In­dia en­larges scope of off­sets, gives OEMS more lee­way


[By Vishal Tha­par]

Sev­eral key de­mands of for­eign OEMs have been in­cor­po­rated into In­dia’s Re­vised De­fence Off­sets Pol­icy, which was put in place re­cently. The ob­jec­tive is to make off­sets de­liv­ery more doable. Wor­ries were be­ing ex­pressed by for­eign sup­pli­ers over de­liv­er­abil­ity be­cause off­sets obli­ga­tions for big deals like the MMRCA are to the tune of $10 bil­lion. The OEMs have to buy or ex­port from In­dia per­mit­ted items to dis­charge off­sets obli­ga­tions.

The list of items avail­able for dis­charge of off­sets have now been ex­panded. These in­clude more types of ships un­der the cat­e­gory ‘ Ves­sels of War’. Un­der the DPP 2011, In­ter­nal Se­cu­rity and Civil Aero­space were added to the list of off­setable items. The cat­e­gory of In­ter­nal Se­cu­rity has been fur­ther widened and clar­i­fied un­der the new heads of In­land and Coastal Se­cu­rity. Ear­lier, only 13 cat­e­gories of de­fence items were per­mit­ted as off­sets.

In an­other sig­nif­i­cant con­ces­sion, Ser­vices will be treated as off­sets. Re­pair will also be per­mis­si­ble. Ear­lier, only main­te­nance, and not re­pair, was al­lowed. This had im­pli­ca­tions for in­vest­ments in main­te­nance, re­pair and over­haul (MRO) fa­cil­i­ties. Re­search and De­vel­op­ment will also be treated as an off­setable ser­vice, pro­vided such fa­cil­i­ties are set up at Gov­ern­ment-recog­nised fa­cil­i­ties.

A sig­nif­i­cant con­ces­sion in the re­vised pol­icy is the right of the OEM to change the In­dian Off­set Part­ner (IOP) as well as the off­set item. Other high­lights in­clude the ex­ten­sion of off­set bank­ing to seven years.

Max­i­mum time per­mis­si­ble to dis­charge off­set obli­ga­tions has been re­laxed to two years be­yond the du­ra­tion of the main con­tract.

Also, there will be lim­ited li­a­bil­ity in case of de­fault. A penalty of 5 per cent will be charged on un­ful­filled obli­ga­tions, with an over­all cap of 20 per cent. Ear­lier, a five per cent com­pound­ing penalty was pre­scribed with no up­per limit stated. OEMs stand to be barred for five years in case of non-ful­fill­ment of obli­ga­tions.

Mul­ti­pli­ers will be of­fered as en­cour­age­ment for in­tro­duc­ing MSMEs as In­dian Off­set Part­ners. Trans­fer of tech­nol­ogy both to the DRDO and pri­vate sec­tor will also earn mul­ti­pli­ers. Trans­fer of dual use tech­nol­ogy will be en­ti­tled to ad­di­tional mul­ti­pli­ers.

Off­set cred­its have been more clearly de­fined. The value of im­ported com­po­nents will be dis­counted. In terms of in­vest­ment for off­sets, a clear dis­tinc­tion has been drawn be­tween FDI and in­vest­ment in kind.

A De­fence Off­set Man­age­ment Wing has been in­tro­duced un­der the Depart­ment of De­fence Pro­duc­tion as the sole agency to en­sure ful­fil­ment of off­set obli­ga­tions af­ter the sign­ing of the con­tract. It’ll be headed by a joint sec­re­tary. The pre-con­tract re­spon­si­bil­ity for ap­prov­ing off­sets will continue to be with the Ac­qui­si­tions Wing.

OEMs will be re­quired to file a half-yearly off­set dis­charge progress re­port. An an­nual ap­praisal will be done by the De­fence Ac­qui­si­tion Coun­cil, with the joint sec­re­tary De­fence Off­set Man­age­ment Wing sub­mit­ting an an­nual re­port on progress of all off­set pro­grammes.

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