Offset policy to cover civil aerospace, power, fertilisers, among other sectors

The Commerce Ministry has proposed that foreign suppliers of goods to the Centre and public sector units valued over ₹300 crore be subject to compulsory domestic sourcing obligations fixed at 30 per cent of the value.

Sectors where the sourcing obligation could apply include civil aerospace, power (including nuclear), fertilisers, space, railways and other transportation, shipping, mining, steel, special metals, medical equipment, medicine, telecom and electronics.

The obligation will be applicable only for procurement for non-commercial purposes by the Government, which is estimated at $100 billion annually. Several other countries, including China, have been benefiting from an offset policy for long. In India, the offset clause can be used for attracting investments acquisition of technology, raw material and assets, and improving the balance of payments, a Commerce Ministry official said.

In the draft ‘national offset policy’, which specifies the parameters for imposing offset or domestic sourcing obligations on foreign suppliers, the Commerce Ministry has suggested setting up a National Offsets Authority headed by the Cabinet Secretary to monitor the mechanism.

“Since an offset policy already exists for the defence sector, we have excluded it from our proposal. Other sectors could be added to the list if required,” the official told Business Line.

Vetting process

The proposal is to be vetted by a Committee of Secretaries headed by the Cabinet Secretary before it is sent to the Cabinet for final approval. Apart from the Ministry of Coal, most Ministries and Departments have supported the proposed policy, the official said.

As the proposed policy allows cross-sectoral linkages, the foreign supplier can fulfil domestic sourcing obligation by sourcing from a different sector. Therefore, the number of sectors that can benefit from the policy is much wider than the number of sectors where the policy would be applicable.

The benefiting sectors also include social sectors such as education, software and infrastructure development. There is also a negative list for offsets, which include import and export of services and export of agricultural products, mineral and ores.

(This article was published on January 31, 2014)
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