Small firms to gain big in defence deals

Offset policy to bring in $10 billion business in 6 years

Hundreds of small and medium-sized industries in the defence sector, that for many years had only a limited number of customers in the indigenous defence industry, may now have an opportunity to expand their business.

The recently introduced offset policy of the defence sector promises to open the doors of these firms to huge international orders.

Estimates say that under these offset orders alone, the country's companies can earn about $10 billion in the next five-to-six years.

Typically, such companies manufacture components such as batteries, fuses and bullet-proof jackets, products which till now were purchased only by the Indian armed forces, allied agencies and the Indian Space Research Organisation.

According to the offset policy, for every capital acquisition order of Rs 300 crore and above, foreign companies will procure indigenously produced components or other defence equipment manufactured in the country to the tune of 30 per cent of the worth of the order.

For a company like High Energy, for instance, which manufactures batteries that are used in fighter aircraft and naval torpedoes, the offset policy is an opportunity to grow like never before. According to N Ravi, a deputy general manager with the company, the firm has been in existence for about 25 years and has supplied batteries even for the Agni and Prithvi missile programmes.

Yet, the company's revenues are still in the Rs-25 crore band as it supplies only to the armed forces and ISRO.

Now, the company needs new clients in order to expand. "The offset policy is an opportunity for industries like us to cash in," says Ravi.

However, many small and medium-scale industries are sceptical about the policy. "We have a feeling that orders will be received by the big players in the domestic industry," says an industrialist.

Big private players in the defence sector include L&T, Wipro and Tata Consultancy Services.

Smaller companies are worried that major international companies in the defence sector that supply to India might insist on employing the services of better-known firms.

Meanwhile, the defence ministry has set up the Defence Offsets Facilitation Authority through which foreign companies can locate suppliers in India to meet their offset targets.