The government has promised to rework the defence procurement norms and the policies linked to manufacturing defence equipment in India. Just last week, a draft policy for offsets was floated by the Ministry of defence which proposes several changes to the current norms.
Defence deals are closely linked to the promise of an original equipment manufacturer committing to buy parts or components from the country it is selling to. With the Make in India vision in mind, the Ministry of Defence has put forward a Draft Offset Policy for industry feedback.
The new policy proposes an outcome based approach as against the direct offsets approach earlier and also seeks offsets for specific technologies. The reaction from industry is far from positive, Indian private manufacturers feel the policy is restrictive and seeking specific technologies for offset may not excite Original Equipment Manufacturers (OEMs).
The new policy also fails to clarify how the value of offset will be calculated. While the old policy allowed offset banking, which means generation and accumulation of offset credits prior to the award of the main contract, the new policy is silent on the issue.
MoD says nearly 24 offset contracts have been signed for nearly USD 4.8 billion and another USD 8 billion worth offsets are under negotiation.
Industry experts say OEMs should be allowed to explore opportunities with domestic offset partners while negotiations are underway which normally takes two-five years.
The new policy lays emphasis on setting up manufacturing capabilities, but industry argues the policy is silent on augmenting research, design and development capabilities within the country.
The policy puts skill development as objective of offset policy, but industry sources point out skills development should be the outcome rather than objective.
The new offset policy proposes to be applied to ‘Buy Global’ category only, where India is buying from global OEMs through global tenders. Industry wants this definition to be extended to Buy & Make category, that is where industry imports material from an OEM and Makes in India based on transfer of technology.
The new proposed policy disallows offset if an Indian company is bidding or is part of the joint venture bidding for 'Buy Global' category. The industry wants this to be extended to Indian companies provided they value add at least 51 percent to the value of asset procured.
The policy maintains offset at 30 percent on defence procurement, it further keeps the door open to increase the offset content based on the requirement of defence forces at the time of requirement.
Industry experts want the government to recognise investment in JV or manufacturing facility of domestic partner as an additional avenue to discharge offset.
The new offset policy restricts the role of OEM and private sector by making the Defence Research and Development Organisation (DRDO) point of authority for technologies and offsets. Industry experts say this goes against the idea of giving the private sector parity with defense PSUs.
Further, they argue that OEMs should have flexibility in deciding the offset partner and private sector should have a role in deciding the technology that needs to be part of the offset. Private players will amend the draft policy to incorporate the feedback.
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