Welcome back to India Defence Online...If you haven't done so yet, subscribe to the RSS feed as it will save you a lot of time. Thanks for following the site!
India Defence Online, New Delhi-- The Defence Acquisition Council (DAC), the Indian Defence Ministry’s apex body, is shortly expected to take some tough decisions regarding the Defence Offset Policy. The Defence Ministry has been wary of any changes in the policy since it would benefit foreign players and push back the local Indian industry. However, consistent pressure from international players and other industry bodies has forced the DAC to consider changes in the offsets.
The current offset policy stipulates that international firms that win defence contracts above $66.6 million must invest back at least 30 per cent of the value into Indian defence production or research and development in India. However, the international vendors as well as industrial bodies feel that India cannot absorb the over $10 billion worth of offsets that has been speculated in the next five years.
One of the key issues in the offsets policy that seeks amendments is the services that fall under the purview of the offset obligations. Some of the services include upgradation, life extension, engineering, design, testing of defence products, defence related software or quality assurance services. The DAC may include other options including training in this offset clause. The DAC is also considering the liberalisation of the policy that will enable indirect offsets in civil aviation and homeland security which is being pushed by the US-India CEOs Forum.
A crucial amendment that may be effected in the offsets policy is that the transfer of technology may be allowed to function as offset credit. The current modus operandi is that the Defence Ministry pays for technology transfer upfront. However, this new amendment may lead to the foreign vendor to circumvent its offset obligations to a large extent. This is also an area of concern for the Defence Ministry. It is felt that India could end up paying much higher than what that technology actually cost since its cost is not a stipulated amount and it can be overstated and pushed up by the vendors.
Other changes in the offset policy may include the permission to foreign vendors to invest ‘in kind’ in the Indian defence industry. While the current policy allows foreign direct investment (FDI), the above-mentioned permission to allow investment ‘in kind’ will enable vendors to claim the supply of goods and services as offsets.
Ever since offsets policy was introduced in 2006, pressure from the international vendors has been mounting due to the inadequate incentives and a lack of level-playing field. Recently, six defence and aerospace bodies representing almost every major US, British, German, French and Canadian arms corporation has sent a joint memorandum to the Indian Defence Ministry seeking liberalisation of the offset policy.
From the Indian perspective, the opinions are somewhat divided. The industrial bodies like the Federation of Indian Chambers of Commerce & Industry (FICCI) and Confederation of Indian Industries (CII) feel that raising the FDI limit from the current 26 per cent will not ensure transfer of technology since that is related to the government of the country and not the foreign vendor. In fact, raising the FDI to 49 per cent will ensure more clout to foreign vendors and their domination in joint venture and the management and culture of the businesses. Only if certain terms are met, the FDI can be raised to 49 per cent. However, other industrial bodies like ASSOCHAM feels that defence is as an opportunity for mass manufacture rather than high-tech capability creation and liberalising the policy would benefit India as well. They feel such protectionist views of the Defence Ministry may stifle the growth of defence related business in the country.
Indian defence news and strategic intelligence
Related posts:
- Indian MOD to Announce New Policy Changes India Defence Online, New Delhi – Faced with criticism for...
Related posts brought to you by Yet Another Related Posts Plugin.
