'Revised defence offsets policy will encourage Indian SME sector'

Chennai, May 8 (IANS) A major portion of the defence offsets opportunity for Indian companies is in the areas of engineering outsourcing, maintenance, repair and overhaul, with the revised policy encouraging development of small and medium enterprises, consultancy firm Frost and Sullivan said Tuesday.

"Majority of the offset opportunity in India lies in engineering service outsourcing (ESO), maintenance, repair and overhaul (MRO), enterprise resource planning (ERP), information technology, control systems, research and development," said Frost and Sullivan in a statement.

Under the defence offsets policy, 30 percent of all military hardware deals have to be ploughed back into India's defence, aerospace or homeland security sectors.

Referring to the revised defence offset policy announced by the government last month, Frost and Sullivan said the changes will encourage development ofthe Indian private, small and medium enterprises in procurement of defence equipment and will help these firms accelerate their specific business units.

According to the consultancy firm, over the last five years, India's defence ministry has been spending aggressively towards upgrading and modernising its assets with more technologically advanced alternatives.

"However, 70 percent of India's procurement needs are still met by foreign imports rather than by domestic production. The easing offset norms may help in reversing this ratio and promote the growth of Indian domesticplayers," predicts the firm.

The revised offset norms are expected to create a win-win situation for all the major stakeholders in the offsets programme, that is, the government, original equipment manufacturers (OEM) and local industry, Frost and Sullivan said.

The revised offset guidelines provide an incentive to SMEs by allowing foreign vendors to select micro, small and medium enterprises (MSMEs) as their offset partners by introducing a multiplier of 1.5 for all offsets discharged through them.

This implies that by sourcing $1 million work from Indian MSMEs, a foreign vendor will be able to discharge offset liabilities worth $1.5 million, Frost and Sullivan added.