Saturday, December 06, 2008

Query on the offset policy answered

Ashish informed me that he could not get the meaning of "mandatory offsets would mean that its armed forces would get less from the nation’s defence expenditure" in the article on defence offset policy.

Here is my take on the subject:

To understand the full meaning of it, let us look at what is meant by offset; once again. An offset is a compensation that the buyer is seeking from the seller; isn't it? And what is the form in which this compensation is being expected? In the form of co-production, licensed production, technology transfer, outsourcing of components, etc., related to the defence item imported or investment, collaboration and similar compensatory arrangements in civilian areas.

Is the seller going to give it to the buyer for free? The obvious answer as we all can guess is a big NO. Then for every Rs. 100 that you spend on procuring defence equipment, how much worth of actual equipment are you getting? Isn't the answer clear that it is Rs. 70? (Because the offset policy mandates about 30%.) Had the offset policy not been there, what would have your Rs. 100 bought? Equipment worth Rs. 100; isn't it? There lies the answer for the query raised.

But then, why should we go for an offset in the first place? Again it is obvious. That's a conscious choice the government is making. It is not just the equipment that really matters. What equally matters is the ability to manufacture the equipment by way of technology transfer or by having a component of it manufactured in the country for improving our technological capability and for generating employment in our economy out of the money that we are spending.

Hope this answers the query raised.

1 Comment:

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