Foreign arms-makers must invest 30% in India

The government on Thursday made it mandatory for all major foreign armament companies winnings contracts worth more than Rs 300 crores (Rs 3 billion) to necessarily invest thirty per cent of the amount in the country as direct offsets.

This is one major change carried out in the Defence Capital Procurement Procedure manual released by Defence Minister Pranab Mukherjee in New Delhi. Under the new procedure, the foreign arms major will also have to sign an integrity pact to ensure that no "unfair and unethical" means were employed in winning the deals.

The government in the revised manual has also broad-based the qualitative requirements and inserted a standard contract document to make procurement speedy.

Elaborating on the direct offsets, Mukherjee said, "We want to leverage our high purchasing power to help the domestic defence industry."

While pointing out that massive armament deals like purchase of Six Scorpene Submarines under technology transfer from France had not yet been fully finalised, the defence minister asserted that this year's capital outlay expenditure of more than Rs 34,000 crores (Rs 340 billion) would be fully utilised.

"We may have to ask for supplementary grants under this head as we want to speed up modernisation drive", Mukherjee said.

On the plans of Indian Air Force to purchase 126 Medium Range Combat Aircraft, Mukherjee said the project had not yet reached the request for proposal stage, with some new dimensions emerging with United States for the first time offering to sell high technology aircraft to India.

But the defence minister made it clear that he was not "going with a shopping list" during his forthcoming visit to the US.

He also said that decision makers in the ministry and service headquarters had been given definite time frames for armament acquisitions, so that contracts, when signed, also identified delivery schedules.

On the integrity pact, which also would have to be signed by foreign arms suppliers, Mukherjee said this was the new emerging trend in the global arms market and under it both the suppliers as well as purchasers would have to sign before negotiations were opened for any deals.

The revised procurement manual also sets out joint qualitative requirements for purchase of weapon systems common to the three services.

The minister said the manual had been prepared incorporating suggestions by Central Vigilance Commission, Comptroller and Auditor General and by the manufacturers and users.

Mukherjee said the procurement manual may be further revised once the second part of the Kelkar Committee recommendations were received.