Roadmap to the Future

Mihir Paul

Speaking at the 13^th International Conference on ‘Energising the Indian Aerospace Industry’, President, Boeing India, Pratyush Kumar said, “Abolish offsets. It hasn’t delivered. It costs money”.

President, Boeing India, Pratyush Kumar speaking about procurements at the conference

Kumar dropped this bomb during the panel discussion with other stakeholders from the aerospace industry. He reasoned that “If we abolish offsets, how do we bring the Indian industry to the fore? You do it by helping them become globally compelled; by injecting in them the basic principles of manufacturing. Manufacturing requires highly skilled manpower and capital. These are long-term gestation projects. This requires long-term capital and supply-chain management know-how. Let’s ask Original Equipment Manufacturer (OEM) partners to step up and do those things and not gum them up in offset management that simply drains energy and costs.”

Offsets have long been part of India’s Defence Procurement Policy (DPP). They have served as enablers to foreign manufacturers. The offset policy, introduced in 2005, mandates foreign suppliers to spend at least 30 per cent of the contract value in India. It was first revised in 2006 and then again in 2011 and in 2016. Another round of tweaking is currently underway.

The reason why offsets don’t work well for India is that the Indian industry lacks the technological proficiency and infrastructure to benefit fully from the current offset policy. This makes it difficult for foreign suppliers to find ways to discharge their offset obligations in a cost-effective way.

The current offset policy in the DPP-2016 banks on taking advantage of big procurements in the defence sector to finagle OEMs into outsourcing to Indian companies, transferring technologies to Indian manufacturers and encourage foreign direct investment (FDI). This hasn’t worked all that well considering OEMs haven’t been able to discharge offsets in terms of transfer of technology (ToT) as much and neither has the recent FDI been compelling.

Offset policies have been implemented as part of acquisition procedures in many countries as a means to acquire advanced technological capabilities. Brazil’s Embraer manufacturing programme is one of the many examples of successful im