Sept 22, 2011
India’s Tier– 3 suppliers of defense products say business cannot take off till the government relooks at a clause in its offsets policy that does not permit OEMs to get offsets if they do not make the order direct.
“We are getting a poor deal as a result. For instance, a foreign OEM now gives the order to a company like Tata that has a host of companies with different products. This gives the OEM benefit of offsets instead of having to source it through its partner……The products are more expensive and the benefits are not coming down to tier 3 suppliers as a result,” says Pradip Mehta, Senior Advisor, Elcom Systems, a subsidiary of the Sun Group.
Mehta says the defense industry is increasingly getting dominated by large companies like L&T, Godrej, Tata and Mahindra.
Elcom Systems has ambitions to join the OEM value chain for India and internationally. It is looking at manufacturing components, harnesses and avionics to tap the opportunity that is increasingly opening up for Tier 3 suppliers to honor offset obligations of OEMs.
It is looking at turning its 212,000 sq ft built up area warehouse in Bangalore to a manufacturing facility. The company has 10 acres in Mohali, where the salubrious climate, Mehta says will be ideal for avionics manufacture.
Elecon is looking for partners in its venture. “We will learn to walk before we run,” says Mehta.