Tuesday, 20 April 2010
To get an idea of the money at stake here, a recently released CII-KPMG report estimates that India will buy foreign weaponry worth some US $100 billion (Rs 4,50,000 crores) over the next 12 years. Going by this extremely conservative estimate (actual figures could be 50% higher), Indian defence companies will have to anchor at least US $30 billion (Rs 1,35,000 crores) in offsets business by 2022. That averages out to about Rs 11,000 crores every year.
So how will the skulduggery be structured? Let’s look at a hypothetical offsets tie-up between a hypothetical foreign company --- let’s call it Shipping, Communications and Munitions International, or SCAM International --- and an equally hypothetical small Indian company called 15% Partners. Each year, SCAM International will hand the MoD an offsets compliance certificate, along with a copy of an invoice from 15% Partners, as proof that goods worth US $100 million were manufactured and shipped by the Indian company. Actually, the goods were worth only US $35 million, but both companies had quietly agreed that 15% Partners would hold the excess amount on behalf of SCAM International. The Indian company is entitled to a fee of --- you guessed it --- 15% for its services. That means 15% Partners now has effective custody of US $50 million on behalf of SCAM International.
Within the MoD there is disquiet; many bureaucrats fear that offset scams will have the potential to end promising careers. But there is little expectation that Defence Minister Antony, with his unblemished record of policy paralysis, will allow clarity to creep in unnoticed. And so bureaucrats are passing the buck. The Department of Defence and the Department of Defence Production are each trying to make the other responsible for offsets, hoping that, when the music stops, they will not be holding the parcel.
Posted by Broadsword at 06:28
Read full Potential of SCAM:
India’s next big scam…by Ajai Shukla: Business Standard, 20th Apr 10
Filling the submarine gap
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