Reinstating Defence Offsets in Services Opens up Opportunities

Till now, there were restrictions on offset discharge through maintenance, repair and overhaul, and upgradation

Published: 14th December 2015 04:39 AM  |   Last Updated: 14th December 2015 04:43 AM   |  A+A-

BENGALURU: Some two years after the orders holding services offset in abeyance were announced, the Centre has decided to lift it, drawing a huge welcome from various quarters.

Defence offset agreements are arrangements in which the seller of a product/service agrees to buy products/services from its client as an inducement.

Till now, there were restrictions on offset discharge through maintenance, repair and overhaul, and upgradation/life extension. “The restrictions were a result of malpractices indulged in by one company, and all service providers were painted with the same brush. This had led to massive loss of potential business for the country,” said C G Krishnadas Nair, former chairman of HAL, and honorary president, Society of Indian Aerospace Technologies and Industries.

As a result, quite a bit of development work had stopped coming to India. In future, the Centre should act against just the offender rather than acting against the industry as a whole, he added.

Nasscom, an association of software and services companies, believes it could give a fillip to many of the Indian companies that provide services to the defence and aerospace sectors, now that the restrictions have been removed.

In a statement, it said, “The offset policy and the move to reinstate software development as being eligible to be considered a service in defence offsets, also includes engineering design and testing.” This, it added, will benefit companies that had invested in developing expertise in providing services to the sectors.

According to some recent reports, India is one of the favourite destinations for Engineering Services Outsourcing (ESO), and it is expected that India will account for about 30 per cent of the global market for these services by 2020.

But there have been some voices of concern too. “This move to include software as a part of the offset fulfillment clause will partially handicap the dream of India’s indigenous aerospace and defence system manufacturers. The engineering services will be outsourced to India irrespective of the addition in the offsets due to the proven technical skillsets when the need of the hour is to develop more tier suppliers to pave the way for indigenous system integration,” said John Siddharth C P, an aerospace and defence specialist who is currently pursuing a course at IIM-Bangalore.

The companies required to fulfil their offset obligations will primarily opt for engineering services due to the expertise in this area. The ESO market is expected to grow in double digit figures in the next decade. This directive as a stand-alone will have a considerable impact on the market in the long run, he said. “There should be clear checks and balances to ensure that the 20 per cent cap is strictly adhered to,” Siddharth added.


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