Defence ministry changes offset rules

The defence ministry on Wednesday said the provision of allowing 'services' as a means to discharge the offset obligations has been reinstated, after being in abeyance since May 2013.

The Defence Procurement Procedure (DPP) has a provision for foreign Original Equipment Manufacturers (OEMs) to discharge their offset obligations through 'services', including maintenance and repair, software, skill development and technology transfer.

However, this provision was kept in abeyance with effect from May 23, 2013 "due to absence of any regulatory oversight mechanism for services", an official statement said.

It said there was a persistent demand from the industry, both domestic and foreign, for allowing 'services' as a valid avenue for discharge of offset obligations.

"Based on several interactions and inputs, received from industries, most of the 'Services' which were in abeyance have been reinstated with checks and balances," the statement added.

The changes in the offset policy will also bring Indian vendors at par with foreign vendors when they participate in the 'Buy Global' category.

"Indian vendors participating in 'Buy Global' cases were at a disadvantageous position in terms of fulfilling offset obligations. In order to promote 'Make in India', a level playing field has been provided and an Indian vendor has been brought at par with the foreign OEM in terms of fulfilling offset obligations," the statement said.

The statement said that vendors had been expressing difficulty to upfront provide specific description of products and their work share, supporting documents to establish eligibility of Indian Offset Partners (IOPs) and yearly discharge schedule.

"This is primarily due to the time lag between submission of technical offset offers and finalisation and subsequent implementation of offset contracts. As a result there were frequent contract amendment requests from vendors," the defence ministry said.

The ministry therefore developed a "two-pronged approach" for mitigating perceived bottlenecks during pre- and post-contract stage has been evolved through recent amendments to offset guidelines.

At pre-contract stage, option has been given to the vendors to submit detailed offset proposals at a later stage.

The vendor can finalise his IOPs and offset product details a year prior to the intended offset discharge, or can even undertake the offset activity and submit claims thereafter.

"This will facilitate vendors to finalise a more realistic offset offer," the statement said.

"The Standard Operating Procedure will now make it possible to address requests from vendors to change their IOP or their offset component as per requirement during the period of the contract."