IT companies to seek government push for defence offset contracts

NASSCOM, the trade association for India’s $60-billion IT industry, plans to seek government help to ensure technology transfer from global defence majors for execution of offset contracts by Indian companies.

By N Shivapriya, ET Bureau | Nov 19, 2009, 01.15 AM IST

MUMBAI: NASSCOM, the trade association for India’s $60-billion IT industry, plans to seek government help to ensure technology transfer from global defence majors for execution of offset contracts by Indian companies. IT companies are one of the beneficiaries of the multi-billion-dollar defence and aerospace contracts that are to be finalised over the next 12 months.

Under the offset clause, overseas suppliers that win these contracts are under obligation to do business worth 30% the contract value locally. In some contracts, such as the $10-billion contract for the procurement of 126 multi-role combat aircraft, the offset is much higher at 50% because of its large size.

The offset business to local providers from this contract alone will be $5 billion. Six large suppliers, Boeing, Lockheed Martin, Mirage, MiG, Eurocopter and Saab of Sweden, have been shortlisted for this contract and are currently carrying out field trials. IT providers are eyeing the opportunity in this and other such offset contracts, including in commercial offsets.

“In aerospace and defence, several countries have restrictions on transfer of these technologies. If you want to utilise the offset in design and engineering services you also need some of these technologies,” Tata Consultancy Services VP (engineering and industrial services) Regu Ayyaswamy said.

Nasscom plans to make a representation to the government pushing for bilateral agreements to simplify technology transfer processes. The Export Administration Regulations (EAR) of the US controls many dual-use items, that have both commercial and military use, while the International Traffic in Arm Regulations (ITAR) controls the export of defence-related articles and services.

Mr Ayyaswamy said the industry was hoping that bilateral agreements could cover at least the transfer of identified technologies. The aerospace and defence sectors are among the largest revenue earners within engineering services business for TCS and Infosys Technologies.

“We see business from this industry as stable with visibility of revenues,” said Infosys Technologies VP and head of product lifecycle and engineering solutions Valmeeka Nathan.

It is also a key focus area for Mahindra Satyam, which has over 3,000 people working for it in engineering services. Aerospace major EADS is one of the top customers for Mahindra Satyam in engineering services.

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