By Aritra Banerjee & Vaibhav Agrawal
Defence Ministry officials recently revealed that at least half of India’s offset obligations have not been adhered to. These unfulfilled offset obligations span 57 contracts and amount to $13.52 billion. The Ministry of Defence has cracked down on defaulters, imposing heavy penalties on Original Equipment Manufacturers (OEM) between 2013 and 2021.
The fines levied on the companies were a clarion call for foreign firms which had secured contracts with the Indian Armed Forces. The profound impact these fines had on Textron can be seen as a case study on the impact of the Government of India’s offset penalties on foreign OEMs not fulfilling their offset obligations as part of contractual mandates.
220 domestic companies are listed as Indian offset partners with the defence ministry. Industry analysts and MoD officials believe that soon, at least a dozen more offset contracts could be subject to penalties.
The Textron Saga: When Penalties Have Teeth
Textron Inc is an American industrial conglomerate. Textron India Private Limited is a wholly-owned subsidiary of the former. The United States-based multi-industry firm has businesses in defence, aerospace, and aviation, most notably through Bell, Textron Systems, and Textron Aviation. The former two have a significant portfolio of military products.
In 2011 Textron announced a $257 million deal to supply 512 Sensor Fuzed weapons (cluster bombs). These air-delivered cluster munitions were designed to eliminate multiple targets spanning a wide area.
Under India’s offset policy, 30% of the deal was meant to be spent on the country’s defence and aerospace industry. The defence ministry at the time conveyed that a further fine of $8 million could be imposed if Textron failed to discharge its offset obligation on the deal.
Things began going south for Textron after it defaulted on its offset obligations for a Sensor Fuzed Weapon contract and had a $300,000 offset penalty imposed on it by the MoD in 2018. The penalty was levied from Textron’s $12.85 million bank guarantee when the contract was inked.
The fines levied had a debilitating effect, leading the company to wind down its business operations in India after seeing a bleak revenue stream. Textron had previously supplied CBU 105 Sensor Fuzed weapons to the Indian Air Force (IAF).
Textron makes a wide range of defence products, from the Bell range of helicopters to the state-of-the-art Beechcraft T-6 Military Trainer and the V22 Osprey, which Textron makes in collaboration with Boeing. Before the penalties were imposed on the company, Bell Helicopters was seen as a prime contender for the naval utility helicopter contract and was in talks with Tata Advanced Systems Limited (TASL).
These developments have cast a shadow on the former’s participation in the Rs. 12,000 crore bid for utility helicopters for the Indian Navy. The company had pitched several product offerings for Indian military applications; prominent among them were the Scorpion Light Attack Jet and the T-6 Trainer. There were preliminary discussions carried out for its multi-mission tilt-rotor V22 Osprey.
Textron peaked in its success in the Indian market in 2011 after its delivery of cluster bombs. However, it has failed to remain competitive in the decade that followed. It was reported in 2018 that Textron would be closing its corporate office in New Delhi owing to a lack of business opportunities; however, it would continue to maintain its presence in the country with its engineering facilities in Bangalore.
IA&D had reached out to Textron; however, the company did not respond to request for comment. It may be poignant to note that the point of contact on the company’s website was outdated and led to an executive no longer associated with Textron Systems. Any comments, if received, will be added as a rejoinder.
