High value addition from domestic industry sought

NEW DELHI, INDIA: MM Pallam Raju, Minister of State for Defence, indicated that he is not satisfied with the current sourcing pattern adopted by defense vendors from India under 30 per cent offset clause set by the Ministry.

“I will never be satisfied with the sourcing pattern till the value addition from domestic industry goes up. I think that is where the opportunities lie even for semiconductor industry,” Raju told CIOL in response to a question on sourcing pattern under offset clause, on the sidelines of an event organised by Indian Semiconductor Association (ISA) here today.

At present the Ministry of Defence has offset clause, which obligates a vendor selling any kind of defense equipment to the Government of India should ensure that minimum of 30 per cent input in the total cost of equipment is from domestic market.

Raju mentioned that all the international vendors are aware of the size of Indian defense market, they are aware of the offset clause as well as the potential that India has in terms of engineering capability, design capability etc.

“It depends on them as to how they combine it to meet the offset obligation. We are looking for higher value addition under offset and that is where the industry has to step in and make us aware of the capabilities and we will be able to fulfill them,” said Raju.

“There is need for industry wisdom to drive it. Instead of lower value addition coming from the country, we want to see higher value addition like avionics electronics to be part of offset obligation. Then let us say when you are going to avionics, we have components like chips which the industry should come up with and say that 'we have manufacturing capability',” added the minister.

However, according to experts in Indian information communication technology and electronics industry, the vendors had been sourcing low value product and components from the local industry.

“According to data available, in 2008-09, local manufacturing for defense electronics was only Rs 6700 crore. As far as capability of India electronic industry is concerned, it had been operating so far at low value addition margins but it is competent for strategic electronics, especially defense, where there is requirement of low volume but high value addition,” said Rajoo Goel, general secretary, ELCINA Electronics Industries Association of India.

“We can use this capability of Indian electronics industry to build strategic electronic manufacturing base in the country,” he said.

According to a CII—Deloitte report released today, Indian defense procurement would rise to an estimated $42 billion, including $19.20 billion for capital acquisition, by 2015, which could make India as one of the most attractive markets in the World. The report also estimates that India is likely to spend nearly $80 billion for the next five years (2010-2015) as capital expenditure.

Semicon market to boom

According to the ISA-Frost & Sullivan Report on India semiconductor market update 2009—2011, released at the function, the semiconductor market in India is poised to grow at a CAGR of 22.1 per cent to touch $ 8.04 billion in 2011.

"With the completion of the 3G and BWA auctions, there will be increased demand for wireless handsets, 3G network devices, WiMax equipment and notebooks, all of which will provide a fillip to the Indian semiconductor industry," said ISA Chairman Biswadip Mitra.