Why in News ?
Defence Ministry has removed the offset clause requirement in Inter-Governmental Agreements (IGA) in the new Defence Acquisition Procedure (DAP) 2020. It came into force in October 1.
- The first defence procurement procedure was issued in 2002
New Defence Acquisition Procedure (DAP) 2020
- The notification of a List of Weapons or Platforms that will be banned for import.
- DAP 2020 focuses on FDI in defence manufacturing and indigenization of the manufacturing prices.
- It done away with offset requirements for government-to-government defence deals and single-vendor contracts under a new policy.
- The offset policy will remain in force contracts involving competitive bidding.
- Provides for allowing the three forces to take on lease military equipment, hardware and platforms like helicopters, simulators and transport planes as per operational requirements.
- Also incorporates new chapters on
- Information and communication technologies
- Post-contract management
- Acquisition of systems developed by the state-run defence entities like the DRDO and Defence Public Sector Undertakings (DPSUs)
- Included provisions to encourage foreign direct investment (FDI) to establish manufacturing hubs both for import substitution and exports.
- Provides for single-stage accord of AoN (Acceptance of Necessity) in all cases up to Rs. 500 crore to cut delays in approval of acquisition proposals.
What does Offset Policy in Defence Means ?
- Compensation’ made by the manufacturer that mostly takes place in the form of placing a minimum per cent of value addition in the ordering country.
- Defence offset Means a foreign supplier of equipment agrees to manufacture a given percent of his product in the buying country.
- Sometimes this may take place with technology transfer.
- Offset policy which is expected to become a chief instrument for India to develop its indigenous defence manufacturing sector.
Under the offset policy
- The foreign defence entities for all contracts worth more than Rs 300 crore were mandated to spend at least 30 per cent of the total contract value in India through procurement of components, transfer of technologies or setting up of research and development facilities.
- Removing offset obligations for contracts under the three categories is likely to result in a reduction of cost of acquisitions as the defence firms used to factor in funds required to fulfil offset conditions.
CAG on Offset Policy
- Comptroller and Auditor General (CAG) came down hard on the government over poor implementation of the offset policy.
- CAG had specifically mentioned about the Rs. 59,000-crore Rafale deal and the manufacturer of the plane Dassault Aviation and weapons supplier MBDA were yet to fulfil their offset obligations of offering high technology to India.
- The offset component in the deal was 50 per cent.
Source : The Hindu
Topic
GS II : Government policies and interventions for development in various sectors and issues arising out of their design and implementation
Current Affairs Compilation : 29 September 2020