The Defence Ministry informed Parliament that, of the $6.83 billion total offset commitment made by foreign defence corporations to be completed in India for various defence purchases over the past 15 years, 82.13 percent, or around $5.61 billion, had been met. MP Kunwar Danish Ali, who posed the question, expressed concern over the shortage and stated that this “large money may resuscitate MSME (Micro, Small and Medium Enterprises) sector and create a lot of jobs.”
“A total of 15 corporations missed the first deadline for implementing their commitment to offset defence spending. Ajay Bhatt, the state minister for defence, stated in a written response to a question in the Lok Sabha on Friday that additional specifics are confidential due to their strategic and sensitive nature. According to the governing Defence Offset Guidelines, the defaulting vendors have been penalised as necessary for unfulfilled offset responsibilities.
Mr. Bhatt detailed the measures taken by the Defence Ministry to prevent vendor default or delay in implementing offset commitments by saying that in real circumstances, re-phasing of offset requirements has been permitted to allow vendors to fulfil the pending offset obligations.
Under the Defence Procurement Procedure (DPP) 2005, a defence offset strategy was established with the intention of fostering a domestic defence sector and bringing in cutting-edge technology. A foreign business that obtains a defence contract under an offset clause is required to reinvest a portion of the contract value in the nation, advancing technology and fostering employment while also advancing skills.
“It’s very sad that the government is not taking seriously the implementation of the $6.83 billion in defence offset agreements with various international corporations. This enormous sum of money might resurrect the MSME sector and generate many jobs. In the upcoming session of Parliament, I will demand a quick discussion, Mr. Ali wrote on Twitter on Saturday.
In accordance with DPP 2006, the offset value was established at 30% of defence transactions over 300 crore, however it was increased to 2,000 crore in DPP 2016 for entire import deals. In 2007, the initial offset agreement was signed.
Offset guidelines revised
The government has eliminated the requirement of an offset provision in IGAs like the Rafale purchase in Defense Acquisition Procedure 2020. In DPP 2020, the offset standards were also altered. Complete defence product manufacturing will now take precedence over component manufacturing, and several multipliers have been included to encourage the discharge of offsets.
According to the Comptroller and Auditor General’s (CAG) report on the audit of the offset agreements up to March 2018, 46 offset contracts totaling 66,427 crore were signed, and up until December 2018, 19,223 crore worth of offsets were supposed to have been released. However, just 11,396 crore, or 59 percent, of the offsets have been claimed by the vendors, according to the report.
According to the report, only 5,457 crore, or 48%, of these offset claims have been approved by the Ministry, and the remaining offset commitments, totaling around 55,000 crore, are expected to be finished by 2024. However, the offset discharge rate has been around 1,300 crore per year. According to the assessment, it will be difficult for the vendors to achieve their commitment of $55,000 crore over the next six years given the current circumstances.