Defence Offset Policy: MoD announces easier offset norms

NAYANIMA BASU New Delhi | Updated on January 22, 2018

In a massive boost to ‘Make in India’, the government on Wednesday announced easier offset norms for the defence deals by amending the 2013 guidelines. Under this it has given greater flexibility to the foreign firms in choosing their Indian partners and re-introduced the option of ‘services’ to meet offset obligations.

In amending the offset policy, the Ministry of Defence (MoD) has empowered the foreign players to change their Indian Offset Partners and thereby providing a level playing field to Indian vendors in capital acquisition.

“Vendors had been expressing difficulty to upfront provide specific description of products and their work share, supporting documents to establish eligibility of Indian Offset Partners and yearly discharge schedule. This is primarily due to the time lag between submission of technical offset offers and finalisation and subsequent implementation of offset contracts. As a result there were frequent contract amendment requests from vendors,” MoD stated in a release.

However, the most significant change in the offset policy has been the introduction of services such as research and development (R&D), maintenance, repair and overhaul (MRO) and technology tranfers among others to discharge their offset requirements.

This relaxation was banned since May 23, 2013 “due to absence of any regulatory oversight mechanism for services” the release said.

The new policy also ensures that there will not be anymore frequent contract amendment requests from vendors. This is because it is ultimately it is the MoD that suffers the delay in procuring the military equipments.

Hence, it has laid out a two-pronged strategy for mitigating perceived bottlenecks during pre and post contract stage has been evolved through recent amendments to offset guidelines.

“At pre-contract stage option has been given to the vendors to submit detailed offset proposals at a later stage. The vendor can finalise his Indian Offset Partners and offset product details one year prior to the intended offset discharge, or can even undertake the offset activity and submit claims thereafter. This will facilitate vendors to finalise a more realistic offset offer,” the release said.

According to Amber Dubey, partner and head of aerospace and defence at global consultancy KPMG, global OEMs find it tough to provide all details related to Indian partners at the time of bidding given the 6-8 year long-drawn procurement process.

“This will exert greater pressure on existing Indian partners to improve their performance and encourage new players to enter this space as alternate vendors. Making it flexible enhances the ‘Ease of doing business’ aspect,” he said.

On restoring services, he said, this is India’s strength and needs to be supported. A blanket ban on allowing services like R&D, MRO, equipment upgrades and IT software was a “gross over-reaction.”

The MoD also said Indian vendors participating in ‘Buy Global’ cases were at a disadvantageous position in terms of fulfilling offset obligations. In order to promote ‘Make in India’, a level playing field has been provided and an Indian vendor has been brought at par with the foreign OEM in terms of fulfilling offset obligations

“Hitherto most of the vendors put PSUs as their prime contractor at the time of bidding and the private sector was losing out. This is set to change with the flexibility announced in the new policy,” highlighted Sanjay Soni, President of Bengaluru-based Si2 Microsystems.

Published on December 23, 2015

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