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Home >News >India >In new weapons buying policy, govt drops offset clause for govt-to-govt defence deals

The Defence Ministry has done away with the offset clause in government-to-government and Inter-Governmental Agreements (IGA) in the revised Defence Acquisition Procedure (DAP) 2020, which it made public on Monday.

The move comes days after the Comptroller and Auditor General (CAG) in a report said that French defence firms Dassault Aviation and MBDA have till date “not confirmed" the transfer of technology to the Defence Research and Development Organisation (DRDO) under the 59,000 crore deal for 36 Rafale multirole 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," Director General Acquisition Apurva Chandra told reporters.

Under offset clause, foreign firms are required to invest part of their deal value – 30%-50% -- in India to boost domestic defence manufacturing. According to Chandra, no offset has led to a transfer of technology. This was also brought out in the CAG report that was tabled in parliament last week, he said.

Defence Minister Rajnath Singh in a Twitter post said that the “offset guidelines have also been revised, wherein preference will be given to manufacture of complete defence products over components and various multipliers have been added to give incentivisation in discharge of offsets."

Other highlights of the new DAP 2020 include a stipulation that indigenously designed, developed and manufactured armaments and defence hardware must have at least 50% indigenous content, up from 40 % in the procedures outlined in 2016. If a defence platform is manufactured in India, it must have 60% Indian content.

The policy which the defence ministry said is “aligned with the vision of Atmanirbhar Bharat" or “Self Reliant India," aims to “empower" Indian domestic industry through the “Make in India initiative."

“Atmanirbhar Bharat" was introduced by the Modi government in May to kickstart economic activity after a stringent lockdown imposed to slow the spread of the novel corona virus disease.

The draft was finalized by a committee headed by Director General Acquisition in the the Ministry of Defence, that was set up in August 2019.

Other features of the DAP 2020 include exploring the willingness of prospective foreign vendors to undertake manufacture and setup an indigenous eco-system at the spares or sub component level when the Request for Information (RFI) 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 the manufacture of either the entire platform or part of it, or its spares or the maintenance, repair and overhaul (MRO) facility for the equipment. This section is titled “New Category of Buy (Global – Manufacture in India)." It also includes the buyer’s right to optimise life cycle support costs and system enhancements through the indigenous eco system incorporated.

India is one of the top defence hardware purchasers in the world spending billions of dollars each year according to various estimates. Since prime minister Narendra Modi took office in 2014, there has been an emphasis on boosting domestic manufacturing including defence production. In May, the government said it was raising the foreign direct investment cap in the defence sector from 49% to 74%.

In the new DAP, leasing has been introduced as a new category for acquisition in addition to the existing ‘buy’ and ‘make’ categories to substitute huge initial capital outlays with periodical rental payments. To ensure purchases are made within a time period, the policy also provides for a single stage accord of AoN (Acceptance of Necessity) in all cases up to 500 crore to cut delays in approval of acquisition proposals.

Indian industry welcomed DAP

“The DAP has created pragmatic avenues for Foreign OEMs (original Equipment Manufacturers) also to manufacture in India on their own and in collaboration with Indian industries," Chandrajit Banerjee, Director General, CII said.

“The DAP 2020 completes the triad of Policy, Organisation and Procedure towards creating a vibrant and capable domestic defence industry base and marching towards self-reliance. For defence sector, self-reliance is not just an economic necessity, it is also a strategic imperative" he added.

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