No offset policy as key ministries defend turf Close.

NEW DELHI: An ambitious government plan to consolidate all its big-ticket import spends and leverage them through mandatory offsets may not take off thanks to strong opposition from several ministries and the Planning Commission.

The cabinet had given an in-principle nod for a National Offset Policy in 2006 with an aim to boost India's access to critical technologies and resources. The cabinet secretary was asked to flesh out operational details of the idea that was first floated in 2002.

But ministries have not been able to agree on the policy drafted by the commerce ministry despite several meetings of a committee of secretaries (CoS) under the cabinet secretary over the past six years.

Major spending departments like defence, space, nuclear energy, petroleum and telecom have refused to yield 'turf' to a new central authority proposed to monitor system-wide procurements and plan such offsets. They have asked to be exempted from the policy, while the Planning Commission had asked for the plan to be 'dropped' altogether.

"The idea is to leverage India's strength as one of the leading importers across sectors like arms, nuclear plants, oil and gas to bring in high-end technologies and mineral resources that are difficult to access, through a national civil offsets policy," a senior government official told ET. "If the country imports $10 billion of goods every year, we have better leverage as a whole than with each department negotiating offsets independently," he said.

Despite the compelling logic, the commerce ministry threw up its hands by late 2011 and informed the cabinet secretary that the policy could not be implemented if all major import products like fertilizers, oil and defence equipment were to be exempted from its purview.

"The rest of India's imports are largely done by the private sector making the proposed policy redundant," the official explained.

In a final attempt to salvage the long-pending proposal, the cabinet secretariat has asked the commerce department to draw up a revised policy, which envisages mandatory offsets for all imports in the range of 500 crore to 1,000 crore. The policy has been circulated to all ministries.

"A national offset policy can only work if a single agency is responsible for it," said a senior commerce ministry official. "We have proposed creation of a National Offset Authority led by the cabinet secretary where all arms of government, including public sector firms, report their procurement plans. This authority would then be able to do cross-sector leveraging of offsets."

Similar offsets are mandated for defence and aircraft purchases, but have largely failed to deliver thanks to stringent restrictions on foreign direct investment in domestic production of such sectors and the refusal to allow private sector participation.

For instance, Embraer supplies aeroplanes to the defence ministry and is keen to set up avionics productions facilities in India as part of its offset obligations (presently pegged at 30% of import value). But it wants 100% ownership of such a facility, which is not permissible under India's restrictive FDI norms.

The new national offset policy being considered proposes to bring defence offsets under its ambit - a move that could face strong resistance. "The defence ministry is keen to drive its own offsets and limit benefits to defence sector PSUs," said an official close to the development. "But such firms cannot be the recipients and monitors of the offset programme at the same time."

Though the revised policy proposes to give a bigger role to major importing departments in the use of offsets, senior officials are not optimistic about a change in stance from dissenting ministries.

"No ministry wants to give up turf despite the cabinet's diktat," said a secretary who has been involved in the CoS discussions since 2006. "It's a sign of the lack of co-ordination in government departments. We will see if the revised policy finds any takers, else we will have to inform the cabinet that this is a 'no-go' policy idea without a higher level intervention."

Source : economictimes.indiatimes.com