India to sign $8.6 billion defense offsets contracts till 2012

A survey by the Confederation of Indian Industry (CII) has found that with India as one of the largest importers of defence-related products, offsets would leverage purchasing power and build up the homespun defence industrial base. The Indian defence offsets policy was formulated in 2005 as part of the Defence Procurement Policy and was revised twice thereafter. It is estimated that offset contract worth Rs 40,000 Crore($8.6 billion) would be signed till the year 2012. According to the latest estimates, between 2006 and 2008, offsets contracts worth Rs 8000 crores have been signed, of which 94% are in the aero systems segment and 6% in land systems. The offset clause is applicable for procurement proposals where indicative cost is Rs.300 crores or more and the schemes are categorized as, ‘Buy (Global)’ involving outright purchase from foreign/Indian vendors, and ‘Buy and Make with Transfer of Technology’, i.e. purchase from foreign vendors followed by licensed production. The procurement of defence equipment is made by the government from various indigenous as well as foreign sources to meet the requirements of the Armed Forces. The import option is exercised when it is necessary to procure the items within a definite time-frame to bridge the capability gaps, and when such equipment cannot be sourced indigenously in a given time. Implementation of the offsets is expected to result in expanding and enhancing the manufacturing infrastructure and technical knowledge for weapon systems required by the Armed Forces. The benefits of offsets accrue to both Defence Public Sector Undertakings (DPSUs) as well as to private Indian industry engaged in the manufacture of defence systems and equipments.