National offset policy soon to aid local industries

A national policy on offsets is in the offing to help the Indian companies and indigenous industries to get a share of the contracts the global players secure from India, requiring them to compulsorily use the Indian supplies as a percentage of the deal.

With successful introduction of such a policy by the defence ministry two years ago, the government has secured feedback from 47 ministries and departments for adopting the offsets at the national level in all sectors.

A committee of secretaries, headed by the cabinet secretary, will be giving the final touches to the policy soon before it is placed before the Union Cabinet, a high level source in the commerce ministry said on Saturday.

He said it would help in upgrading technology, skill and competitiveness in various sectors of the economy and ensure that the foreign suppliers enter into deals with the Indian companies for sourcing part of their requirements.

Offsets will require any foreign seller of products and services in India to buy part of the material at a pre-determined percentage of the sale value from the Indian manufacturers and suppliers.

The source said this would expand domestic industry, exports, infrastructure and employment at a time when Indian economy is facing slowdown as indicated by 12 per cent decline in exports in October, highest in 7 years.

While finalising the national offsets policy, the committee of secretaries will also decide whether to have a single agency for negotiating and monitoring.

Most countries have a single agency but some have two -- one for defence and another for non-defence offsets.

The draft policy proposes that the ministry of commerce and industry be the nodal agency for all offsets except those relating to defence, space and atomic energy.

The defence ministry had set up its own defence offset facilitation agency in 2006.

The external affairs ministry has suggested that the offset amount be kept in an escrow account so that onus lies on foreign company to fulfil its mandatory obligation.

While the proposal before the committee is to clamp the offsets claues on any contract of more than Rs 100 crore (Rs 1 billion), several ministries has suggested that it should be only on contracts of more than Rs 300 crore (Rs 3 billion).

The defence ministry has this threshold of Rs 300 crore (Rs 3 billion).

The civil aviation ministry has also introduced an offset clause as mandatory for the aerospace firms abroad who want to sell aircraft to India.

They have to source at least 30 per cent of the total value of the deal from within India.

US aerospace firm Boeing and European plane maker Airbus Industries would outsource aerospace systems works valued over $3 billion to India once the trans-Atlantic rivals finalise the deal to supply 111 aircraft to the state courier Air India.

The government has already cleared the $2.2-billion fleet acquisition plan to buy from Airbus for domestic services and another deal of $7.1 billion aircraft purchase  from Boeing is still at the final stage.

Introduction of offsets in the two deals would mean the Indian companies will be getting at least orders for $3.1 billion, which is certainly a big slice in the two deals.

While most of ministries and departments have agreed to need for a national offsets policy in the inputs received by the Cabinet Secretariat, the department of telecommunication wants telecom sector to be kept out of its purview.

Expressing reservation, department of expenditure, however, suggests that offsets be introduced only in such contracts where Indian vendors have a comparative advantage to derive better prices for their products and services.

The ministry of steel wants coal and mines to be kept out of the policy as its fear is that the policy would push up procurement cost by limiting competition in case of steel units where the number of suppliers is small.

At the same time, it suggests that offset clause be introduced at tender stage itself so that prospective contractor knew its obligation at the first stage.