Centre drops offset clause in govt-to-govt arms deals

Under the clause, companies were required to invest part of their deal value in India

Elizabeth Roche
Updated29 Sep 2020
The offset clause in the Rafale jet deal with France has failed to ensure any technology of transfer so far. Reuters
The offset clause in the Rafale jet deal with France has failed to ensure any technology of transfer so far. Reuters

The Union defence ministry has done away with the offset clause in inter-governmental agreements (IGAs) in the revised Defence Acquisition Procedure (DAP), 2020, which was made public on Monday.

The move comes days after the Comptroller and Auditor General (CAG) of India said in a report that French defence firms Dassault Aviation and MBDA have till date “not confirmed” the transfer of technology to the Defence Research and Development Organisation under the 59,000 crore deal for 36 Rafale multi-role fighter jets.

“We removed some of the offset requirements as they are not working. From now on, there will be no offset clause in government-to-government, single vendor and IGAs,” said the director general, acquisition, of the defence ministry, Apurva Chandra.

Under the offset clause, foreign firms were required to invest part of their deal value (30-50%) in India to boost domestic defence manufacturing. No offset has led to a transfer of technology, he said.

It was also brought out in the CAG report that was tabled in Parliament last week, he said.

“Offset guidelines have also been revised, wherein preference will be given to manufactures of complete defence products over components and various multipliers have been added to give incentivization in discharge of offsets,” defence minister Rajnath Singh said in a Twitter post.

The revised DAP also said that indigenously designed, developed, and manufactured armaments and defence hardware must have at least 50% indigenous content, up from 40% mandated in 2016. If a defence platform is manufactured in India, it must have 60% Indian content, it said.

The policy, “aligned with the vision of Atmanirbhar Bharat”, seeks to empower domestic industry through the “Make in India initiative”, the ministry said.

The draft was finalized by a committee headed by Chandra , which was set up in August 2019.

Other features of DAP 2020 include exploring the willingness of prospective foreign vendors to undertake manufacturing and setting up an indigenous ecosystem at the spares or sub-component level when a request for information is issued for the acquisition of a platform.

It also has provisions to encourage a foreign vendor to set up a subsidiary in India for manufacturing either the entire platform or part of it, or its spares or the maintenance, repair and overhaul facility. It also includes the buyer’s right to optimize life-cycle support costs and system enhancements through an indigenous ecosystem.

Indian industry welcomed the DAP. “The DAP has created pragmatic avenues for foreign OEMs also to manufacture in India on their own and in collaboration with Indian industries,” said Chandrajit Banerjee, director general, Confederation of Indian Industry.

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