Centre drops offset clause in govt-to-govt deal in new weapons buying policy

In a significant departure from India’s existing weapon buying procedures, a new policy announced on Monday has done away with offsets in government-to-government deals and single-vendor contracts for purchasing military equipment as it has not resulted in bringing cutting-edge technology into the country, a top official said.

This overrides the offset policy that required foreign vendors to invest in the country to boost indigenous capabilities at least 30% (it could go up to 50%) of the value of all contracts worth more than Rs 300 crore awarded to them.

The scope of the offset policy will only be confined to military contracts that involve competitive bidding, said director general (acquisition) Apurva Chandra during a presentation on the new Defence Acquisition Procedure-2020. The DAP-2020, cleared by defence minister Rajnath Singh on Monday, will be effective from October 1.

“No offset contract has led to transfer of technology into the country, with the scope being limited to product purchase as pointed out by the Comptroller and Auditor General in a recent report. There will be no offsets in inter-governmental agreements, government-to-government deals and ab initio single-vendor cases,” Chandra said.

According to experts, doing away with offsets could result in savings as foreign military contractors tend to jack up their prices by about 10% to cater for their offset commitments.

In a report tabled in Parliament last week, the CAG said several offset contracts built into multiple defence deals had failed to bring in high-end military technology into the country. The critical observations were part of the CAG’s scrutiny of the status of a raft of offset contracts — including the September 2016 Rafale deal — between 2005 and 2018.

Commenting on the Rs 59,000-crore Rafale deal, the top auditor said that the plane’s maker Dassault Aviation and weapons-supplier MBDA have not confirmed the transfer of technology to the Defence Research and Development Organisation (DRDO), which was part of the offset contract.

The CAG sharply criticised foreign vendors who made several offset commitments to qualify for a contract but were later not earnest about fulfilling their commitments.

The offset guidelines have been revised to give preference to manufacture of complete defence products over components, the ministry said in a statement.

The DAP-2020 has been aligned with the government’s vision of Atmanirbhar Bharat and empowering the domestic industry through the Make in India initiative, with the ultimate aim of turning the country into a global manufacturing hub, the statement said.

“The three key focus areas of the DAP-2020 are Atmanirbhar Bharat, Make in India and ease of doing business. The procedure has five new chapters including leasing, acquisition from the DRDO and post-contract management,” Chandra said.

The new policy on arms acquisition will allow the armed forces to lease military hardware for the first time — a move that could cut down on costs associated with buying weapons and systems. Leasing could be cheaper in the longer run, Chandra said.

The new policy underlines that field evaluation trials for weapons and systems are to be conducted with the objective of nurturing competition rather than rejecting players for minor deficiencies. It seeks to increase local manufacturing and reduce timelines for procurement of critical military equipment.

The new policy incorporates a price variation clause “for large and protracted contracts in order to avert inflated initial quotes by vendors and arriving at a realistic price of the project,” the defence ministry statement said.

The policy has also introduced a new provision for acquiring weapons and systems: Buy (Global — Manufacture in India). It stipulates that only a minimum necessary quantity of defence equipment will be bought from abroad with the rest being manufactured in India.

“The new category incorporates manufacture of either the entire/part of the equipment or spares/assemblies/sub-assemblies and maintenance, repair and overhaul (MRO) facility for the equipment through its subsidiary in India,” the statement said.

The industry welcomed the new policy, saying it laid the roadmap for a self-reliant India.

“The DAP-2020 has created pragmatic avenues for foreign original equipment manufacturers (OEMs) to manufacture in India on their own and in collaboration with Indian industries. 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,” said Confederation of Indian Industry director general Chandrajit Banerjee.

He added that for the defence sector, self-reliance was not just an economic necessity but also a strategic imperative.

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