> Offset dilution in defence, a flawed policy turn – As an episode in India’s aerospace industry shows, it can succeed if it is designed and executed correctly
Mains (GS-III : Security challenges and their management, Various Security forces and agencies and their mandate )
[This article talks about the importance of offset clause in defence procurement & how it helped the aerospace industry]
What is offset clause in defence procurement?
- Under the offset clause, a foreign company that wins a defence deal is supposed to invest a part of the contract value in the country, thus developing skills and bringing in technology, while also generating employment.
- Most countries restrict trade in defence equipment and advanced technologies in order to safeguard national interest. Yet, for commercial gains and for global technological recognition, governments and firms do like to expand the trade.
- Developing country buyers often lack an industrial base and research and development (R&D) facilities (which take a long time to mature). The price and the terms of the contract often reflect the government’s relative bargaining strength and also domestic political and economic considerations.
- Large buyers such as India seek to exercise their “buying power” to secure not just the lowest price. They also try to acquire the technology to upgrade domestic production and build R&D capabilities. The offset clause — used globally — is the instrument for securing these goals.
- Offset clause was Initiated in 2005, the offset clause has a requirement of sourcing 30% of the value of the contract domestically; indigenisation of production in a strict time frame, and training Indian professionals in hightech skills, for promoting domestic R&D
What happened now?
- Recently, the government diluted the “offset” policy in defence procurement, reportedly in response to a Comptroller and Auditor General (CAG) of India’s report tabled in Parliament last.
- Henceforth, the offset clause will not be applicable to bilateral deals and deals with a single (monopoly) seller.
What did CAG say in its report?
- According to the recent CAG report mentioned above, between 2007 and 2018, the government reportedly signed 46 offset contracts worth ₹66,427 crore of investments.
- However, the realised investments were merely 8%, or worth ₹5,457 crore.
- Technology transfer agreements in the offsets were not implemented, failing to accomplish the stated policy objective.
- CAG was unable to verify the claim as the government has not put in place an automatic monitoring system for offset contracts, as initially promised.
What did government say?
- The government has defended the decision by claiming a cost advantage.
Why the argument of government is not satisfactory?
- Price is but one of many factors in such deals. The higher (upfront) cost of the agreement due to the offset clause would pay for itself by: reducing costs in the long term by indigenisation of production and the potential technology spillovers for domestic industry.
- Hence, giving up the offset clause is undoubtedly a severe setback.
What will be the effect of this move?
- Most defence deals are bilateral (as stated above), or a single supplier deal (given the monopoly over the technology). The dilution means practically giving up the offset clause, sounding the death knell of India’s prospects for boosting defence production and technological self reliance.
- This dilution of offset clause suggests that India has voluntarily given up a powerful instrument of bargaining to acquire scarce advanced technology — a system that large and politically ambitious nations seek to exercise.
What is the plight of aerospace industry in India?
- India is a lightweight in global civilian aircraft manufacturing, as the public sector giant mostly devotes itself to defence production. The much touted National Civil Aircraft Development (NCAD) project — to come up with an indigenously designed Regional Transport Aircraft (RTA) — has remained a nonstarter from day one.
How offset clause helped aerospace industry & the Indian economy in the past?
- With the introduction of the offset policy in 2005, things changed dramatically for aerospace industry.
- For contracts valued at ₹300 crore or more, 30% of it will result in offsets, implemented through Indian
- offset partners.
- Aerospace imports rose rapidly, so did the exports via the offsets, by a whopping 544% in 2007, compared to the previous year. By 2014, exports increased to $6.7 billion from a paltry $62.5 million in 2005, according to the United Nations Comtrade Database.
- The offset clause enabled India to join the league of the world’s top 10 aerospace exporters; the only country without a major domestic aerospace firm.
- The 2005 policy helped promote a vibrant aerospace cluster, mostly micro, small and medium enterprises (MSMEs) around Bengaluru.
- India needs to re-imagine the offset clause in defence contracts with stricter enforcement of the deals, in national interest, and in order to aim for ‘Atma Nirbhar Bharat Abhiyaan’, or a self reliant India.
> The many bright spots on India’s innovation horizon – Recognising the potential, the government is putting in place a framework of collaboration, facilitation and regulation
Mains (GS-III : Science and Technology- developments and their applications and effects in everyday life. Achievements of Indians in science & technology, indigenization of technology and developing new technology)
[This article simply focuses on importance of innovation and Indian potential]
- Innovation rearranges existing and combinations that benefit elements into permutations and combinations that benefit society.
- The Indian innovation of zero fundamentally reordered history. The novel corona virus pandemic provides an opportunity for similar reordering for posterity.
Does India have that innovative potential?
- India is a fertile ground to be a technology led innovation garage. It is the fastest growing country in terms of Internet usage, with over 700 million users and the number projected to rise to 974 million by 2025.
- The JAM trinity (Jan Dhan, Aadhaar, Mobile) trinity has 404 million Jan Dhan bank accounts with 1.2 billion Aadhaar and 1.2 billion mobile subscribers. There is a potential to add over $957 billion to India’s GDP by 2035 with artificial intelligence (AI), according to a recent report by Accenture.
- Innovation in India is being structured around the triad of collaboration, facilitation and responsible regulation. It is advanced by cross-disciplinary collaboration.
Importance of innovation & its unknown future benefits:
- Innovation is a recombinant and brings tangential benefits through products and services that may not even have been its initial purpose.
