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Govt may ease rules for large overseas defence contractors

Govt may ease rules for large overseas defence contractors
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First Published: Mon, Jul 11 2011. 12 15 AM IST
Updated: Mon, Jul 11 2011. 12 15 AM IST
New Delhi: India may ease rules in the next few weeks for large overseas defence contractors on sourcing components from domestic vendors.
Foreign firms may be allowed to cite project and supply chain management costs and provide financial services, via intermediaries, to small and medium-scale enterprises as part of their so-called offset obligations.
The defence ministry has invited industry executives on 15 July to discuss these issues, two people aware of the development said, requesting anonymity.
Under India’s offset policy, overseas original equipment manufacturers that win defence contracts worth more than Rs 300 crore have to source components worth 30-50% of the value of the contract from Indian vendors.
The policy aims to develop the indigenous defence industry. Indian defence industry executives are not happy about the proposed changes.
“While the value of the product sourced or services procured is offsetable, the cost incurred in doing this should not count,” said an executive. “The reason is that the exact cost of project management cannot be calculated and hence there is a risk of it being inflated just to fulfil as much offset credit as possible.” The executive spoke on condition that neither he nor his firm be named.
Project management, he said, is an activity you carry out in support of your business, such as seeking legal advice. It is not the main objective of the business, and should not be counted.
Retired colonel and defence analyst with PricewaterhouseCoopers India Rajiv Chib agreed. “Such proposals make little sense,” he said. “The industry will reject them.”
The defence ministry was looking at reforming the defence offsets facilitation agency (Dofa), which implements the policy on counter-trade obligations, Mint reported on 2 February.
Mint also said the ministry was also looking at the possibility of bringing transfer of technology under the ambit of the offset regime and linking the latter with multipliers.
The offset multiplier is a coefficient that indicates the increase in the nominal value of the offset obligation with benefits at the time of fulfilment of the obligation.
Another reform under consideration is increasing the maximum period allowed for banking offset credits to five or seven years, Mint said.
Under the offset banking provision introduced in 2008, the government permits foreign suppliers to trade in offset credits and carry it forward by up to two years.
In a revised procurement policy announced on 6 January, the government brought civil aerospace and internal security equipment under the ambit of offsets.
Between March 2007 and September 2010, the Indian private sector participated in 51 offset proposals totalling Rs 45,367 crore, which are at various stages of implementation, Mint had reported on 24 January.
aman.m@livemint.com
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First Published: Mon, Jul 11 2011. 12 15 AM IST