1. OFFSET DILUTION IN DEFENCE, A FLAWED POLICY TURN-
GS 2- Government policies and interventions for development in various sectors
(i) 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 month.
(ii) Many contend that the move is a setback for augmenting domestic capabilities or for realising the goal of Atmanirbhar Bharat. But why is it a setback for the goals under Atmanirbhar Bharat?
(iii) The experience with the procedure in the aerospace industry since 2005 seems to offer useful lessons in redesigning defence offsets.
(iv) What is an offset policy? And how is it expected to boost domestic capabilities?
(v) What lessons can we draw from a similar system in the aerospace industry? These questions are addressed below.
Offset Ties Up The Ends
(i) Most countries restrict trade in defence equipment and advanced technologies in order to safeguard national interest.
(ii) Yet, for commercial gains and for global technological recognition, governments and firms do like to expand the trade.
(iii) Negotiated bilateral sales between countries are a way out of the dilemma(confusion).
(iv) Soft credit often sweetens the deals, with restrictions imposed on use, modification and resale of such equipment and technologies, to protect the proprietary knowledge and expertise embedded(included) in them.
(v) In such trade negotiations, the price of the product is one of the many other factors.
(vi) Geopolitics and the technical knowhow involved in the equipment weigh-in considerably since the contracts are for the long term, with technological fixities.
(vii) The product and technology compel(forces) buyers to stick to them for: the advantages of bulk purchase, and dependence on the supplier for spares and upgrades.
(viii) In other words, there is considerable “path dependency” in such choices, rendering(making) the decisions difficult to reverse.
(i) Developing country buyers often lack an industrial base and research and development (R&D) facilities (which take a long time to mature).
(ii) The price and the terms of the contract often reflect the government’s relative bargaining strength and also domestic political and economic considerations.
(iii) Large buyers such as India seek to exercise their “buying power” to secure not just the lowest price.
(iv) They also try to acquire the technology to upgrade domestic production and build R&D capabilities.
(v) The offset clause — used globally — is the instrument for securing these goals.
A Number Of Changes
(i) Initiated in 2005, the offset clause has a requirement of sourcing 30% of the value of the contract domestically.
(a) Also, indigenisation of production in a strict time frame, and training Indian professionals in high-tech skills, for promoting domestic R&D.
(ii) However, the policy has been tweaked many times since.
(iii) As of November 2019, as in a reply to a parliamentary question, the Defence Ministry had signed 52 offset contracts worth $12 billion via Indian offset partners, or domestic firms.
(iv) The duration of these contracts extends up to 2022.
(v) 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.
(vi) However, the realised investments were merely 8%, or worth ₹5,457 crore.
(vii) Reportedly, technology transfer agreements in the offsets were not implemented, failing to accomplish the stated policy objective.
(viii) We are unable to verify the claim as the government has not put in place an automatic monitoring system for offset contracts, as initially promised.
(ix) On September 28, the government has diluted this policy further.
(x) Henceforth, the offset clause will not be applicable to bilateral deals and deals with a single (monopoly) seller, to begin with.
Setback For Defence
(i) Most defence deals are bilateral (as stated above), or a single supplier deal (given the monopoly over the technology).
(ii) 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.
(iii) The government, however, has defended the decision by claiming a cost advantage.
(iv) It is a lamentable(bad) excuse for the reported policy failure. Price is but one of many factors in such deals, as explained above.
(v) 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 spill-overs for domestic industry.
(vi) Hence, giving up the offset clause is undoubtedly a severe setback.
Shortlived In Aerospace
(i) The offset policy can, however, succeed, if it is designed and executed correctly, as a parallel episode in aerospace industry demonstrates.
(ii) Despite the heft of Hindustan Aeronautics Limited, India is a lightweight in global civilian aircraft manufacturing, as the public sector giant mostly devotes itself to defence production.
(iii) The much-touted National Civil Aircraft Development (NCAD) project — to come up with an indigenously designed Regional Transport Aircraft (RTA) — has remained a non-starter from day one.
(iv) However, with the introduction of the offset policy in 2005, things changed dramatically.
(v) For contracts valued at ₹300 crore or more, 30% of it will result in offsets, implemented through Indian offset partners.
(vi) As aerospace imports rose rapidly, so did the exports via the offsets, by a whopping 544% in 2007, compared to the previous year.
(vii) By 2014, exports increased to $6.7 billion from a paltry $62.5 million in 2005, according to the United Nations Comtrade Database.
(viii) 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.
(ix) The success was short-lived, however.
(x) Exports plummeted(decreased) after the offset clause was relaxed, primarily when the threshold for the policy was raised from the hitherto ₹300 crore to ₹2000 crore, in 2016.
(xi) The offset exports fell to $1.5 billion by 2019. The 2005 policy helped promote a vibrant aerospace cluster, mostly micro, small and medium enterprises (MSMEs) around Bengaluru.
(xii) The policy dilution undid success. The moral of the story is there for everyone to see.
(i) Reportedly because of the CAG’s critical remarks in its latest report tabled in the Parliament, the government has virtually scrapped the defence offset policy.
(ii) Thus, 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.
(iii) There are successful examples to draw lessons from, as the aerospace industry episode demonstrates.
(iv) India needs to re-conceive or 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.
