Saturday, February 14, 2009

Bangalore: Top defence decision-makers at the Aero India 2009 show in Bangalore have declared repeatedly that the economic slowdown would not impact defence spending, which would continue to rise in absolute terms. Today, India’s first 100 per cent defence-oriented investment fund — named the India Rizing Fund — announced its official launch at this biennial air expo.
The India Rizing Fund is a Rs 750 crore venture capital fund, approved by Securities and Exchange Board of India (Sebi) for investing in small and medium enterprises (SMEs) engaged in producing defence equipment. The Foreign Investment Promotion Board (FIPB) has approved raising Rs 550 crore from international investors; the fund expects to raise Rs 200 crore from the domestic market.
Rajesh Narayan, the Managing Trustee of the India Rizing Fund explains why, despite depressed economic conditions, he expects the fund to post strong gains. “There is, first of all, strong government encouragement for privatising defence production to the greatest extent possible. This means growing business for private companies, as defence PSUs and Ordnance Factories outsource production to them.”
“In addition, India’s new offset rules demand that foreign defence majors supplying arms to India will have to source defence goods from India, to the tune of 30-50 per cent of the overall contract value. Already, a string of global majors are in talks with Indian defence SMEs for fulfiling those offset obligations.”
Global majors’ offset obligations are expected to amount to about $20 billion over the coming ten years. Just one contract — the procurement of 126 medium multirole combat aircraft (MMRCA)— will generate offset obligations worth an estimated $6 billion.
The India Rizing Fund is in talks with several global majors, who have a strategic and commercial interest in strengthening the network of SMEs, so that their offset obligations can be fulfiled without difficulty.
14/02/09 Ajai Shukla/Business Standard

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