Coal ministry objects to
threshold; Planning Commission, civil aviation ministry say
policy should be sector specific
At least three important
government departments have opposed the commerce ministry’s
move to formulate a common national policy on offsets, an
obligation that an overseas vendor has to fulfil to sell
equipment or services to the Indian government.
The ministries of coal and civil
aviation and the Planning Commission have said that they are
opposed to the move. They have voiced their opposition to a
draft note on the matter that was circulated by the commerce
ministry in April. Mint has reviewed a copy of an internal
government note that contains their views.
The Union cabinet had given its
in-principle approval to a national offsets policy in 2006.
Following this, the commerce ministry circulated a note
among various ministries on at least two occasions—in 2006
and 2009.
A new note containing revised
proposals was again circulated in April this year. Mint had
first reported on the new draft note on 6 April. Companies,
typically, fulfil offsets obligations by generating business
in the buying country worth a certain percentage of the deal
value.
The coal ministry has said that
it wants the coal sector to be “kept out” of the proposed
national offsets policy. It is opposed to a minimum
threshold of Rs.500 crore on procurement, on which the
commerce ministry wants offsets.
“Some plants and machinery being
used in coal fields are acquired through global tenders and
the overall demand for machinery of CPSUs (central public
sector units) is not very significant, being within Rs.500
crore,” the note cited the coal ministry as having said in
its response to the commerce ministry note.
Offset obligations can also be
fulfilled by the seller country by committing cheaper
long-term supplies of strategically important commodities,
including energy resources, up to a certain value, in lieu
of equipment or goods bought. In effect, in such a
transaction, the payment is made partly with goods and
services instead of money.
Currently, equipment procured by
the defence ministry is covered by an offsets obligation
policy. In other cases, the offset agreements are entered
into on an ad hoc basis and not through any policy
guideline.
The civil aviation ministry has
said that it “does not agree with the policy as contained in
the CoS (committee of secretaries) note”. Further, the note
says that the civil aviation ministry “would prefer an
offset policy with a sector-specific approach to leverage
the benefits”.
Voicing its total opposition to
the move, the Planning Commission has said that the primary
benefit out of offsets would be for developing technological
know-how—particularly, indigenous design ability. “The
potential for such technological gains rests primarily in
defence, atomic energy and civil aviation sectors. Out of
these three sectors, defence already has an offset policy;
as regards the other two sectors, given the sensitivities
involved in procurement, a generic offset policy may not be
suitable,” the note cited the Planning Commission as saying
in its response. “A common framework for administering
offset policy run by some other department is likely to
introduce delays, which, coupled with cost of offsets, may
also increase the cost of procurement.”
Pradeep Mehta, secretary general
of Jaipur-based consumer advocacy group CUTS International,
disagreed with the Planning Commission’s view that costs
would go up. “Such contracts are typically negotiated very
hard. So if there is any extra loading of costs, that can
always be checked. So the cost argument does not hold.”
An email query sent to the
office of Saurabh Chandra, secretary, department of
industrial policy and promotion, which floated the draft
note, remained unanswered.
The finance and heavy industries
ministries have also opposed key proposals in the draft
note. “Offset agreements should not be at the cost of
competitiveness, possible delays and element of subjectivity
which can creep into the procurement activity,” the note
cited the department of economic affairs of the finance
ministry as saying in its response.
The heavy industries ministry,
while being supportive of the offsets policy, has opposed
the setting up of a National Offsets Authority—a nodal
nine-member monitoring and regulatory agency to be headed by
the cabinet secretary that would govern offsets.
The ministry has said that
“instead of creating a centralized body, as proposed, it
would be better to have a de-centralized approach”. “I think
the real reason why the authority is being opposed is
because the ministries do not want to lose their turf,” says
Mehta of CUTS.
To be sure, several ministries
and departments, including the shipping ministry, the
department of electronics and information technology,
department of pharmaceuticals and the department of telecom,
have supported the commerce ministry’s latest proposals.
A senior fertilizer ministry
official said that the ministry is in the process of
formulating its response and is also likely to support the
move. The spokesman for the oil ministry declined to comment
on what was an internal government note.
This news can
also be viewed at:
http://www.livemint.com/
|