Indian Defence Review

Notes

1. US Department of Commerce, “Impact of Offsets in Defense Trade: An Annual Report to Congress,” Department of Commerce, Washington, D.C. (December 2007), at 4–8, accessed at www.bis.doc.gov/defenseindustrialbase programs/osies/offsets/final-12th-offset-report-2007.pdf.
2. The full text of DPP-05 is available at the MOD Web site at http://mod.nic.in/dpm/DPP%202005.pdf.
3. The SCAP Categorization Committee submits proposals to the Defense Acquisitions Council headed by the Raksha Mantri (Defense Minister) for approval. See MOD Web site, http://mod.nic.in /newadditions/procurement.htm, for more details on the organizational structure and committees relating to defense acquisitions in India.
4. DPP-05, 18, at 5.
5. Clause 2(f) of “Offset Schedule,” Appendix H to DPP-05, at 69.
6. The full text of DPP-06 is available at http://mod.nic.in/dpm/welcome.html.
7. DPP-06, 22 at 11. Buy Global contracts involve outright purchases from foreign/Indian vendors.
8. Ibid. Buy and Make with TOT contracts involve a purchase from a foreign vendor followed by licensed production. Both “Buy Global” and “Buy and Make with TOT” categories include contracts for warship construction. There are also two other categorizations: 1) Buy (Indian), which relates to contracting situations where only Indian vendors are allowed to participate (and must have a minimum 30 percent indigenous content of systems being integrated by an Indian vendor), and Buy & Make decisions, meaning a purchase from a foreign vendor followed by licensed production/indigenous manufacture in the country (see DPP-06, 4 at 7). Yet another categorization—Make Categorization — relates to indigenous research, design, development, and production of systems, which, while being favored, requires its benefits to be put to careful evaluation since it leads to denial of offset opportunities to the defense industry
   (see DPP-06, 23(b) at 144).
9. Clause 2.1 of “Procedure for Implementing Offset Provisions,” Appendix D to DPP-06, at 35 (see also corresponding current provisions at clause 2.1 of “Procedure for Implementing Offset Provisions,” Appendix D to DPP-08, at 43).
10. Ibid.
11. Ibid.
12. DPP-06, 3 at 36. In addition, under DPP-06, DOFA was to assist the acquisition manager in the acquisition wing of MOD in the implementation of the offset contract (DPP-06, 10.1, at 39). This assistance function has now been shifted to an “Offset Monitoring Cell” in MOD under the new 2008 regulations (DPP-08, 10.1, at 47), although sub-clause (c) continues to remain on board without any modifications, clause (h) has been completely deleted in the latest revisions to the procurement procedures, indicating perhaps the thinking that policy-based issues are best dealt within a more formal environment, such as within the Ministry itself.
13. DPP-06, 3.2 at 36. The latest regulations are silent on the composition of DOFA, or whether any changes have been made in a departure from the explicit position under DPP-06.
14. DPP-08 are available at MoD website at http://mod. nic.in/dpm/welcome.html. DPP-08 was in supersession of DPP-06. There are, however, cases that would be under various stages of processing in accordance with provisions of DPP-05 and DPP-06 at the time of the commencement of DPP-2008. As per the DPP-08, the processing of these cases carried out under the earlier procedures will be deemed to be valid; and only those cases in which an RFP is issued after September 1, 2008, will be processed as per DPP-08 (see DPP-08, 77 at 22).
15. Fast-track procedures (FTPs) are for meeting urgent operational requirements and were first promulgated via MOD ID No: 800/SS (A)/2001, September 28, 2001. Their objectives are to ensure expeditious procurement for urgent operational requirements foreseen as imminent or for a situation in which a crisis emerges without prior warning. Procurement proposals in which user trials are envisaged are not under the purview of FTPs. Revised FTP procedures have come into effect July 13, 2006, and these “FTP-2006” procedures are available at Chapter IV of DPP-08, at 191. Further, Clause 1.6 of “Procedure for Implementing Offset Provisions” (Annexure D to DPP-08, at 43) now exempts FTP procurements from offset obligations.
