Like many other countries, India has a formal offset policy to enable it
to leverage its huge arms imports in order to develop a strong
indigenous defence industry. The offset policy, which was formally
announced for the first time in 2005, has been revised several times,
with the latest policy coming into force since August 2012. As per the
extant provision of the policy, a 30 per offset is mandated in import
contracts valued Rs 300 crore or more. Till December 2014, the defence
ministry had signed 25 offset contracts– 16 for the Air Force, six for
Navy and three for Army – valued at $4.87 billion.
However as
highlighted in the successive reports of the Comptroller and Auditor
General of India (CAG), India’s experience of offsets has been less
than satisfactory.The CAG observed
that offsets in some contracts did not result in any value addition in
India; that the foreign companies had a free run in selecting ineligible
Indian offset partners for discharge of their obligations; and that the
monitoring mechanism for offset contract implementation was weak.In the procurement of
Low Level Transportable Radar (LLTR), the French company, Thales
was allowed to have Thales International India, its 100 per cent Indian
subsidiary, as its Indian offset partner to discharge a part of its total
offset obligations of $ 34.8 million. In the case of the Euro 159.3
million fleet tanker contract with Fincantieri (signed on April 23 2008),
the Italian company was also allowed to have two foreign subsidiaries
(Wartsila India Ltd and Johnson Pumps Ltd) as its Indian offset partners
to discharge part of its Euro 41.6 million offset obligations.
Complementing the audit findings of the CAG, this
monograph presents further evidence, indicating the poor impact of
the policy on Indian defence industry.
Beyond Defence: Offset Policy at National Level
Some countries including India have an offset policy that operates within
the narrow prism of defence procurement only. In other words, the
offset requirement is not applicable for the non-defence sector. South
Korea and Israel are, however, figure among the countries whose offset
policy is applicable at the national level for both defence and civil
procurement. In the case of Israel, the offset requirements, as enshrined
in its official Industrial Cooperation (IC) guidelines, can be applied to
any procurement by the state, government corporations and public
agencies when the value of the purchased foreign goods or services
exceeds $5 million. Moreover, Israel is also in the process of bringing
municipal authorities under the offset purview, enabling contracts such
as for sewage treatment, water treatment, power systems, etc. to
mandatory industrial cooperation conditions.
Download the report: Laxman K Behra
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