Defence production gets ‘Make in India’ boost, offset policy undergoes changes

India has recently signed 25 offset contracts worth $4.87 billion. There are 44 more contracts under various stages of procurement with a potential value of $15 billion for discharge until 2028.
Narendra Modi File Photo PTI photo
In a bid to build domestic capabilities in defence and to link defence production with Prime Minister Narendra Modi’s ‘Make in India’ campaign, India has relaxed its offset policy, exempting foreign firms from obligations, like declaration of Indian offset partners’ name, amount of FDI and value of equipment. Thus under the new deal, any foreign company will not have to declare name of its Indian partner. It can set up its factory in India under new offset rules without declaring FDI and value of machines installed there.

Narendra Modi

Under revised offset rules, vendors can give mandatory details at the time of offset credit. Defence secretary (procurement), not defence minister as in the previous offset policy, will be the final word on any changes within an offset proposal.

There is, however, no change in rules of offset amount, which mandates a foreign firm to invest 30 percent of the contract value in India. Defence economist at Institute for defence studies & analysis Laxman Behera told dna: “The amendment is welcome, but we need more comprehensive policy. India is perhaps the only major arms importing country that has a very modest offset percentage (30%). It should be raised to atleast 50 percent to ensure an enhancement flow of offsets to the Indian industry.”

A senior defence ministry official told dna that new defence procurement policy, likely to be in by the year-end, is likely to change offset amount limit of 30 percent. A 30 percent offset is mandatory in import contacts valued Rs 300 crore or more. In 2005, India had announced its first offset policy.

India has recently signed 25 offset contracts worth $4.87 billion. There are 44 more contracts under various stages of procurement with a potential value of $15 billion for discharge until 2028. The Modi government had agreed to $20 billion dollar worth arms procurement deals. But half of these deals were in limbo due to strict offset policy. India is world’s top arms importer and struggling to make domestic capabilities more competitive and produce high-tech defence equipment through offset policy.

OFFSET POLICY AMENDMENT

Earlier
– Technical and commercial proposal to be submitted at the time of Request for Proposal
– Foreign firms to declare Indian offset partner
– Declare offset obligation i.e. how much amount via FDI, via technology transfer and via import of equipment

Now
– Vendor don’t require any of these to declare at the time of RFP
– Vendor can declare at the time of offset credit; but if found wrong, deal can be declared invalid and penalty imposed
– Vendor can also declare all these thing one year before offset obligation begins