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With overseas firms repeatedly accusing the Indian defence projects of having tough offset rules, the Indian Defence Ministry plans to relax these offset rules, especially in the case of the $ 10.2 billion Medium Multi Range Combat Aircraft (MMRCA) which will soon be finalized. Indian Ministry of Defence is expected to come up with a fresh set of guidelines on defence offsets in the near future.
According to reports, the six contenders for the MMRCA contract have pointed out that the offset obligations are hard to fulfill, especially because the obligations have been hiked to 50 per cent of the contract value. The Indian Defence Ministry plans to allow the extension of the period of fulfilling the offset conditions by five years in the MMRCA. The present regulations mandate the vendor to complete the offset requirements during the period within which the contract is being executed and it is co-terminus, or ends simultaneously, with the contract. The Indian Defence Ministry will extend this period by five years.
In addition, the Indian Defence Ministry has also extended the date of submitting offset proposals by all the six competitors by another six months. The last date for submission of offset proposals in the MMRCA deal was April 13, 2011.
Under the present defence procurement procedure, the vendor is obligated to plough back 30 per cent back in India if the defence contract is worth more than $ 66.6 million. This can be done by way of transfer of critical technologies and production of components in India and the foreign vendors must partner with Indian firms. At present, the offset obligation for the MMRCA contract is 50 per cent, which roughly translates into a possible $5 billion worth of business being generated via the offset route.
According to sources, Indian Defence Ministry has also formally allowed all six foreign contractors in the race for the MMRCA deal to fulfil their offset obligations, in part, via the tier-1 foreign sub-contractors executing their projects. In addition, a go-ahead has been given for tripartite memoranda of understanding (MoUs) to be signed among the primary vendor, the sub-contractor and the Indian company that the vendor or sub-contractor may partner in order to fulfill offset obligations. For instance, if any offset obligation is fulfilled by any supplier , it would be treated as having been fulfilled by the primary contractor who is selling the aircraft to the Indian government. The original equipment manufacturer (OEM) will have to take a guarantee for the subcontractors executing the offset contract, failing which the OEM will be held responsible.
Earlier this year, the Defence Ministry set up a committee to study the new areas in which offsets investments could be allowed in the near future to enable India develop its own industrial complex for self-reliance in hi-tech sectors. India has planned to open up new sectors to foreign manufacturers of military hardware to enable them fulfill their offsets commitments. India is aware of the limited capability of the domestic arms industry to absorb the over US $30 billion investments expected to accrue from foreign military purchases over the next decade.
Article courtesy of DefenceNow.com
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