Offsets as incubators

"The government can ensure offsets are used to incubate new industries and entrepreneurs by insisting on the transfer of technology for co-production of planes and other equipment in India

Indian airlines and Air-India are buying a whopping $9.3 billion worth of new planes from Airbus and Boeing respectively. The government has mandated that the foreign suppliers will have to provide “offsets” of 30% of this order. Offsets are foreign exchange inflows that may take the form of production facilities, training facilities, and purchase of related or unrelated goods.

Offsets are common in defence deals — India has mandated a 30% offset for all defence deals of over Rs 300 crore — but are rare for civilian deals. However, the Air-India and Indian airlines orders are so massive that the foreign suppliers have happily agreed to offsets.

The offsets could range from co-production of planes to the purchase of basmati rice or tea. Offsets will apply to huge new defence deals in the pipeline. India is phasing out old MiG squadrons and creating a 21st century fighting force. It seeks 126 multi-role combat aircraft (MRCA), eight multi-mission maritime aircraft, 80 helicopters, space and reconnaissance assets, aerial refuelling tankers, transport aircraft, AWACS, and a missile defence system. The orders will run into tens of billions of dollars, and offsets will be 30% of the order value."

Economic Times

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VT-ASJ