Major changes planned in defense procurement

Major changes planned in defense procurement

Government is planning major changes in procurement procedure and seeking to link the offsets policy with Modi's 'Make in India' campaign.

New Delhi: The defence ministry is planning major changes in the way it procures military equipment, seeking to link the offsets policy with Prime Minister Narendra Modi's 'Make in India' campaign after foreign suppliers repeatedly failed to meet the stringent conditions and ended up blocking investments of several hundred million dollars in the sector.

The ministry is finalising a "directed offsets" policy that will require foreign companies to set up manufacturing bases in India, officials said.

They added that the move stems from an acknowledgement that the stringent offsets policy that requires foreign firms to invest at least 30% of the contract value in India has not spurred domestic manufacturing to the extent desired while the overseas suppliers have accumulated over $35 million in fines over the past few years. Foreign firms were able to invest just $676 million in India between 2008 and 2014 against the mandated $1.3 billion.

Outlining the new offsets policy, Defence Secretary RK Mathur said that the government is considering a directed offsets policy, as per which the foreign vendor will be mandated to manufacture a part of the system being procured under the Make in India programme. This will be initially applicable to large contracts that involve the procurement of major platforms.

"For example, if I am buying Sukhoi,I would link it up with ‘Make in India' procedure and say that the Sukhoi manufacturing company must invest in India, with Indian companies, to manufacture the spare parts or components of Sukhoi itself," Mathur explained to a Parliament panel. The 36-Rafale fighters deal with France will be the first major programme that is likely to follow the new policy. The ministry is likely to insist that at least 30% of the value of the contract be used to set up manufacturing units in India. As reported, one option is to order a larger number of Rafale fighters with an Indian joint venture partner.

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