16. Ernst & Young, supra note 2, at 2.
17. DPP-08, 2.1(d), at 44.
18. DPP-08 (Amendment 2009), available on MoD website at http://www.mod.nic.in/dpm/welcome.html.
19. DPP-08 (Amendment 2009), 6.3, Appendix D, Chapter I as amended.
20. DPP-08 (Amendment 2009), 1.3, Appendix D, Chapter I as amended.
21. DPP-06, 3.1(h), at 36. This role has now been removed from DOFA’s charter of responsibilities under the new DPP-08.
22. DPP-06, 3.2, at 36.
23. See DPP-06, 3.1(b), at 36; and DPP-08, 3.1(c), at 44.
24. See DPP-06, 8.2, at 38; and DPP-08, 8.2, at 6.
25. DPP-06, 10.1, at 39.
26. See DPP-08, 10.1, at 47.
27. DPP-08 does not contain sufficient guidance on which particular official should be designated “the MOD’s representative.”
28. DPP-08, 10.3, at 47.
29. See Clause 6 of “Offset Contract,” Annexure IV to DPP-08, at 52.
30. “DOFA will function under the supervision of a designated Joint Secretary of the Dept. of Defense Production, and will have representatives from the Service Headquarters, Headquarter Integrated Defense Staff, the Defense Research and Development Organization, DPSUs, OFB, as well as from three industry associations.” (DPP-06, 3.2, at 36). This paragraph about the composition of DOFA, or anything similar, no longer exists under the revised DPP-08. Apparently, however, DOFA’s composition has not undergone any changes.
31. DPP-06, 6.4, at 38.
32. See, e.g., US–India Business Council, “Objectives for 2007–08,” accessed at www.usibc.com/usibc/advocacy/objectives.htm (last visited December 6, 2008); and “Interview with Lt Gen SS Mehta, Director General, CII,” India Defense Review (March 24, 2008, Vol. 23.1), accessed at https://www.indiandefencereview.com/ (last visited December 6, 2008).
33. Suman, supra note 53.
34. Ibid.
35. DPP-08, 2.1(d), at 44, allows for the creation of offset programs in anticipation of future obligations only in the main text of the regulations. However, clauses 1 to 5 of the part titled, “Banking of Offset Credits” (Annexure VII to Appendix D of DPP-08, at 55), contain provisions to the effect that a vendor could also create extra credits by exceeding its obligations under the main procurement contract.
36. DPP-08, 2.1(d), at 44; Clause 3 of “Banking of Offset Credits,” Annexure VII to Appendix D of DPP-08, at 55.
37. Clauses 4 and 5 of “Banking of Offset Credits,” Annexure VII to Appendix D of DPP-08, at 55. The cutoff date would be April 1 and October 1 of the financial year. To illustrate, offset credits that have been banked on or after April 1, 2009, would be valid for discharge against RFPs issued up to September 30, 2011. Similarly, offset credits banked on or after October 1, 2009, would be valid for discharge against RFPs issued up to March 31, 2012. Further, if a vendor is able to create more offsets than its obligations under a particular contract, the surplus offset credits can be banked and would remain valid for the period of two financial years after the conclusion of the contract. The surplus offset credits would be valid for discharge against the new RFPs, which would be floated within this period.
38. Suman, supra note 53. See also Thomas Mathew, “Getting the Defense Offset Policy Right,” The Economic Times (December 5, 2008), accessed at http://economictimes.indiatimes.com/articleshow/3794199.cms.
39. A senior official in MOD at the rank of Joint Secretary to Government of India has been notified as the competent authority to certify under Public Notice No. 1/0MC/08 (F.No.14 (1)/2008/D(S-III)/OMC) dated September 17, 2008. The same communication also notifies a senior officer at the rank of Director in the Department of Defense Production, MOD, as the officer-in-charge of the Offset Monitoring Cell. The notice can be viewed by first clicking on the link “New Additions,” and then subsequently on the link “Offset Banking Procedure” at MOD’s Web site at http://mod. nic.in/.
40. Richard J. Russin, “Offsets in International Military Procurement,” 24 Public Contracting Law Journal 65, 69 (1994).
41. Suman, supra note 53.
42. Ibid.
43. Ibid.
44. Ibid. On the other hand, a recent study conducted in 2007 recommends that trading of offsets should not be permitted (CII-RELIGÃRE, “Study on Offset Policy for Enhancing Industry Participation in Defense Production” (2007)).