Comprehensive offset policy in the pipeline

India is preparing a comprehensive offset policy, which will cover overseas procurement of goods by government departments, public sector undertakings and other government-aided institutions like cooperatives.

The Department of Commerce has prepared a draft Cabinet note on the policy, which has been sent to other ministries for their comments.

Government sources said the proposed policy would apply for procurement deals above Rs 300 crore. The offset obligation is likely to be in the range of 20 to 40 per cent of the deal value.

Under offset obligations, a foreign company has to plough back a certain percentage of the total value of the deal into the country, which has placed the order. This is done by sourcing spare parts and components, technology transfer as well as investing in industrial units based in the country.

Currently, there is an offset policy for defence procurement. The policy, in place since 2005 and amended earlier this year, aims to bring in $10 billion into the country during the Eleventh Five-Year Plan period (2007-12).

If approved, the offset obligations are likely to help the domestic manufacturing sector garner overseas investments as well as get access to state-of-the-art technology. “The final offset policy will be drawn up after receiving suggestions from other departments,” said a government official.

India does not have an offset policy for the non-defence procurement of goods from foreign countries. However, while negotiating aircraft procurement for fleet expansion of Air India with Boeing and Airbus, India insisted on offset obligations.

The commerce department is proposed to be the nodal department for implementation of the policy. “The department already has experience in negotiating offset clauses with Airbus and Boeing. Moreover, it has been negotiating trade deals with many countries. This experience will come in handy in negotiating offset obligations,” added the official.

The issue has already been discussed by the Committee of Secretaries (CoS). “It has been suggested that defence, space and atomic energy-related deals be left out of the proposed policy,” the official said.

The policy will formalise a structure for implementation of the offset obligations and also list the goods that will attract offset conditions. Moreover, it will also stipulate conditions for investment as well as research and development, and technology transfer.

Sources also added that there would be an option that will allow the government departments to skip the offset option while finalising deals.

An advisory body comprising experts from various government departments will help in finalising offset deals.

At present, under the Defence Offset Policy, a single-window-clearance agency called the Defence Offset Facilitation Agency (DOFA) assists potential vendors in interacting with the Indian defence industry for identifying potential offset products and projects.