2. THE MANY BRIGHT SPOTS ON INDIA’S INNOVATION HORIZON-
GS 2- Important aspects of governance, transparency and accountability
(i) Innovation rearranges existing elements into permutations and combinations that benefit society.
(ii) In his Brāhmaphutasiddhānta, Brahmagupta’s marvellous take on his innovation of zero was,
(a) “A debt minus zero is a debt. A fortune minus zero is a fortune. A debt subtracted from zero is a fortune. A fortune subtracted from zero is a debt. The product of zero multiplied by a debt or fortune is zero.”
(iii) The Indian innovation of zero fundamentally reordered history.
(iv) The novel coronavirus pandemic provides an opportunity for similar reordering for posterity(future generations).
(i) India is a fertile ground to be a technology-led innovation garage.
(ii) 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.
(iii) 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.
(iv) 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.
(v) Innovation in India is being structured around the triad of collaboration, facilitation and responsible regulation.
(vi) It is advanced by cross-disciplinary collaboration.
(vii) Leonard Read brings forward the wonder of collaboration between people cutting trees, mining graphite, working in factories, marketing, designing and managing, just to produce a single pencil.
(viii) Innovation is a recombinant and brings tangential benefits through products and services that may not even have been its initial purpose.
(ix) The realistic potential of technology for India resonates in the ‘Amara law’ named after 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.”
(i) October 2020 saw two disruptive(unruly) events that were organised by the Government of India for collaborative knowledge creation.
(ii) At the Vaishvik Bharatiya Vaigyanik (VAIBHAV) summit where more than 3,000 overseas Indian-origin academicians and scientists and 10,000 Indians participated to ideate on innovative solutions to our challenges.
(iii) The PM articulated this spirit of knowledge sharing while inaugurating the summit; he called it “a true sangam or confluence of great minds” where “we sit to form our long-lasting association for empowering India and our planet”.
(iv) The concluding session has been planned on October 31.
(v) This has been concomitant(accompanying) to the Responsible AI for Social Empowerment (RAISE) 2020 summit, which was from October 5-9.
(vi) It was to charter a course to effectively use AI for social empowerment, inclusion, and transformation in key sectors such as health care, agriculture, finance, education and smart mobility.
(i) This focus on celebrating innovation has led to several start-ups disrupting the Indian market.
(ii) 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.
(iii) Furthermore, Setu, true to its name, is building a bridge to bring banks to people.
(iv) It has built an application programming interface which allows customers to make small ticket payments without going to the bank.
(v) Yelo is offering neo-banking payment and money transfer services online for workers in the gig economy.
(vi) 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.
(vii) This intervention is of great importance as an estimate suggests that one in two affected women in India die due to late detection.
(viii) Qure.ai uses AI for health-care diagnostics in rural India, tackling challenges such as tuberculosis and now COVID-19.
(ix) 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.
(x) Vernacular.ai offers a voice-based AI product that can understand up to 10 Indian languages and around 160 dialects.
(xi) It is helping build virtual, smart, responsive and effective chat assistants suitable for diverse Indian consumers.
(i) Innovation needs risk capital in terms of resources and psychological security for researchers.
(ii) It needs an environment where it is safe to fail. The government has been building a comprehensive framework to this end.
(iii) It is incentivising research and development with several schemes such as
a) Innovation in Science Pursuit for Inspired Research (INSPIRE) scholarships,
b) the Ramanujan Fellowship,
c) the Knowledge Involvement in Research Advancement through Nurturing (KIRAN) scheme,
d) Smart India Hackathons (SIH),
e) Atal Innovation Mission (AIM),
f) the Biotechnology Ignition Grant (BIG) scheme,
g) setting up of the Future Skills PRIME (Programme for Reskilling/Upskilling of IT Manpower for Employability) capacity building platform
h) and also the triad of Scheme for Transformational and Advanced Research in Sciences (STARS),
i) Scheme for Promotion of Academic and Research Collaboration (SPARC) and Impactful Policy Research in Social Science (IMPRESS).
(iv) 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”.
(v) Furthermore, the government has been actively facilitating collaborative and light touch regulatory practices to promote innovation and incentivise risk-taking.
(vi) It has increasingly relied on collaboration, communication and creativity, taking the route of standard and principles adherence.
(vii) 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.
(viii) The Telecom Regulatory Authority of India (TRAI) has recently introduced recommendations for regulating cloud services in India, suggesting a light-touch regulation in collaboration with industry, balancing commercial freedom and principles adherence.
A Better Life
(i) 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(hardwork) which has been the burden of the common man for past ages.”
(ii) Innovation has the potential to build a future where-
a) AI will transform education and health care,
b) machine learning and blockchain will make commerce robust andresilient,
c) clean energy will drive our economy,
d) gene-drives would exterminate invasive and harmful species,
e) gene-editing would help us bring back extinct species and reinvigorate depleted ecosystems,
f) quantum computing will raise our processing capability to resolve challenges which seem insurmountable and augmented,
g) and virtual reality will optimistically change the way we interact with the physical world.
(iii) Steam engines made us understand thermodynamics, flights made us understand aerodynamics.
(iv) There is ‘in-deed’ merit in relentless focus on innovation as it essentially augments ease of living for citizens, dematerialising and democratising products and services.