- The founders of Twitter had set out to make a platform for people to find podcasts; Instagram was first intended to be a sign-in application; CRISPR, or the clustered regularly interspaced short palindromic repeats, which is the transformative gene editing tool, was partly being researched for fixing problems in the yoghurt industry.
- Roy Amara, a Stanford computer scientist, who said that “People tend to overestimate the impact of a new technology in the short run, but to underestimate it in the long run.”
- Innovation has the potential to build a future where AI will transform education and health care, machine learning and blockchain will make commerce robust and resilient, clean energy will drive our economy, gene-drives would exterminate invasive and harmful species, gene-editing would help us bring back extinct species and reinvigorate depleted ecosystems, quantum computing will raise our
processing capability to resolve challenges which seem insurmountable and augmented, and virtual reality will optimistically change the way we interact with the physical world.
How India saw innovations in startups recently?
- The recent winners of the ‘Digital India AatmaNirbhar Bharat Innovate Challenge’ Chingari with its video communication tools and MapMyIndia with its elaborative maps, ‘Logically’, with its news delivery features are becoming household names.
- Setu, true to its name, is building a bridge to bring banks to people. It has built an application programming interface which allows customers to make small ticket payments without going to the bank.
- Yelo is offering neo banking payment and money transfer services online for workers in the gig economy.
- Niramai (or Non Invasive Risk Assessment with Machine Intelligence) uses an AI based thermal imaging portable tool that carries out non invasive breast cancer screening for women for early detection.
- Qure.ai uses AI for healthcare diagnostics in rural India, tackling challenges such as tuberculosis and now COVID19.
- Gramophone offers pricing information from mandis, advice on soil and crop health and access to agricultural inputs via micro entrepreneurs to farmers in Madhya Pradesh, aiding their operation efficiency.
- Vernacular.ai offers a voice based AI product that can understand up to 10 Indian languages and around 160 dialects.
How government has nurtured and helped these innovative spirits?
- Innovation needs risk capital in terms of resources and psychological security for researchers. It needs an environment where it is safe to fail.
- the government has been actively facilitating collaborative and light touch regulatory practices to promote innovation and incentivise risk taking.
- Government is incentivising research and development with several schemes such as
- Innovation in Science Pursuit for Inspired Research (INSPIRE) scholarships,
- the Ramanujan Fellowship,
- the Knowledge Involvement in Research Advancement through Nurturing (KIRAN) scheme,
- Smart India Hackathons (SIH),
- Atal Innovation Mission (AIM),
- the Biotechnology Ignition Grant (BIG) scheme
- setting up of the Future Skills PRIME (Programme for Reskilling/Upskilling of IT Manpower for Employability) capacity building platform and
- also the triad of Scheme for Transformational and Advanced Research in Sciences (STARS),
- Scheme for Promotion of Academic and Research Collaboration (SPARC) and
- Impactful Policy Research in Social Science (IMPRESS).
- The National Mission on Interdisciplinary Cyber Physical Systems aims to ‘catalyse translational research across “Al, IoT or the Internet of Things, Machine Learning, Deep Learning, Big Data Analytics, Robotics, Quantum Computing, Data Science”.
- The Reserve Bank of India, Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority of India allow for regulatory sandboxes for piloting new ideas.
- Walter Isaacson once cited this: “Advances in science when put to practical use mean more jobs, higher wages, shorter hours, more abundant crops, more leisure for recreation, for study, for learning how to live without deadening drudgery which has been the burden of the common man for past ages.”
> Flawed Foreigners Tribunal – Cases of suspected foreigners are decided arbitrarily and callously
Mains (GS-III : Statutory, regulatory and various quasi-judicial bodies, Functions and responsibilities of the Union and the States)
[This article focuses on arbitrary functioning of foreigners tribunals]
- 818 orders passed by a Foreigners Tribunal between June 16, 2017 and December 30, 2019.
- The information obtained through the Right To Information Act found that 96% were decided ex parte. Also, the orders were inconsistent, vague and biased.
How Police & tribunal nexus works?
- The police claimed they were able to meet suspected foreigners before submitting their inquiry report, in at least 98% of such cases, they were unable to locate the suspected foreigners subsequently to serve a notice to appear before the tribunal.
- Foreigners Tribunals do not allow for the police to be cross examined, thereby leaving no room to disprove or challenge submissions made by them regarding their alleged meetings with the suspected foreigners and their subsequent inability to find them.
- All this works out conveniently for the police and the tribunals given the anxiety in Assam about finding and deporting Bangladeshis.
Major Issue in such cases:
- Unlike regular criminal trials where an accused is presumed not guilty and the state has to prove that he committed a crime, the burden of proof under the Foreigners Act of 1946 is on the accused.
- If a person fails to appear before the Foreigners Tribunal, it can pass an order declaring him a foreigner ex parte, without allowing him an opportunity to defend himself.
How tribunals are showing arbitrary nature?
- There is a desperate search for Bangladeshis (this is an allegation).
- Most of the cases analysed were decided ex parte.
- This tribunal took an average of 10 years to dispose of a case. It is interesting to note that 92% of the cases analysed were disposed of in 2018 and 2019 alone.
- In 82% of the cases, the police gave the tribunal reports of service of notice in 2018 and 2019, although some cases dated as far back as 1999. The cases appear to have been kept in cold storage for several years and disposed of with undue haste in 2018 and 2019.
- There is an urgent need to make the procedure followed by the Foreigners Tribunal fair and transparent. The claims of 19 lakh people excluded from the National Register of Citizens will go before these tribunals. Their cases cannot be decided arbitrarily and callously as they have been in the past.