Offsetting policy PDF Print E-mail
Monday, 09 April 2012 15:52
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Without necessary changes, will only add to costs
A national ‘offsets policy’ is a good idea even if several ministries don’t want to cede turf to a central authority whose job it is to pool all offset requirements and try to prioritize them. While the defence ministry would rather police Rafale meeting its offset obligations —it will have to source at least 30% of its exports to India from local suppliers —the proposed National Offset Authority (NOA) will take away this power. By broadening the scope of offsets, NOA seeks to make life easier for Rafale and others. Since each ministry will indicate its purchase requirements to NOA a year in advance, NOA will be in a position to tell Rafale that instead of working on aircraft suppliers for instance, it can work on some other industrial need. In this ideal world, India’s imports will, over a period of time, always lead to a significant improvement in its domestic industrial base as those exporting to India will always have to help India’s industry develop.
How different the real world can be is best seen from the fate of the rupee-rouble trade, the earliest version of offsets. The reason for this is simple: unless India’s policies are conducive, no one is going to set up industrial bases under the offset policy— firms will just pay penalties and build it into their bid costs. Why would Rafale want to manufacture in India if it can’t control the local unit, which the defence-FDI policy does not allow? If, on the other hand, FDI policy allowed this, India’s labour was more productive, getting land was easy as was exiting an industry, Rafale would probably want to produce some part of what it plans to sell locally in India to lower its costs— it is for these very reasons that India is ceding export-market share to countries like Vietnam, Bangladesh and Indonesia in even low-tech textiles and clothing. Using offsets to get critical technology that India has no hope of getting otherwise – in fuel enrichment or aircraft engine design – is one thing, a blanket offset policy of the type proposed appears a waste of time. Except for those manning the new National Offset Authority.

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