Government unveils major changes in Defence Offset Policy

The ministry of defence (MoD) on Wednesday introduced significant policy measures that could help in promoting ease of doing business and in pushing the Make in India programme in the defence sector. It has made amendments in the ‘offset’ policy to allow “flexibility to the vendors in offset contracts and reinstatement of services as an avenue for discharge of offset obligations and level playing field to Indian vendors in capital acquisitions”.

A 30 per cent offset in contracts valued above Rs 3 billion under “buy” and ‘buy and make” categories is mandatory.

“Vendors had been expressing difficulty to upfront provide specific description of products and their work share, supporting documents to establish eligibility of Indian offset partners (IOPs) and yearly discharge schedule. This is primarily due to the time lag between submission of technical offset offers and finalisation and subsequent implementation of offset contracts. As a result there were frequent contract amendment requests from vendors.

Accordingly, a two pronged approach for mitigating perceived bottlenecks during pre and post contract stage has been evolved through amendments to offset guidelines,” the ministry said in a statement.

At pre-contract stage option has been given to the vendors to submit detailed offset proposals at a later stage. The vendor can finalise his IOPs and offset product details one year prior to the intended offset discharge, or can even undertake the offset activity and submit claims thereafter. This will facilitate vendors to finalise a more realistic offset offer.

At the post contract stage, enabling provisions have been made in the offset guidelines for change in IOP or component and re-phasing of offset schedule. The Standard Operating Procedure will now make it possible to address requests from vendors to change their IOP or their offset component as per requirement during the period of the contract.

Another major change has been with regards to bringing ‘Services’ back as an eligible Offset which was kept in abeyance since 23 May, 2013 in the light of scandal involving VVIP choppers.

This has been done following a persistent demand from the industry (both domestic and foreign) for allowing services as a valid avenue for discharge of offset obligations. A business potential push of an estimated over 3 Million USD can be effected through this new clause.

Indian vendors participating in ‘Buy Global’ cases were at a disadvantageous position in terms of fulfilling offset obligations. In order to promote ‘Make in India’, a level playing field has been provided and an Indian vendor has been brought at par with the foreign Original Equipment Manufacturers in terms of fulfilling offset obligations.