Govt comes out new offset policy in defence deals

New Delhi: Aiming to streamline the offset policy, the government has restored "services" as eligible offsets for military deals and allowed foreign firms to change their Indian partner at any time, subject to approval.

The new policy provides greater flexibility to the vendors in offset contracts and aims at ensuring level playing field to Indian vendors in capital acquisitions.

One of the key aspects of the new offset policy is restoration of "services" like maintenance and repair, software and technology transfer, that were kept aside after the VVIP helicopter scandal.

This provision had been kept under abeyance with effect from May 23, 2013 due to "absence of any regulatory oversight mechanism for services".

"However, there was a persistent demand from the industry (both domestic and foreign) for allowing services as a valid avenue for discharge of offset obligations.

"Based on several interactions and inputs, received from industries most of the services which were in abeyance, have been reinstated with checks and balances following a Ministry of Defence order," a statement released by the Defence Ministry said.

Offsets were introduced in 2005 with an objective of developing a defence industrial base in the country. However, it has failed to deliver to its full potential.

The Defence Ministry said that 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," it said.