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indcoastThe Indian Defence Ministry is currently revising the Defence Procurement Policy (DPP) 2013 in order to streamline defence programmes. A major component of the changes, which are expected to be announced in 2 months, is the offset policies. Based on information available from Indian news reports, one of the key changes will be that suppliers would have an option to migrate from offset obligations to the ‘Buy and Make’ category. Under the new provision, the total value of Foreign Direct Investment (FDI) in India by a foreign supplier will be counted against offset obligations.

The current FDI cap for the defence sector stands at 49 per cent. Department of Industrial Policy & Promotion (DIPP) Secretary Amitabh Kant was quoted in the Indian media in late March as saying that “for specific cases it could also be increased to 100 per cent”. However, the statement could not be independently verified by MPI. While not much information is available about the proposed revisions, another issue that has come under criticism by international suppliers is the period of performance for discharging offset obligations. This is currently at 5-7 years, which has been criticised as an insufficient amount of time for high-technology. India’s offset policy under the DPP-2013 stipulates that for deals worth over USD 48.1 million (INR 3 billion), the Original Equipment Manufacturer (OEM) must reinvest 30 per cent of the total contract value in India. Since the offset policy was first launched in 2005, it has been revised and updated several times. However, there have been persistent issues with the efficiency of offset dispersals. Defence analysts have repeatedly criticised the policy as being vendor-driven in practice, as opposed to being demand-based. An unnamed source quoted by Indian newspaper The Hindu said, “of the 24 contracts signed between 2007 and 2013, total offset obligations were close to INR300 billion (USD4.8 billion). Ninety per cent of them under-performed their targets and annual offset obligations remained unfulfilled”. This means that the offset programme was directly adding time and cost to defence procurement programmes. The cost of the contract increases as OEMs charge for technology transfers. In addition, meeting offset obligations and ensuring Indian counterparts meet them contributes to increased delay. In the end, it would seem that current offset policies in India slow the procurement process while Indian industry makes no meaningful technological gains. (Source: MPI – Hawk Information)

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