The Defence Ministry has approved a new policy which restores “services” as eligible offsets for military deals and allows foreign firms to change their Indian partner at any time, subject to approval.
The offset policy has been finalised and it would be announced along with the new Defence Procurement Procedure, which is still in the works.
Top defence sources said that one of the key aspects of the new offset policy would be restoration of “services” that were kept aside after the VVIP helicopter scandal.
“Services which were stopped have been included. We have approved four out of the six services,” one of the sources said.
These services are maintenance and repair, software, skill development and technology transfer. The sources said these segments will have certain riders and conditions.
Another major change in the policy is the permission being given to foreign firms to change their Indian offset partner (IOP).
“IOP could not be changed and we felt that this was the wrong way of doing business as the IOP can even close down or their technology may not be latest at the time of operationalisation,” the source said, adding that power will be given to the Secretary, Defence Production to allow companies to change their offset partners.
Another key change in the policy could be the option to migrate from offset obligations to ‘buy and make’. It is not yet clear if this is part of the new policy.
Under this, value of FDI by Original Equipment Manufacturer and eligible products being manufactured in India will be counted against offset obligations.
Offsets were introduced in 2005 with an objective of developing a defence industrial base in the country. However, it has failed to deliver to its full potential. Another reason why the offset policy is being revised is because it has led to delays in critical acquisitions.
In some cases, negotiations and finalisation of offset contracts have taken equal, if not longer, time as for the prime contract itself.