New Delhi – Faced with criticism for maintaining a strict defence offset policy, the Indian government is now considering the modification of the offset policy and issues relating to foreign direct investment. The Indian government is also planning to bring dual technology products in civil aviation and encourage technology transfer to Indian joint ventures.
As of now, the defence offset policy stipulates that foreign contractors catering to the armed forces should source systems and components from local vendors for at least 30 per cent of the value of orders of more than Rs 300 crore. Nearly 80 per cent of offsets are in the area of aerospace. According to the Indian Defence Ministry, the offset opportunity will grow to $10 billion in the next five years.
The defence ministry’s offset programme has been active for the last three years. However, countries like the US, the UK and Germany has been seeking policy changes as well as amendments in the offset clause.
It must be noted premier Indian institutions like Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Federation of Indian Chambers of Commerce and Industry (FICCI) have been lobbying against the strictness of various policies in defence. It is largely felt that a foreign investment limit with a 26 per cent cap does not go down well with the foreign investors as it gives them less security. Hence, the foreign companies are wary of licensing their technology to a local firm which holds the majority stake. ASSOCHAM has already suggested a 49 per cent stake for foreign firms as an incentive.
The Indian defence ministry will now be taking measures to affect some changes. The impact of the foreign direct investment (FDI) policy has been so far quite marginal. In addition, India also needs to exercise its purchasing power and gain access to high-end technologies which have dual use. With Indo-US relations soaring and the US getting more inclined to favour India, the onus now lies on India to maximise its potential in harnessing crucial technology from developed nations.
India’s defence offset policy must have broader agenda’s programmes to exalt the country’s competitive advantage and offer more incentives to foreign investors for the transfer of major technologies. The Indian government has always considered a strict offset policy in order to favour Indian firms and strengthen the position of local firms in joint ventures. India perceives offsets as an enabler to build indigenous capabilities. Hence, offsets are an integrated part of the Indian policy towards indigenisation of integrated systems and platforms. In fact, the Indian defence ministry has been working to strengthen the monitoring mechanism for the implementation of offsets.
It remains to be seen what measures the Indian government will take to bring changes in offset policy and FDI policy in a manner that will encourage the foreign players and not upset private and local firms.
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