What do you understand by Defence Offset Policy? What are issues in its effective implementation?

Defence offset is the compensations that India seeks from the foreign defence equipment seller for the purchase of military equipments.
Offset Policy is to leverage capital acquisitions to develop Indian defence industry by:

  • Fostering development of internationally competitive enterprises,
  • Augmenting capacity for Research, Design and Development related to defence products and services
  • Encouraging development of synergistic sectors like civil aerospace and internal security

Indian offset policy is applicable for contracts worth more than Rs. 2000 crore. Offset clause mandates that a foreign company should invest 30% of the contract value back in India with a view to bring in technology.
Issues with effective Implementation

  • 2012 CAG report points of lack of effective monitoring mechanism. There are no clear cut definition and role of various stakeholders.
  • CAG also pointed out that this policy was only a paper exercise as there was no visible impact either on Defence production or on domestic manufacturing sector.
  • The domestic contractors and manufacturers (i.e Indian Offset Partners) were chosen by the foreign investors / vendors in arbitrary manner and in some cases the IOP was a 100% owned subsidiary of the foreign vendor.
  • Elevation of the offset threshold limit to Rs. 2,000 crore from Rs. 300 crore has reduced the avenues for the local industries.

India can learn from the offset policies of Brazil which always viewed the growth of arms industry as a significant long-term goal. The Brazilian government has been able to leverage its defence buys to get state-of-the-art military technology from outside through licensed production and joint ventures.

Question for UPSC Mains:
What do you understand by Defence Offset Policy? What are issues in its effective implementation?

Published: February 19, 2018 | Modified:October 15, 2020

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