Some off key notes in defence offset norms

Some off key notes in defence offset norms

The defence ministry’s (MoD) draft offset guidelines for acquisitions of defence hardware seek to strengthen domestic capability with focused rules that appear forward looking. The major thrust is on investments and technology transfer, particularly of a host of critical technologies.

But such a policy framework is surely rather mechanical, downplaying, as it does, the critical role of indigenous research, knowledge creation and solid industry linkages to boost innovative, technology-led equipment production.

There are several changes proposed to the offsets policy, to better leverage acquisitions to develop India’s defence industry. Most services would now be ineligible for discharge of offset obligations, save for maintenance, repair and overhaul (MRO).

The idea seems to be to promote manufactures. Also, ‘investments in kind’ would no longer remain a valid route to carry out offsets. Mandatory domestic sourcing would be applicable to foreign vendors, but for ‘Buy and Make’ cases, where the vendor sources domestically a minimum of 30% of the base contract cost, the offset provisions would not apply.

Further, the fulfilment of offset obligations would now be open to smaller vendors, in addition to the main offset provider and top-tier sub-vendors. The fulfilment period has also been streamlined. A key change in the offset norms is the multiplier. Higher multipliers of two, three and even four are on offer for technology transfer and exports of major items.

But it is not clear that giving greater multipliers to public enterprises or for investment along the defence industrial corridor makes much sense. A distributed production base is less vulnerable and conducive to greater spread of defence manufacture linkages, and why discriminate against private enterprise?