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According to a study conducted by the Associated Chambers of Commerce and Industry of India (Assocham) and Ernst & Young, India’s offset policy will yield substantial returns and will further enable increased research and development and technical innovations in the near future. The estimated figure which India will achieve in the form of reinvestment is $10 billion by the year 2011.
As per the offset policy, it is mandatory to reinvestment in the country 30 percent of all defence deals valued at over $60 million. This policy will not only generate business for small and medium private companies but will also help in the indeginisation and manufacturing of defence equipment.
At present, India sources almost 70 per cent of its defence hardware from international defence companies. Of the 30 percent of the orders placed in India, only nine percent goes to the private sector. There are over 5,000 private sector companies that supply around 20-25 percent of components and sub-assemblies to state owned companies. The report adds that the current defence market for private firms in India is estimated at $700 million in India. Hence, the offset policy will surely encourage private firms to contribute more toward the defence sector once they get orders.
One of the highlights of the study by Assocham and Ernst & Young indicates the potential of Private-Public Partnerships (PPP) which will help in greater indigenization of defence production. The PPP model will help combine the expertise and assets of the both the sectors and will create better products in a cost efficient way. Thus, further employment will be the outcome of tapping the domestic manufacturing sector which will help the economy of India.
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