Wednesday, January 28, 2009

Offsets - the new future in defence procurements

Under the provision of offset obligations, to facilitate Indian companies in the process, the Ministry of Defence (MoD), has come out with a list of defence products and services, (products categorised along the following 13 groups), which would enable Indian public sector, private and private limited defence companies to tie up with foreign partners.

1. Small arms, mortars, cannons, guns, howitzers, anti tank weapons and their ammunition including fuze.
2. Bombs, torpedoes, rockets, missiles, other explosive devices and charges related equipment and accessories specially designed for military use, equipment specially designed for handling, control, operation, jamming and detection.
3. Energetic materials, explosives, propellants and pyrotechnics.
4. Tracked and wheeled armoured vehicles, vehicles with ballistic protection designed for military applications, armoured or protective equipment.
5. Vessels of war, special naval system, equipment and accessories.
6. Aircraft, unmanned airborne vehicles, aero engines and air craft equipment, related equipment specially designed or modified for military use, parachutes and related equipment.
7. Electronics and communication equipment specially designed for military use such as electronic counter measure and counter counter measure equipment surveillance and monitoring, data processing and signalling , guidance and navigation equipment, imaging equipment and night vision devices, sensors.
8. Specialised equipment for military training or for simulating military scenarios, specially designed simulators for use of armaments and trainers.
9. Forgings, castings and other unfinished products which are specially designed for products for military applications and troop comfort equipment.
10. Miscellaneous equipment and materials designed for military applications specially designed environmental test facilities and equipment for the certification, qualification, testing or production of the above products.
11. Software specially designed or modified for the development, production or use of the above items. This includes software specially designed for modeling, simulation or evaluation of military weapon systems, modeling or simulating military operation scenarios and Command, Communications, Control, Computer and Intelligence (C4-I) applications.
12. High velocity kinetic energy weapon systems, related or countermeasure equipment, super conductive equipment and specially designed components and accessories.

1. Testing
2. Maintenance
3. Quality assurance
4. Life extensions
5. Upgrades
6. Testing services.
7. Defence related software

An Indian company producing any of the above products is eligible to become an offset partner of a foreign vendor, however complying with the guidelines/licensing requirements.

Though the offset chapter in the DPP-2008 clearly indicates and states that technology transfer does not fall under offsets, something which the six vendors of the 16 billion USD worth MMRCA deal always had reservations with, the Indian industry and especially the PSUs (read DRDO) has pressed for acquisition of critical technology through the route of offsets.

Past instances have taught exorbitant pricing of critical technology modules and denials for various reasons have made many systems unavailable when required. Therefore contracts (RFP) do not make it possible to get technology , which is why leveraging our purchasing power through offsets is the only way to acquire denied technologies.

The Kelkar Committee, which is classified and has not been made public, makes the following observations:

1. Kelkar committee in its report has devoted one chapter on International experiences in acquisition of defence material in some of the major weapon producing countries and possible lessons for India.The countries covered in the report are UK, USA, Australia, Israel, France, and South Korea.These countries have shown tremendous progress in defence preparedness in the past few decades. The relevant excerpts from the Kelkar committee repaorts about these countries are as follows:

Their defence ministry administers several complementary programmes that encourages participation of Australian industries in defence business, promote research and development, etc to be transeferred from overseas and support defence exports, in keeping with the national interest.
Emphasis is on acquisition of technology and not the product
South Korea:
Indigenous production, diversifying defence supply and acquiring as much technology as possible with priority to military related technologies including state of the art technologies, is strssed on by the Government.

From the above it appears clearly that these countries are vigourously pursuing to get technologies into their countries through offsets.

Past Indian experiences:
All the past experiences related to technology acquisition actually pertain to transfer of technology in real terms. Kelkar committee observations regarding the characteristics of Indian ToT model is as follows:

- Confined to only DPSUs and OFs
- Depth of technology transfer not adequate.
- Essentialy transfer of drawings and processes for manufacturing and assembly and no real transfer of technology. Adopting ToT model manufacture of imported equipment through license manufacture has not been a success.
- No flow of technology as the Mk-II versions never came out of fighter aircraft, anti tank missiles etc.
- Dependance on OEMs for upgrades has only increased and not decreased.

In the global success stories, Israel, South Korea and China are three major countries which have benefitted tremendously from their offset policies.

When China can leverage offset agreements for technology acqusition, then why can't India?

Tuesday, January 27, 2009

With grip loosening in sight, Gripen-Saab launches in India

Refuting news reports about its ouster from the more than 15 billion dollar medium multi-role combat aircraft (MMRCA) contract for the Indian Air Force (IAF), today the Swedish Saab Group, said that it was all set with its Gripen Next Generation (NG), to participate in the flight trials to begin soon in India.

Three of the Gripen NG aircraft, which is being fielded for the 126 fighter jet deal, will soon land in India for the year-long summer and winter trials, as a result of which Gripen will not be on display in the forth coming Aero India in Bangalore, slated from February 11-15 in Yelahanka.

About Gripen being proposed as a replacement for the indigenous LCA-Tejas, Saab International India’s Vice President Jan Widerstrom told Chindits that the proposal has been in the pipeline for long and Saab has been in talks with ADA for the same. About a year and a half ago, the MoD had floated a global tender to bail out LCA, to which all the six MMRCA vendors responded, and Saab is still in negotiations for the same with the Indian Government, while most of the contenders have backed out, including Boeing.

South Block had demanded software for flight test trials, avionics, flight control hardware etc, and thereby a technology transfer if the same, for which most of the contenders showed reservations.

As per the Offset policy (DPP), the offset obligation doesn’t and cannot demand technology transfer. The big question is that there is no offset in the LCA deal, and tech-transfer is being demanded. However, Saab officials today clarified that they are ready for transfer of aero-dynamics, flight testing software, avionics, flight control hardware as per the package for the LCA help that they want to render.

Returning to MMRCA, the electronic warfare will be a key system, besides 50-60 per cent of the life cycle cost being borne by the engine which is the most critical technology. Being a single engine aircraft, being in competition with Lockheed Martin’s F-16 ‘fighting falcon’, Saab is hopeful of coming out as cost-effective, as compared to the majority which are twin-engined aircraft in the fray, and thus becoming L1. Amen!