Indian IT industry's peak body Nasscom is developing new processes to ensure corrupt executives of foreign organizations will not funnel bribes and kickbacks to government officials by faking software and IT services contracts.
The Defence Ministry recently changed technology transfer rules requiring foreign companies to procure a certain quota of services from Indian companies, according to a report Wednesday in The Economic Times.
In May, the ministry clarified the offset rules where foreign companies must spend at least 30 percent of the contract value, in deals worth more than US$60 million, to procure services or supplies from Indian organizations. The department issued a memo preventing companies from including research and design, software testing, and training in their offset requirement.
The clarification follows the scandal-ridden purchase of US$600 million (36 billion rupees) worth of helicopters from Italian company, Finmeccanica, which surfaced in February. Investigators alleged Finmeccanica executives faked contracts with Indian IT companies, IDS Infotech and Aeromatrix, to pay nearly US$67 million (four billion rupees) in to Indian government officials.
Following the change in rules, Som Mittal, president of the Nasscom, said it was working with authorities to develop safeguards to monitor these contracts. "We fully understand the government's concerns that there is a need to track value addition in software because services are by nature intangible," Mittal said in the report.
Currently, companies can issue an invoice to claim the offset, but the ministry wants companies to prove they have actually carried out the work. A new model is expected to be developed in the coming months.
PricewaterhouseCoopers' executive director, Dhiraj Mathur, told The Economic Times the new specifications were a "bad idea" and "overkill" as it would exclude the high end range of the value chain from work that is eligible to be counted as a mandatory offset contract.
"It's going to have a huge impact on Indian IT and engineering companies. Providing software and engineering services is really where India has made significant progress in the research and development value chain," said Mathur.