The Ministry of Defence is taking a good, hard look at its offset policy applicable to all capital acquisitions valued above Rs 300 crore. Chances are that the government's revised defence procurement policy, to be released this April, will also modify some provisions of the offset policy to make it less rigid.
The offset clause, in its present shape, makes its mandatory for foreign vendors to create commercial activity in the Indian defence industry equivalent to 30 to 50 per cent of the contract value. Investments cannot be made in non-defence sectors, as 'indirect' offsets are not permitted.
Pradeep Kumar, secretary, defence production, said on Tuesday that the MoD was looking at fine-tuning the offset policy. "We have received suggestions from the industry. We are looking at the offset policy in the light of that feedback," Kumar said.
Foreign vendors, eyeing business of over $30 billion in the great Indian arms bazaar by 2012, have been lobbying hard for more "broad-based" offset norms. They say a fair balance between direct and indirect offsets would offer wider scope for business. However, Kumar did not specify whether the government would allow investments to be distributed across the non-defence sectors.
Until last year, the MoD appeared disinclined to experiment with indirect offsets as it saw no rationale in attracting investments in social, infrastructure or any other sector where the country already had a certain degree of expertise.
At least $10 billion will flow into the country during the 11th Plan period (2007-2012) through offset agreements. Defence Minister AK Antony has in the past expressed concerns about the capability of the indigenous industry, both public and private, to absorb these investments.
The 475-odd defence firms, taking part in Defexpo-08, which gets rolling on February 16, will be keeping track of the changes that the government proposes to bring about in its latest procurement policy. Antony said, "The defence industry summit, a key part of Defexpo, will bring updates on Indian defence procurement procedures and the offset policy." The four-day Defexpo, a land and naval systems exhibition, would showcase India's emergence as an attractive market as well as an investment destination for joint ventures in the defence industry, ministry officials said.