NEW DELHI - India’s defence offsets policy that mandates the reinvestment in the country of a percentage of all big ticket deals is expected to bring in $10 billion by 2011, says a new study.

The study by the Associated Chambers of Commerce and Industry of India (Assocham) and Ernst & Young says that as India has a large industrial base, offsets will further develop its technical and manufacturing potential and will also help increase investments in domestic R&D.

‘The policy is also expected to hugely benefit small and medium enterprises and is conducive for private companies to have a larger presence in the defence set up,’ an Assocham release said.

The offsets policy mandates the reinvestment in the country of 30 percent of all defence deals valued at over Rs.3 billion ($60 million).

Releasing the study, Assocham president Sajjan Jindal said a host of Indian companies could benefit from the offsets policy and this would further boost the country’s economy in the near future.

‘The offsets policy is expected to generate market-entry opportunities for private companies to invest in research and development and manufacturing of defence goods,’ Jindal added.

Currently, about 70 percent of military hardware procurement is from foreign sources because the Indian public sector cannot deliver in terms of quality or speed. Of the 30 percent of the orders placed in India, only nine percent goes to the private sector.

More than 5,000 private sector companies supply around 20-25 percent of components and sub-assemblies to state owned companies, the study says, adding that the current defence market for private sector firms in India is estimated at $700 million.

‘This spend will further increase since the Indian defence industry is determined to increase the participation of private players.’

The study also lists the advantages of creating public-private partnerships (PPPs) in the defence manufacturing sector. Among these are:

* PPPs enables the defence ministry to exploit industry’s comparative advantage and expertise where the generation of inhouse military capability is less cost effective, thereby ensuring value-for money.

* Through mutual trust, the combining of complementary assets and the identification of shared objectives, PPPs can draw on complementary contributions to compose a package that makes good business sense for the defence ministry and industry partners

* PPPs also make a strong case for greater indigenisation of arms production as they not only give a huge impetus for the domestic manufacturing sector to grow but also create employment opportunities.