Offset policy for all contracts likely
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Economy Bureau
Posted online: Dec 06, 2007 at 0026 hrs
New Delhi, Dec 5 Foreign cos in airline, defence deals have to park income share

The government is planning to make it mandatory for foreign companies bagging deals from state-owned companies to invest a part of their deal income in India.

The move, which is expected to significantly benefit the domestic industry, would be possible as the government plans to expand its existing offset policy from just defence and state-owned airlines sectors to all civilian contracts across sectors. In an exclusive interaction with The Express Group, commerce and industry minister Kamal Nath said the government was exploring ways to suitably expand the offset policy — or “counter trade commitments” provisions — to cover civilian contracts across in all sectors. At present, foreign firms bagging orders from state-owned defence companies and national airlines are required to reinvest a certain percentage of the total value of order bagged from Indian public sector undertaking.

Any purchase order by a defence entity or state-owned civilian carrier from a foreign firm will have to ensure an offset or reinvestment of at least 30% of the order value. The order placed by Indian entities has to be of Rs 300 crore or more to entail offset. The reinvestment by foreign firms can either be through procurement of components and services from India or via direct investment.

Nath said the government was currently studying the Israeli and Chinese offset policies to frame a comprehensive policy that suits India.

“Previously we had it (offset policy) in defence sector. But for the first time now, in civilian contracts we are going to do this counter trade or offset policy. I don’t know whether the model (that we come up with) will be right. But we are taking suggestions (from all stakeholders). We have to build up some skills to understand counter trade and to get maximum mileage out of this,” he said.

Several firms such as TCS and HAL have already taken advantage of this policy and won contracts on software services, design and engineering from the foreign companies supplying products to the country.

For instance, as per rough estimates, India intends to import aircraft worth Rs 90,000 crore in the near future for defence and civilian use from foreign companies. This would result in an inflow of around Rs 27,000 crore investments by foreign aircraft manufacturers, as these firms would be required to source aviation products and services from India.

Extension of the offset policy across sectors would lead to even higher reinvestment by foreign companies in India.

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