The government has decided not to have an offset clause (Defence Acquisition Procedure, 2020) in procurement of defence equipment if the deal is done through inter-government agreement (IGA), government-to-government or an ab initio single vendor. The offset clause requires a foreign vendor to invest a part of the contract value in India.
Features of Offset Clause
- Under defence offset, a foreign supplier of equipment agrees to manufacture a given percent of his product (in terms of value) in the buying country. Sometimes this may take place with technology transfer.
- The defence offset policy is a part of Defence Procurement and Procedure (DPP).
- Major feature of the 2016 offset policy is that it increased the threshold of defence offset to Rs 2000 crore from the previous level of Rs 300 crores under “buy” and ‘buy and make” categories.
- Only for those purchases of above Rs 2000 crore, the foreign company has to ensure 30% domestic value addition in India.
Objectives of Defence Offset Policy is to leverage capital acquisitions to develop Indian defence industry by:
- fostering 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
Offset obligations may be discharged by any one or a combination of the following methods:
- Direct purchase of or executing export orders for products manufactured by or services provided by Indian enterprises.
- Foreign Direct Investment in joint ventures with Indian enterprises
- Investment in ‘kind’ in terms of transfer of technology (TOT) to Indian enterprises
- Investment in ‘kind’ in Indian enterprises in terms of provision of equipment through the non-equity route
- Provision of equipment or TOT to Government institutions and establishments engaged in the manufacture and maintenance of eligible products and provision of eligible services, including DRDO
Source: Indian Express
