Policy & Government

MoD should reconsider the impact of a dwindling offset market

By ET News

With the three-day Aero India 2021 on in Bengaluru from February 3, the discussion about India’s defence prowess has been brought to the fore of public conversation once again. Offsets have always been a key tool of the defence policy. Through it, an original equipment manufacturer (OEM) is obligated to invest a certain percentage of the contract (upwards of 30%) into India towards exports, R&D, or manufacturing.

Since offset has been one of the most ambitious but controversial topics in defence policy, it was expected that the offset policy under the Defence Acquisition Procedure 2020 (DAP 2020) would bring in much-needed changes in guidelines. Rationalisation of offset policy was a reasonable expectation from DAP 2020. Considering DAP 2020 is likely to administer contracts with an aggregate value close to $60-70 billion of capital procurement, a workable offset procedure was all the more relevant.

Through DAP 2020, an exemption from offsets has been extended to all procurement contracts which have been from the beginning single vendor cases (SVCs), including government-to-government (G-to-G) contracts. Therefore, all ab-initio SVCs — those not just covered under inter-governmental agreements (IGAs) but also under direct contracts with OEMs shall no longer be subject to offset regulations.

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