Dilution of Offset Policy

The government diluted the “offset” policy in defence procurement, reportedly in response to a Comptroller and Auditor General (CAG) of India’s report tabled in Parliament last month.

The move is a setback for augmenting domestic capabilities or for realising the goal of Atmanirbhar Bharat.

 ‘Offset’ policy:

• The offset policy, introduced in 2005, mandates foreign suppliers to spend at least 30% of the contract value in India.
• The 2005 policy helped promote a vibrant aerospace cluster, mostly micro, small and medium enterprises (MSMEs) around Bengaluru
• The offset is an obligation by an international player to boost India’s domestic defence industry if India is buying defence equipment from it
• The policy was adopted on the recommendations of the Vijay Kelkar Committee.
• Developing country buyers often lack an industrial base and research and development (R&D) facilities.
• However, large buyers such as India seek to exercise their “buying power” to secure defence deals, not just the lowest price.

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Objectives:

• Fostering the development of internationally competitive enterprises.
• Augmenting capacity for Research, Design and Development related to defence products and services.
• Encouraging development of synergistic sectors like civil aerospace, and internal security”.
• Leverage capital acquisitions to develop Indian defence industry by fostering the development of internationally competitive enterprises domestically.
• Partially compensating for a significant outflow of the country’s resources in the large purchase of foreign goods.

Issues with New Policy:

• Misplaced Rationale
• CAG Report
• Impact of New Policy: The dilution means practically giving up the offset clause.
• This would impact India’s prospects for boosting defence production and technological self-reliance.
• Further, India has voluntarily given up a powerful instrument of bargaining to acquire scarce advanced technology.

Way Forward:

• Need for Clear Roadmap
• Review & Proper Implementation of Offset Clause
• Better Regulation & Facilitation

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