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The Defence Ministry has removed the offset clause requirement in Inter-Governmental Agreements (IGA) in the new Defence Acquisition Procedure (DAP), 2020, which was released on Monday. 

It also introduces a new category for leasing of military equipment.

  • Last week, the Comptroller and Auditor General (CAG) observed that French defence majors Dassault Aviation and MBDA have till date “not confirmed” the transfer of technology to the Defence Research and Development Organisation (DRDO) under the ₹60,000 crore deal for 36 Rafale fighter jets.
  • The deal has a 50% offset clause to be executed by the French companies.

Offset Clause :

Under offset clause, foreign companies are required to invest part of their deal value in the country and meant to improve the domestic defence manufacturing.

“The offset guidelines have also been revised, wherein preference will be given to manufacture of complete defence products over components and various multipliers have been added to give incentivisation in discharge of offsets,” Defence Minister said. 

  • Other proposed measures include making after sales support part of capital acquisition contract, higher indigenous content in acquisitions and incentives for local material and software and emphasis on product export under offsets.
  • The draft was finalised by a committee headed by Director General Acquisition, MoD, that was set up in August 2019.

Lease option

  • Leasing has been introduced as a new category for acquisition in addition to the existing ‘Buy’ and ‘Make’ categories to substitute huge initial capital outlays with periodical rental payments. This will be useful for military equipment not used in actual warfare like transport fleets, trainers, simulators, among others.

Defence Minister said that “A new procedure has been included as a new chapter in DAP and structured as an enabling provision for Services to procure essential items through Capital Budget under a simplified procedure in a time bound manner, and DAP 2020 has been aligned with the vision of Atmanirbhar Bharat.