The defence ministry carried out a second round of consultation with the private defence firms on Thursday for finalising a radically different offsets policy on defence deals. The proposed new offsets policy will do away with the existing policy which mandates 30 per cent offsets on a foreign defence contract.
Defence minister Manohar Parrikar has been a critic of the current offsets policy. He has argued that India has so far been spending 14-18 per cent extra on defence contracts because of the existing offset policy. He also stated that India has signed $5 billion worth defence offset contracts while $10 billion of additional offsets are in the pipeline.
Department of defence production has held two rounds of negotiations with the industry so far. In the first interaction in December, officials outlined the broad contours of the proposed policy.
The proposed policy has three options given to the foreign supplier for discharge of offsets, which will be clearly specified in the Request for Proposal (RFP) issued by the ministry.
In the first option, the RFP will specify certain critical technology that the foreign supplier will have to transfer to the Indian partner. This will be chosen from a bank of technologies identified by the DRDO in collaboration with private industry.
The second option will ask the foreign supplier to manufacture a specific sub-system or component of a product in India, while the final option obligates the foreign vendor to develop requisite skill sets in the Indian industry. The government will specify either one or more of these offset options in the RFP.
Under the existing policy, foreign defence suppliers signing contracts worth Rs 300 crore or more are mandated to spend at least 30 per cent of the contract value in India as offsets. Earlier this month, Parrikar announced that the contract value for offsets will be raised from Rs 300 crore to Rs 2,000 crore in Defence Procurement Procedure (DPP) 2016.
Sources in the defence ministry said that DPP-2016 is scheduled to be notified in a couple of months and will feature the existing offsets policy, with the raised contract value of Rs 2,000 crore. The proposed offsets policy, once finalised, will be notified separately later in the year to replace this older version.
An industry representative who attended the meeting with defence ministry officials earlier this week told The Indian Express that the industry feedback was about the transfer of technology being done to DRDO. The industry representatives felt that the license for the technology should be with the private sector and DRDO can at best be a co-holder of technology.
The other issues flagged by the industry representatives pertain to ownership structure of Indian partner, non-insistence on 100 per cent IPR over the transfer and wider flexibility to foreign supplier to discharge offsets across group companies. Defence ministry officials said that they will now take these issues to the DPSUs, service headquarters, DRDO and other stakeholders before finalizing the policy.