As per the new Defence Acquisition Procedure (DAP) 2020 which will come into effect from October 1, there will be no offset clause in procurement of defence equipment if the deal is done through inter-government agreement (IGA), government-to-government or an ab initio single vendor. The offset clause requires a foreign vendor to invest a part of the contract value in India. The decision, part of the government’s new policy for defence acquisitions, was approved by the Defence Acquisition Council on Monday.
Unveiling the new policy, Defence Minister Rajnath Singh, in a Twitter post, said it has been “aligned” with Prime Minister Narendra Modi’s “vision of Atmanirbhar Bharat and empowering the Indian domestic industry through Make in India initiative with the ultimate aim of turning India into a global manufacturing hub”. He said with the “new Foreign Direct Investment policy announced, the DAP 2020 has adequately included provisions to encourage FDI to
establish manufacturing hubs both for import substitution and exports while protecting the interests of Indian domestic industry”.
Director General (Acquisitions) Apurva Chandra said the offset clause policy had not brought any critical technology to India yet, and had only resulted in foreign vendors loading extra costs in contracts in single-vendor or government-to-government deals. Chandra said changes to the defence procurement policy will not be retrospective and ongoing deals will not be impacted. Offsets, however, will continue to be part of multi-vendor competitive procurement contracts, officials said. Since the clause will not be there in the three categories – IGA, government-to-government or ab initio single vendor — offsets are expected to “reduce substantially”.
The deal to buy 36 Rafale fighter jets was signed as an IGA with the French government, which included a 50 per cent offset clause. In a report tabled in Parliament last week, the Comptroller and Auditor General (CAG) was critical of the offset policy, noting “it was found that the foreign vendors made various offset commitments to qualify for the main supply contract but later, were not earnest about fulfilling these commitments”. The auditor noted that obtaining technology transfer has been a particular failure, as “90 per cent of the investment by the vendors was in the form of direct purchase of goods and services from the Indian industry”. Besides, it said, “of the total value of offsets only 3.5 per cent was contracted to be discharged through FDI”.
Under the new policy “offset guidelines have 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,” the government said. (Source: The Indian Express)