The US is making a strong pitch for India to overhaul its offset policy for defence purchases ahead of President Barack Obama’s visit to India next month.
In essence, offsets in defence, as in civil trade, are compensations that a buyer seeks from the seller for the purchase of goods and/or services. The offset policy in defence purchases means the seller needs to source 30% of the cost of any deal over Rs 300 crore with a higher percentage involved for bigger deals.
Though some of the suggestions put forward are difficult to concede to, the Americans are sparing no effort in pushing for the changes. They have tried to push for it at a senior level, including the recent visit of US trade representative Mike Froman.
Claiming that Indian firms have not yet found its place in the supply chain, the US has said that their firms should not be penalised for delay, unless a “willful default” is found on their part. New Delhi has countered that proving this would be an onerous task.
The other demand from Washington is that US companies should be allowed to perform offsets on behalf of the company given the contract.
US officials have also sought to know what exactly India hopes to gain from these offsets, especially institutions like the Defense Research and Development Organisation.
According to sources, the US is pushing for India to open its changes in the defence procurement procedure for “public comment” before announcing them. But India lacks such a system.
Sources said Froman told senior officials that the US views public comment as a “useful” mechanism in getting to know what “issues” the changes in policy would bring and its overall impact. But introducing this system could benefit lobby groups.
The US has also stressed on bringing greater “flexibility” in the offset policy like reviewing contracts on a “required basis”. In short, the US has argued that “offset contracts shouldn’t be as rigid as defence contracts”.