Defence Offsets

Policymakers need to ask themselves ‘What Really Makes Offsets Tick?’ in order to develop an objective framework based on sound principles repeatedly noticed in the offset regulations of ‘The Smarter Lot’ of countries and in the process avoid committing the seven ‘original sins’ that a poorly-designed offset policy may entail.

The Guidelines of 2012 have been under review for some time. While a drastic shift in the policy is unlikely, some changes in the policy, clarity about some of the existing provisions and simplification of the procedure seem necessary to make the policy work better.

A country’s response to external threats and internal security challenges is based on its defence preparedness, advance planning for contingencies and the political will. The new government will have to make key decisions on different aspects of defence reforms. This Policy Brief puts forward some suggestions.

Several issues have been raised in the last one year, one such issue concerns the need for amending the policy to enable the MoD to demand offsets in specific area(s) rather than being driven by the vendors.

The Office Memorandum has created a debate among various stakeholders, particularly the Indian IT and software-related companies which see a loss of business to the tune of $10 billion.

How effective are offsets as a means to boost a domestic defence industry? This article takes a novel approach to answering this question; examining global data on levels of defence sales over three decades as a measure of successful defence industrialisation (i.e., using the market as an indicator of success). The quantitative data points to a mixed picture as despite the ubiquity of defence offsets, they are no guarantees of success in defence industrialisation.

The temporary abeyance of ‘services’ as a valid means of discharging the offset obligation could prove to be exasperating for the foreign vendors and the prospective IOPs.

It is time that India’s offset regulations and defence procurement procedures are weeded for provisions formalising differential treatment against Indian bidders.

MoD has to assume the leadership role and provide some kind of a single-window service to the defence industry to steer the offsets in a direction that helps achieve the objective of modernisation through self-reliance.

Some of the provisions in the DOG do not seem to be well thought out, provide greater leeway to the foreign companies, and have a potentially negative potential on eligible manufacturing sector, particularly defence manufacturing.