Defence Industry

Offset Banking
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Issue Vol 23.1 Jan-Mar2008 | Date : 29 Dec , 2010

Offset banking implies generation and accumulation of offset credits prior to the award of the main contract. A bank of offset credits is created in anticipation of getting contracts to defray subsequent offset obligations. In case the vendor fails to get the anticipated contract, he is at liberty to trade his offset credits to recover his costs. Therefore, offset banking and offset trade are intrinsically and mutually contingent.

Also read: Indian Defence Offset Regime: Need for Reforms

Bankable offsets can be created either by generating surplus credits through ongoing programmes or by undertaking fresh offset programmes with prior permission of the host country. Advocates of offset banking feel that pre-contract offset activities show a vendor’s earnestness and commitment to the host country and thereby, create a favourable impression. Additionally, vendors confident of winning main contracts get early-starter advantage and the host country benefits through timely completion of offset programmes.

On the other hand, opponents feel that banked credits create an informal pressure on the host country, although banked offset credits do not guarantee award of the targeted contract. There is also an apprehension that the facility can be misused by passing routine commercial activities as offset programmes.

Undoubtedly, management of offset banking is a highly complex task and unless competently handled the whole exercise can prove infructuous and even counter-productive. Ambiguities in policy provisions and laxity in monitoring can be exploited by experienced vendors to their advantage. Need for transparency and close oversight for probity are other issues that acquire added importance.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Maj Gen Mrinal Suman

is India’s foremost expert in defence procurement procedures and offsets. He heads Defence Technical Assessment and Advisory Services Group of CII.

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