Offset rules relaxed to lure foreign defence firms
Kalyan Ray New Delhi, Dec 25, 2015, DHNS
'Vendors expressed difficulty in investing in domestic cos'
The government has relaxed offset rules to lure foreign vendors in the defence manufacturing market. Modifying complicated offset rules is expected to give flexibility to firms interested in the Indian defence market.
Currently, all defence contracts worth more than Rs 300 crore come with 30 per cent offset clause, which makes it mandatory for companies to invest 30 per cent of the contract value in a downstream Indian project to spur growth in the domestic defence manufacturing base. Though the defence ministry introduced the offset policy in 2005, the complex and rigid set of rules are often seen as one of the deterrents for the industry. The government said those rules have been modified to make them more industry-friendly. A defence ministry spokesperson said vendors were expressing difficulty to provide specific description of products and their work share and supporting documents to establish eligibility of Indian offset partners and yearly discharge schedule.
“Provisions have now been made with an intent to provide greater flexibility to the vendors in offset contracts,” he said. Between August and December, four set of rules were modified to make them industry-friendly. The ministry has also reinstated services as an avenue for discharge of offset obligations.
The disclosure on offset rule relaxation comes on the eve of Prime Minister Narendra Modi’s visit to Russia where discussions on several big ticket defence contracts are part of the agenda.
One of the proposals under discussion is manufacturing of Russian Ka-226 T helicopters in India in a joint venture company with the Hindustan Aeronautics Limited.
As the government plans for several large scale manufacturing projects in India – ranging from artillery guns to submarines – in collaboration with foreign companies, the new offset rules would be one of the key deciding factors in these contracts.
Currently, all defence contracts worth more than Rs 300 crore come with 30 per cent offset clause, which makes it mandatory for companies to invest 30 per cent of the contract value in a downstream Indian project to spur growth in the domestic defence manufacturing base. Though the defence ministry introduced the offset policy in 2005, the complex and rigid set of rules are often seen as one of the deterrents for the industry. The government said those rules have been modified to make them more industry-friendly. A defence ministry spokesperson said vendors were expressing difficulty to provide specific description of products and their work share and supporting documents to establish eligibility of Indian offset partners and yearly discharge schedule.
“Provisions have now been made with an intent to provide greater flexibility to the vendors in offset contracts,” he said. Between August and December, four set of rules were modified to make them industry-friendly. The ministry has also reinstated services as an avenue for discharge of offset obligations.
The disclosure on offset rule relaxation comes on the eve of Prime Minister Narendra Modi’s visit to Russia where discussions on several big ticket defence contracts are part of the agenda.
One of the proposals under discussion is manufacturing of Russian Ka-226 T helicopters in India in a joint venture company with the Hindustan Aeronautics Limited.
As the government plans for several large scale manufacturing projects in India – ranging from artillery guns to submarines – in collaboration with foreign companies, the new offset rules would be one of the key deciding factors in these contracts.
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