Moves are on to bring the Ministry of Defence under a national offsets authority that the government plans to make an umbrella body for procurement by all its departments.
While talks of having a national offsets policy has been on the cards for the past several years, the Ministry took the lead in coming out with a clear policy under the Defence Procurement Procedure that is amended periodically, the latest being inclusion of Transfer of Technology this month.
The defence offsets policy stipulates that contracts over Rs. 300 crore must have a minimum offset of 30 per cent and be fulfilled along with the main contract. As per the policy, the winner of the bid or vendor has to source a third of the goods and services from domestic suppliers.
To facilitate implementation of the policy, the Ministry has created a Defence Offset Facilitation Agency to assist vendors to interact with the Indian defence industry and work to identify potential offset products/projects and provide data and information.
Sources in the Ministry felt that unlike the other arms of the government, Defence has a well-established procedure with the domestic industry estimated to have benefitted over Rs.10,000 crore on account of offsets. The country is expected to spend nearly Rs. 70,000 crore towards capital acquisitions in the current financial year.
A section in the government feels that the time has come to bring all departments, including space, nuclear energy, petroleum and telecommunications together where major procurements takes place but have been placed in the exempted category.
The sources said the argument was that in order to leverage offsets it was necessary that major procurement departments were brought under one umbrella policy. They also argued that keeping the exempted category out of the purview would not benefit the country much, as the balance of imports came from the private sector.
The Ministry of Commerce has taken the initiative to draw such a policy just as it has been pushing for increasing the 26 per cent foreign direct investment cap in the defence sector.
The Defence Ministry, the sources said, was not keen on enhancing the FDI cap barring that it be considered on a case-to-case basis. There was, however, a recent exception when a joint venture was set up with Russia to co-produce fifth generation fighter aircraft.
Another section of the government feels that considering that India is one of the largest importers of arms, besides nuclear plants, oil and gas and faces shortage of mineral resources such as coal, potash and other fertilizers and high-end technology, there is need to revisit the issue of offsets.