The Defence Acquisition Council yesterday made a wise call – it decided to do away with the ‘offset clause’ while buying defence equipments – the offset requires a foreign vendor to invest a part of the contract value in India. This is applicable only if the deal is done through inter-government agreement (IGA), govt-to-govt or an ab initio single vendor. Offsets, however, will continue to be part of multi-vendor competitive procurement contracts.
The offset clause policy had not brought any critical technology to India yet, and had only resulted in foreign vendors loading extra costs in contracts in single-vendor or government-to-government deals.
The Govt clarified that changes to the defence procurement policy will not be retrospective and ongoing deals will not be impacted.
The government has also decided to increase the indigenous content (IC) requirement for all projects from 40% to 50%, depending on the category, to 50% to 60% now. Only under procurement through Buy (Global), foreign vendors can have 30% IC from Indian companies.
A new Make III category has also been introduced, which will be indigenously manufactured defence equipment and platforms or spares and assemblies intended to enable import substitution.
The govt has also tried to rationalise the trial and testing procedures. With the new measures, the government hopes to bring down the defence procurement timelines.
With this news coming in, defence stocks are up in the green today. Bharat Dynamics, HAL, Reliance Naval, Astra Microwave, BEML are all up except for BEL which is in the red.