian firms.
The next post will be on the subtle propaganda on the reputation and capabilities of Indian industry, and the myths being propagated in this regard. This helps only non-Indian firms. Since defence markets are under pressure worldwide, it is essential for OEMs to corner the growing Indian defence market and ensure Indian companies, which have won massive tenders abroad, are disregarded in their own country.
SUMMARY OF DEVELOPMENTS IN CANADA
2008: Canada establishes the Canada First Defence Strategy (CFDS) which provides stable long-term funding and a roadmap for the modernization of the Canadian Forces over a 20-year period.
2013, February: Canada issues the excellent report “Canada First: Leveraging Defence Procurement Through Key Industrial Capabilities”– the document starts with Canada First! This is what we have been advocating all along – INDIA FIRST! In Canada they call Offsets the Industrial and Regional Benefits (IRB) policy: the report mentions ‘A main source of revenue for Canadian industry relates to the government’s long-standing Industrial and Regional Benefits (IRB) policy — often referred to generically as an “offsets” policy— that requires winners of major defence contracts to spend the equivalent of the dollar value of contracts (which are often awarded to foreign firms) in support of Canadian industry’.
2014, February 05: Canada launches new Defence Procurement Strategy (DPS), with the following goals:
- Companies bidding on defence and security contracts have to provide 100 percent Offsets. They are insisting Canada get full value for any procurement from Dassault and Boeing.
- Deliver the right equipment to the Canadian military in a timely manner;
- Leverage Canada’s purchases of defence equipment to create jobs and economic growth in Canada; and
- Companies bidding on major defence and Coast Guard procurements have to prove that their bids support “Key Industrial Capabilities (KICs) and other productivity drivers, including industrial and technological high-value activities, for example, “technology transfer”.
- “Implement an enhanced Export Strategy to support international sales opportunities and “participation in global value chains“” (Note: this is our key goal also).
This is our once in a century chance to get things right too. Let us fulfill India’s promise!