Suggested Way Forward for India
It is a well-accepted fact that offsets does not come for free. The seller is bound to amortise the additional expenditure by suitably factoring it in the price quote. It is, therefore, essential to draw maximum advantage from defence offsets by their prudent selection. Expecting FDI under offset programmes may prove illusive.
Given the burgeoning export of Indian goods and services, seeking offsets by way of counter-purchase of goods and services does not appear prudent. India is a powerhouse as regards export of IT services. Almost all corporate giants are sourcing them from India. Given the option, they would all like to defray their offset obligations by counting IT services against it. Such offsets provide deceptive benefits as they contribute little to the generation of economic activities.
It is absolutely essential that India insists on technology transfer. Transferred technology must make the local defence industry self-sustaining to reduce dependence on imports.
India should adopt the following methodology:-
Identification of Needed Technologies - Defence Research and Defence Organisation (DRDO) should be asked to prepare a list of technologies that they want to receive under offsets. Technologies sought should meet the following criteria:-
Technologies on which DRDO has been working for long but without satisfactory pace of progress so far and wherein import of technology would hasten development.
DRDO should be able to absorb it completely to draw full advantage.
Technology should provide a platform for further indigenous development of higher level. If every subsequent technology has to be imported, it does not contribute to the technological prowess of the country.
Valuation and Assignment of Priorities- DRDO should provide estimated fair price of all technologies in the list and also indicate their inter-se priority depending on the degree of their urgent necessity. Higher priority is accorded to those technologies that they need most.
Allotment of Multiplier Values - Acquisition Wing, in consultation with DRDO, should allot multiplier values to all technologies to provide incentive to vendors to offer targeted technologies. It is a very crucial decision and demands careful consideration.
Issuance of Request for Proposals - Technologies sought as a part of offsets package must be clearly spelt out. All vendors should be able to work out offset credits that they would be able to earn with each type of technology that they propose to offer. It is for the Acquisition Wing to ensure that all inputs are made available to vendors to evolve their offset packages as per India’s requirements.
Appraisal of Offset Proposals -Technical Manager should take active assistance of DRDO to examine offset proposals. It will be ideal if a matrix is prepared to facilitate comparative evaluation. If required, clarifications should be sought from vendors to preclude subsequent misinterpretation.
Finally, it must never be forgotten that all successful offset programmes are based on deliberate and purposeful selection of offsets as per the perceived needs of a buyer nation. The Government of India has been taking a number of steps to achieve the target of procuring 70 per cent of its defence requirements from indigenous sources by 2010. This can be achieved only through receipt of technology to bridge the existing gap and achieve self-sufficiency in defence production.
Technologies that industrially-advanced countries are reluctant to sell can only be obtained through offsets. India possesses immense bargaining power with a large number of high value defence imports in the pipeline. It is time India seizes this opportunity to demand and obtain much needed high-end technologies to upgrade its defence-industrial potential.
About Author – Major Gen Mrinal Suman is India’s foremost expert in defence procurement and procedures and offsets. He heads Defense Technical Assessment and Advisory Services Group of CII.