Business Economics & Services Team ( BEST)
Defense Out of Purview of Offset Clause ?
There was a news item put out by Press Trust of India (PTI), India's wire agency, tucked in some remote corners of a leading financial paper , which suggests that defense is taken out from the purview of offset clause. Along with defense, the other sectors that will be off the purview of the offset clause are atomic energy and space.
One has to be very careful in taking the story in the face value since defense offset was a major head for attracting exports from India. Offset clause stipulates that import of certain segment of goods like defense, aerospace, power etc. will have to be made good by sourcing minimum of 30 % of the value of goods from India. It is applicable to import contracts worth more than Rs 300 crore. Offset policy can take various forms and hues depending on specific sector. It is a fact that there was widespread demand for overhauling India's offset policy, particularly relating to defense sector. The reasons cited as large scale opaqueness of the system leading to large scale unscrupulous practices, bias in sourcing of products and the occasional scams surrounding them, such as linking such incentives with the middlemen as a part of their illegal pay off etc.
Defense Out of Purview of Offset Clause ?
There was a news item put out by Press Trust of India (PTI), India's wire agency, tucked in some remote corners of a leading financial paper , which suggests that defense is taken out from the purview of offset clause. Along with defense, the other sectors that will be off the purview of the offset clause are atomic energy and space.
One has to be very careful in taking the story in the face value since defense offset was a major head for attracting exports from India. Offset clause stipulates that import of certain segment of goods like defense, aerospace, power etc. will have to be made good by sourcing minimum of 30 % of the value of goods from India. It is applicable to import contracts worth more than Rs 300 crore. Offset policy can take various forms and hues depending on specific sector. It is a fact that there was widespread demand for overhauling India's offset policy, particularly relating to defense sector. The reasons cited as large scale opaqueness of the system leading to large scale unscrupulous practices, bias in sourcing of products and the occasional scams surrounding them, such as linking such incentives with the middlemen as a part of their illegal pay off etc.
Admittedly, India is amongst top countries
in terms of defense expenditure and third largest importer of defense hardware.
Offsets in defense trade are a global phenomenon. More than 130 countries
demand offsets in one form or the other. Percentages vary like 174 per cent in
Austria, 118 per cent in Netherlands, 100 per cent in United Kingdom, 27 per
cent in Thailand and 20 per cent in Taiwan.
It is too early to check the veracity of the story since the proposal prepared by the commerce ministry will be considered by the committee of secretaries headed by the cabinet secretary. If this group takes a decision to exclude defense from the purview of offset policy, it will amount to a radical step and the first conscious step by the Modi administration to weed out corruption from defense deals and the kudos should go to them.Many governments in the previous years tried in vain to streamline the process. The more they tried more they caught into the labyrinthine shenanigans of a practice perpetrated over the years.
Going by the sheer volume of India's defense imports and the fact that indigenization will be time consuming, a hasty decision will have its own ramifications. One, there will be huge benefits to forgo, unless alternative schemes are put in place. Two, despite the gut feeling of the government that local manufacturing can be fast tracked by allowing formation of joint venture projects in the defense sector, the results may not be encouraging since the foreign companies have developed a vested interest in supplying equipment and not manufacturing them indigenous. Thirdly, the joint ventures to be formed in the future may harp on producing the low-end machinery and not the state-of-the - art machinery, with imminent complications perceived by the foreign investors like compulsory licensing, patent violations etc.allegedly to be rampant in India and their feeling that Indian administration and judiciary are heavily poised against the investor.
Undoubtedly, the news about taking out the defense sector from the purview of the offset clause is a welcome step, but has to be cautious and calibrated.
