The defence ministry has cracked down on foreign companies who have defaulted on their offset obligations, with harsher action expected in the coming months in case of non-compliance. Notices were sent to overseas companies which bagged major military contracts but failed to undertake mandatory investments of at least 30% into the Indian defence and aerospace sector.
The crackdown took place as several major foreign manufacturers, particularly from Europe and the US, were either behind on their offset commitments or had not submitted viable plans under the prevailing rules.
Data available with the defence ministry shows that in the past five years, foreign companies have failed to perform offsets worth over $2.24 billion, even in cases where multiple extensions were given on special request.
While fines have been imposed and will be enforced on all defaulting parties, harsher action could include debarment of the companies in future for repeated non-compliance. Explaining the series of steps likely against defaulting companies, sources said that at the first stage, penalty would be deducted from scheduled payments for foreign equipment if defaults continue.
In cases where full payments have been made, banking guarantees furnished by the companies will be encashed and additional penal measures will be enforced.
The defence ministry has already imposed fines worth $43.14 million against erring companies, with the amount expected to rise exponentially over the coming months. In some cases, offsets have been pending for over a decade and companies have been put on a watchlist due to defaults.
Initiated in 2008, the offset policy mandates foreign companies outsourcing at least 30% of the value of large contracts to Indian manufacturers. The offsets route was estimated to bring in $11.2 billion over the 2008-2024 period but till now, just over 20% of these have been fulfilled.
