Out of Rs 833-cr deal, Israel’s Elta to invest 250 cr in India

Israeli defence contractor Elta has become the first firm that will make mandatory investments in India under the new offset clause that has been made standard for all contracts worth Rs 300 crore or more.

Israeli defence contractor Elta has become the first firm that will make mandatory investments in India under the new offset clause that has been made standard for all contracts worth Rs 300 crore or more. Bagging a deal worth Rs 833 crore for medium power radars for the IAF, Elta will invest 30 per cent of the amount, about Rs 250 crore, back into Indian industry.

The mandatory offset clause, first introduced in June 2005, was amplified and made a permanent fixture in the Defence Procurement Procedure (DPP) 2006, released on August 30.

Elta, the subsidiary of Israeli Aircraft Industries (IAI) that specialises in radars and other defence electronics, has chosen to infuse the Rs 250 crore into private sector companies Larsen and Toubro and Hyderabad-based Astra Microwave, which will both receive technology and know-how to develop the radars and other systems in-house. Both companies are already leading players in the nascent private sector defence industry, both involved in strategic programmes that include missiles, submarines and warships.

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But the execution of India’s first offset benefit is no indication that the offsets as a whole are straightforward. For now, South Block will only allow offsets invested in defence industry, private or public sector, though foreign firms are now clamouring for greater flexibility in choosing sectors in which to reinvest offset funds.

Defence Production Secretary KP Singh today said, “Every vendor has a separate wish. Each one wants to get over the offsets without too many tears. But offsets should give our defence industry tangible benefits in terms of better technology and infrastructure. Therefore, offsets are limited to defence industry.”

The next big contract that will have mandatory offsets is the purchase of 126 fighters. The offsets here will be enormous, to the tune of $2.1 billion. The Defence Ministry expects that $10 billion will flow into the country as offsets over the next 10 years.