INSIGHTEON'S UNIQUE 'WARGAME' ON OFFSET PENALTIES

Insighteon Consulting ran an interactive wargame on February 23 and 24, with the aim of ascertaining the reasons behind the failure to fulfil offset obligations leading to penalties, and options available to hasten the process of achieving closure of defence offset obligations.

The Defence Defence Offset Policy was introduced in 2005 as a "gamechanger for the private sector" and the first offset contract was signed in 2007. At that time the Indian Ministry of Defence was criticised for being a late starter in introducing an offset policy. The idea was that since India was one of the largest defence importers and its defence expenditure was expected to rise further, it can leverage its buying power towards developing its industrial base, which was the norm- in over 130 countries. Some of the countries had an offset threshold level as low as 20 crores and percentage of offsets to be carried out as high as 70 per cent of the equipment procured. However, India went ahead and introduced the offset policy with a threshold level of 300 crores, which was relatively much higher than the global average.

Over the years, a total of 56 offset contracts estimated at $13.03 billion have been signed and are expected to be implemented by the Year 2027. However, in the last couple of years, certain indications were forthcoming that all is not well when discharging offset obligations. According to a March 2020 report of the Parliamentary Standing Committee on Defence, a penalty amounting to $38.19 million had been imposed till then in eleven of the 56 offset contracts signed for the shortfall in achieving the annual targets. Further, In August last year, it was reported by the print media that the MoD had threatened to ban a US company and put another 11 US, French, Russian and Israeli companies on a watchlist on account of slow implementation of the offset contracts.

Toward this end, Insighteon Consulting ran an interactive wargame on February 23 and 24, 2022, with the aim of ascertaining the following the reasons behind the failure to fulfil offset obligations leading to penalties and options available to hasten the process of achieving closure of defence offset obligations.