Indian Defence Review

Provisional Advice

The Indian bureaucracy will not wish to make decisions on mere possibilities or hypotheticals. However, businesses approaching the Indian market need feedback as they develop plans and initiatives. The interests of the offset programmes would be advanced if the DOMW is able to give provisional advice based on information provided and subject to later verification. For example, at the time of negotiation of a commercial offset proposal, that initial assumptions remain unchanged.

The DOMW should adopt a practice that invites submission of questions on issues of the application or administration of offset rules. Where the bureaucracy has no objection to a proposition presented, the DOMW might transmit a “No Action” letter. Such “No Action” letters would not constitute formal approval. They would be conditioned upon stated facts and assumptions. Formal and final approval would be earned only when specifics of an offset proposal are reviewed in a contract negotiation. Nonetheless, this form of provisional feedback would provide valued assurance to offset proponents.

Cycle Time Objectives

As experience is gained with categories of decision, the DOMW should state goals for “cycle times” to assure that decisions are made or actions are taken within a reasonable and predictable period after inquiry is made. A variation is to agree that failure to act within normative times may be treated as absence of objection to the proposition presented.

Decision Consistency

The administration of offset rules in the past was perceived as producing inconsistent results. Serious problems were encountered when private sector participants were given approval to a proposition only to later experience a change in position or repudiation of an earlier understanding. For the offset program to be administered in a more business-like fashion, private parties need to have higher assurance that actions taken by the DOMW may be relied upon, unless there are changed facts or circumstances.

Transparency Measures

Unequal knowledge and selective availability of information is contrary to transparency and may deter private sector participation. The DOMW should be encouraged to make publicly available its decisions of general or recurring interest as to how it will administer the offset programmes and apply its rules. The DOMW might distill key rulings or important principles into a format that can be posted as “Decision Circulars” and made available to the public via the Internet. These would not reveal the names of private sector concerns or proprietary or competition-sensitive commercial information.

Valuation Guidance

The revised Offset Guidelines contain many mechanical or technical elements that concern valuation and measurement of value added. There will be recurring questions on how to value investments in kind and Transfer of Technology. Periodic guidance and release of decision extracts in such areas would promote greater understanding of the Offset Guidelines and facilitate business planning.

Offset Partner Substitution and Addition

While more than $4 billion (Rs 22,000 crore) in offset contracts have been signed, not every vendor identified in those offset contracts will prove capable of delivery. No one gains from a failed offset obligation. Hence, the MoD should be encouraged to define and document the process it will employ to make decisions for substitution and addition of qualified IOPs to offset plans incorporated into contracts already let. Those decision-making powers are already vested in the Secretary of the Ministry of Defence and reportedly, he has delegated the role to the Defence Acquisition Council. It would benefit the MoD to state policies and practices to consider and timely act upon substitution and addition of IOPs. This may require a delegation of preparatory responsibilities to subordinate bodies.

Renegotiation of Existing Offset Agreements to Current Standards

Offset contracts today are governed by the version of the DPP that was in force at the time of Request for Proposal (RFP) issuance. With the continual revision of the DPP, it has become difficult for all parties to keep track of the correct version. Also, progressive revisions to the DPP and Offset Guidelines have expanded the sphere of service and supplies eligible for offset credit as well as the means by which offset obligations can be discharged. Where OEMs have encountered bona fide problems in satisfying an existing offset contract governed by an earlier DPP, the MoD may wish to allow companies to propose terms for renegotiation, to apply the current DPP or guidelines. On a case-by-case basis where, in the interest of the GOI, offset contracts could be revised.

The subjects cited above focus on India but there are many actions for the US Government to take that will assist development of the US-India defence industrial relationship. Critical issues are present in subject areas that include export administration, national disclosure policy, better support and faster action upon Foreign Military Sales (FMS) cases. A “trust deficit” remains in that many in India continue to question whether the US is a trusted source for key defence equipment and doubts persist about US willingness to share valuable technology with India. Problems also remain in the reconciliation of India’s DPP with the FMS procedure of the US government. For the US to actualize the opportunity that its companies can help India develop an indigenous defense manufacturing industry and become more self-reliant for its own security, there are a number of measures that must be taken by the former to remove barriers to industrial cooperation, ease technology release constraints, expedite export approvals and foster greater defence cooperation.

A promising start may be present in the new “Defense Trade Initiative” sponsored by US Deputy Secretary of Defense, Ash Carter. This promises unprecedented project opportunities for collaboration in development, manufacture and sustainment of mutually beneficial defence and internal security systems. Success, however, can be achieved only if the US Government steps up and delivers real improvements in how it treats defense cooperation and sharing of technology with India. Meanwhile, India has a right to look beyond the rosy rhetoric to the results that the US delivers.