(Bloomberg) -- India scrapped a rule that forced foreign suppliers of weapons, aircraft or military hardware to invest in the South Asian nation, as Prime Minister Narendra Modi seeks to accelerate defense purchases and reduce red tape.
The change in policy comes close on the heels of the country’s auditor admonishing Dassault Aviation SA, the French defense manufacturing giant, and European consortium MBDA for not meeting their commitment to reinvest part of their earnings in India from a deal to supply 36 Rafale fighter jets. The exemption only applies to government-to-government or single-vendor deals and not for competitive bidding situations.
“We decided to do away with the off-set requirement because the policy did not work,” Director General of Acquisition Apurva Chandra said explaining the new policy.
India is the second-largest importer of weapon systems and equipment according to the Stockholm International Peace Research Institute. The country has a tedious and lengthy defense procurement policy, which the Narendra Modi government is trying to overhaul as part of an effort to improve the ease-of-doing business and attract foreign defense manufacturers to start operations in India.
The new new policy, effective October, also allows the military to lease equipment and weapons systems instead of buying them.
“This will reduce cost considerably,” Chandra said. “The type of equipment and weapon system to be leased is for the military to decide.”
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