Journal of Defence Studies

Essential Elements of India’s Defence Offset Policy – A Critique

Offsets have been variously defined. In essence, offsets in defence, as in civil trade, are compensations that a buyer seeks from the seller for the purchase of goods and/or services. The demand for offsets in defence has exhibited an upward trajectory since the 1950s.1 It gained further momentum in the 1980s and has been growing ever since.

Offset Absorption Roadmap for the Indian Air Force

Offsets in some form or the other have been practiced in many countries over a long period of time. Even in India, licensed production contracts and technology transfer contracts with the erstwhile USSR were a type of offsets. However, Defence Procurement Procedure-2006 (DPP-2006) had streamlined the process to a great extent. DPP-2008 has refined the policy further.

Offset Investment Inflow Priorities for Ordnance Factories

Offset agreements are formal arrangements of trade where some sort of leverage is exploited by a buyer to obtain compensatory benefits in the case of high value off-shore purchases by forcing the seller to undertake well-designated activities for enhancing competitiveness, up-gradation of technology for domestic industries, additions to exports, up-gradation in the infrastructure in appropriate domestic sectors, etc. Though these are business deals with built-in reciprocity clauses, it is not a matter of establishing desired equivalence of inflow and outflow resources.

Technology Inflows: Issues, Challenges and Methodology

The defence offset policy mandates the foreign suppliers to plough back a minimum of 30 per cent of the contractual value of projects worth Rs. 300 crores or above to the domestic defence industry. The offset route is intended to strengthen the domestic defence industrial base through a combination of technology transfer, investment in R&D and in production facilities, besides export business generation. From the national view point, the offset aims self-reliance and indigenous capability enhancement in the vital defence sector involving advanced technology.

Offset Policy framework

I shall basically discuss the road map which we have offsets in the country. We in fact have a very good phrase called quasi direct offsets for our system. It is not as direct as is understood internationally and a foreign OEM can in fact buy ships from India if they were to supply multi-role combat aircrafts. While this is true of all the offset proposals in the Ministry of Defence, I would like to mention that barring two or three cases, all cases are in fact ‘direct’ as is internationally known.

A Survey of Successful Offset Experiences Worldwide

In venturing to write about successful offset policy and experience in different countries, the basic problem faced is that of unavailability of data. There are no universally laid down parameters or measures to weigh the costs and benefits of offset programmes. Even if some countries have individually undertaken an exercise to evaluate such costs and benefits, the information is not always available in the public domain. Cross country comparisons would also not yield consistent results.

Leveraging Defence Offset Policy for Technology Acquisition

Offset provisions were promulgated by Ministry of Defence (MOD), Government of India in DPP-2006 [1], and revised in DPP 2008 [2]. These provisions are applicable to all Capital Acquisitions categorized as ‘Buy (Global)’, i.e., outright purchase from foreign / Indian vendor, or ‘Buy and Make with Transfer of Technology’, i.e., purchase from foreign vendor followed by Licensed production, where the estimated cost of the acquisition proposal is Rs. 300 crore or more.

Prahlada , S. Radhakrishnan , Parimal Kumar |
January 2009 |
Journal of Defence Studies

Special Address at Defence Offset Seminar

The timing of the seminar is very apt and we are at a stage when we have made some headway and we can actually deliberate on certain issues relating to the subject. The entire exercise of introducing offsets and formulating and promulgating a policy in this regard is aimed at encouraging sound relationship between the defence industries of the advanced countries and those of our own. Fortunately, we have a reasonable depth in our industry and there is a plenty of promise.

Integrating the Indian Military:Retrospect and Prospect

Wars are not fought only by the armed forces, but by the entire nation, the government and all its organs, the media and the people in an integrated and unified manner. The Kargil war was one such event that unified the nation. The political, diplomatic and military insights gained during the conflict have tremendous learning value for our politico-military structures and processes. It was with this purpose of learning lessons and sharpening our higher defence management that the Kargil Review Committee was formed in the aftermath of the Kargil War of 1999.

Budgeting for Desired Defence Capability

The Defence procurement policy and procedure as brought out in DPP- 2006 (Defence Procurement Policy, 2006) indicated that for policy decisions relating to acquiring of weapons and systems, we are basing them on capability planning in the context of operational requirements. It talked in terms of existing 'capability gaps', and examination of alternative means of overcoming them, while processing a case for policy decision.