Akash air defence system battery and tracking radar on view at DefExpo 2018

Defence ministry is working to amend the offsets policy, which mandates investment of at least 30 per cent of value in defence & aerospace manufacturing.

New Delhi: Foreign companies who have won a substantial defence contract in India currently have to invest at least 30 per cent of the value in the defence and aerospace sectors.

But a new policy that the defence ministry is working on could steer the focus of this offset away from the manufacturing sector, and into investments in the stock market and infrastructure.

The move will come as a huge relief to foreign firms which have large outstanding offset obligations in India – about $16 billion to be undertaken by 2028 – and have been finding it tough to discharge these obligations due to the limited avenues available in India’s fledgling defence and aerospace market.

This number is expected to go up in the coming years as well.

It is learnt that the ministry is looking to amend the current defence offsets policy by putting a cap — said to be 10 per cent — on the amount of offset money that can be used to procure material and services from Indian manufacturers.

Instead, foreign companies may be encouraged to invest in the Indian stock markets. A multiplier is being planned for investments into SEBI-approved funds, according to insiders. Similar efforts had been made in 2015 to create special venture capital funds to invest in MSMEs and companies involved in defence research.

Sources also said that another amendment to the offsets rule being considered will enable foreign companies to heavily invest in the two newly-announced defence industrial corridors in Tamil Nadu and Uttar Pradesh. The government may give foreign companies a four-times multiplier for such investments.

Other changes being worked on include allowing group companies to discharge offset obligations, and revoking the earlier provision of banking of offsets. The policy changes could be announced at the upcoming DefExpo near Chennai if they get firmed up on time.

It is unclear if the new offset policy will also cater to skill development — to create new R&D facilities and training institutions and excellence labs for raising skilled workers needed for the sector.

Offset money may also be allowed to invest in the Innovation for Defence Excellence (iDeX) initiative to set up ‘Defence Innovation Hubs’ across the country. This initiative was unveiled in the draft defence production policy last month.