MoD to announce high-power offsets body - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Friday 28 December 2007

MoD to announce high-power offsets body

by Ajai Shukla
Business Standard, 29th Dec 07

India’s Ministry of Defence (MoD) is looking for ways to handle the huge business from offsets that will soon flow into the country. On 9th June 2008, the handful of officers in the Defence Offsets Facilitation Agency (DOFA), the MoD body responsible for offsets, will find itself evaluating offsets proposals worth about Rs 1,20,000 crores. These will comprise of proposed joint ventures between a multitude of Indian companies and six global vendors vying to sell India 126 Medium Multi-Role Combat Aircraft (MMRCA).

In order to handle this workload, and other proposals that will continue to arise from future contracts, the MoD is dramatically expanding DOFA. Secretary for Defence Production, Mr KP Singh, has told Business Standard that a high-level committee has worked out what DOFA will need to include, and the announcement will take place within one month.

Mr KP Singh says, “There is unanimity in the MoD that neither DOFA, nor the Director General (Acquisitions) can handle such a large volume of independent work. So an exercise is going on to identify a suitable structure for this”.

The expanded version of DOFA, according to the Secretary Defence Production, will perform the following roles:

• Evaluating offsets proposals submitted by foreign vendors, during the bidding process.
• Keeping an account of the fulfilment of the offsets contracts, including the value of defence products manufactured, and exported, and the offsets liability carried forward each year.
• Once offsets banking is permitted, DOFA will perform the role of the bank, keeping a track of the offsets banked, encashed, and carried forward.
• When grey areas exist in the policy, the expanded DOFA will interpret and provide policy clarifications.
• When certain cases fall outside existing policy, decisions on those cases will be made by the expanded DOFA.

Private defence industries, which will be playing a major role in offsets production, have been lobbying for a role in the expanded DOFA. The MoD, however, has ruled out including the private sector. The Secretary of Defence Productions says, “This organisation will play a very important role in advising the government what is in the best interests of the country. But foreign vendors and private companies --- they have no role to play in this body. This is a purely MoD housekeeping function.”

The expanded DOFA will include a technology evaluation cell, consisting of Defence R&D Organisation (DRDO) personnel, a legal cell that is qualified in law relating to commerce and foreign trade, and a greatly expanded accounting capability in order to keep continuous track of individual offsets liabilities that are discharged over several years. The MoD is considering boosting DOFA’s accounting capability by sidestepping three Joint Secretaries from the Ministry of Defence (Finance), a department which has a comparatively smaller workload.

It is still unclear whether the expanded DOFA will continue to form a part of the Department of Defence Production in the MoD, or whether it will evolve into a separate regulatory-cum-advisory body, in which case a legislative framework will have to be enacted.

It is also unclear who will head the new body. While outgoing Secretary of Defence Production, Mr KP Singh, is being mentioned as one possibility, there is another viewpoint that argues that DOFA should remain within the MoD, under the Director General (Acquisitions).

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