Thursday, March 30, 2023
HomeDefenceGovt scraps offset policy for govt-to-govt deals, allows leasing of defence equipment

Govt scraps offset policy for govt-to-govt deals, allows leasing of defence equipment

The new Defence Acquisition Procedure 2020, which was unveiled by Defence Minister Rajnath Singh Monday and kicks in on 1 October, also cuts down procurement time.

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New Delhi: The Modi government has done away with offsets in future government-to-government deals, such as the Rafale deal that was signed in 2016, and also allowed the armed forces to procure military equipment on lease.

The significant changes are part of the Defence Acquisition Procedure (DAP) 2020, which was unveiled by Defence Minister Rajnath Singh Monday and kicks in on 1 October, replacing the Defence Procurement Procedure (DPP).

Under the DAP, the bible of acquisition process, a new category of ‘Buy (Global–Manufacture in India)’ has been introduced. The new category incorporates manufacturing of either the entire or part of the equipment or spares/assemblies/sub-assemblies/Maintenance, Repair and Overhaul (MRO) facility for the equipment through a company’s subsidiary in India.

The offset guidelines have been revised to give preference to offerings by defence majors to manufacture products, instead of just relevant components, in India.

“The offset guidelines have also been revised, wherein preference will be given to manufacture of complete defence products over components and various multipliers have been added to give incentivisation in discharge of offsets,” a statement by the Ministry of Defence said Monday.

Also read: Dassault was not the lowest bidder — CAG report contradicts Modi govt on Rafale

Offset changes

Sources said that under the new rules, offsets have been done away in future government-to-government contracts or those involving single vendors to bring down costs. Usually, the price goes up significantly to incorporate the offsets.

It was in 2005 that India adopted the Offset Policy for defence capital purchases above Rs 300 crore made through imports. In such cases, the foreign vendor was required to invest in India at least 30 per cent of the value of the purchase.

Then, in 2016, the government made a surprise move by introducing a 50 per cent offset in the government-to-government deal for Rafale fighter jets in 2016. Government-to-government deals usually do not carry offsets. As such, none of the deals done with Russia included an offset clause.

Rafale offsets were in the news last week after the Comptroller and Auditor General (CAG) cited it to drive home the point that foreign vendors often make offset commitments to win contracts but “dilly-dally” thereafter.

Leasing rules

Sources also said under the new leasing policy, the three services — Army, Navy and the Air Force — will have the option of getting equipment on lease rather than buying them in one go.

“This brings the cost down significantly and also does away with life cycle cost. There are many items that could be procured through leasing,” a source said.

India currently operates a Russian nuclear-powered attack submarine (SSN) on lease. In March last year, India had also signed a US$3 billion deal for the lease of Chakra III — which is likely to be in Indian waters by 2025 at the earliest.

Other changes

Under the new rules of the DAP, single stage accord of Acceptance of Necessity (AoN) in all cases up to Rs 500 crore has been instituted, thereby reducing procuring time.

Fast Tracked Procurement (FTP) cases, post accord of AoN, will be progressed in accordance with delegated powers.

Also, in the planning process, Long Term Perspective Plan (LTPP) has been re-designated as Integrated Capability Development Plan (ICDP), shortening the planning period to 10 years from 15 years.

The defence ministry has also clarified that only companies that have more than 50 per cent Indian ownership will be allowed to participate in key Make in India categories, including strategic partnership policy.

Also read: Apart from FDI limit increase, Modi govt’s defence reforms won’t boost ‘Make in India’


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  1. The question that comes to mind is what are the products shortlisted for lease; aircraft mid air refuel tankers should be top of the list. How about fighter aircrafts?

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