Defence Ministry amends offset guidelines in procurement

Ministry of Defence on Wednesday notified a new liberal offset regime in defence procurement, giving into many of the demands of both foreign and Indian industries. Most significant among the steps is the decision to reintroduce ‘services’ as a legitimate means of discharging offsets in addition to allowing vendors to change their Indian offset partners.

“Provisions have now been made with an intent to provide greater 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,” Defence Ministry said in a statement.

Services in offsets have a chequered history in the defence procurement procedure. They were introduced in 2012 and were removed in July 2013 following the VVIP helicopter scam in which kickbacks to the tune of Rs. 392 crore were paid through Indian firms in the name of software services.

Defence Minister Manohar Parrikar has hinted at relaxing offset guidelines on several occasions with a view to develop the domestic defence sector, which according to Prime Minister Narendra Modi is at the “heart of the ‘Make in India’ programme.”

Offset provisions were introduced in 2005 into the DPP to develop the defence industrial base in the country. Under this, for deals worth over Rs. 300 crore, the Original Equipment Manufacturer (OEM) has to reinvest 30 per cent of the contract value in the country. However, it has so far failed to yield any meaningful returns in terms of technology development.

‘Services’ includes maintenance, repair and overhaul, upgrading and life extension, engineering, design and testing, software development, quality assurance, training, and research and development.

To give greater room for discharging offsets, a two-pronged approach for mitigating perceived bottlenecks during pre and post-contract stages has been evolved.

At pre-contract stage, option has been given to the vendors to submit detailed offset proposals at a later stage and the vendor can finalise his Indian Offset Partners (IOP) and offset product details one year prior to the intended offset discharge, or can even undertake the offset activity and submit claims thereafter.

At the post-contract stage, provisions have been made in the guidelines for changing the IOP and re-phasing of offset schedule giving complete flexibility to the vendor.

‘Provisions have been made with

an intent to provide greater flexibility

to the vendors’