Offset Clause

#GS3 #Defence

 

The Defence Ministry has removed the offset clause requirement in Inter-Governmental Agreements (IGA) in the new Defence Acquisition Procedure (DAP), 2020. It also introduces a new category for leasing of military equipment.

 

What is an ‘offset clause’?

  • Under offset clause, foreign companies are required to invest part of their deal value in the country and meant to improve the domestic defence manufacturing.

 

Why it has been removed?

  • The government has removed some of the offset requirements as they are not found to be working. From now on there will be no offset clause in government-to-government, single vendor and IGAs. No offset has led to a transfer of technology and many of them had to do with product purchase.

 

What has been changed now?

  • The offset guidelines have been revised, wherein preference will be given to manufacture of complete defence products over components and various multipliers have been added to give incentivisation in discharge of offsets.
  • Other proposed measures include making after sales support part of capital acquisition contract, higher indigenous content in acquisitions and incentives for local material and software and emphasis on product export under offsets.

 

What is the ‘lease option’?

  • Leasing has been introduced as a new category for acquisition in addition to the existing ‘Buy’ and ‘Make’ categories to substitute huge initial capital outlays with periodical rental payments. This will be useful for military equipment not used in actual warfare like transport fleets, trainers, simulators, among others.
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