New Offset Rules Allows Technology Transfer, Cuts License Fee

The Indian ministry of defense has announced that Transfer of Technology (ToT) has been made eligible for offsets, removing a major hurdle in defense equipment sales to India. In a new Defence Procurement Policy which took effect on August 1, the Indian MoD has also specified what constitutes offset multipliers and allowed sub-vendors to discharge offsets. The new policy will override the "direct offsets" policy where foreign firms are required to set up business and projects in India in partnership with a specified list of Indian companies. Hitherto, TOT was not counted as offset but essential to execute the main project. The MoD said ToT should be provided without license fee and no restriction on domestic production, sale or export. The offset credit for TOT shall be 10% of the value of exchange by the original equipment manufacturer (OEM) during the period of the offset contract, to the extent of value addition in India. Technology Acquisition by DRDO for a list of specified technologies will be treated as an eligible Offset with a multiplier up to 3. Meaning technology valued at Rs 100 crore would be granted offset credit worth Rs 300 crore. India requires overseas companies awarded defense contracts worth more than $55 million to fulfill offsets equal to at least 30 percent of the total value. Indian defense minister A K Antony approved the revised guidelines which was effective from August 1st. The new policy allows the MoD to permit vendors to change their Indian Offset Partner (IOP) in certain cases, providing the value of offset obligations remains unchanged. According to the new policy, defence offsets are to foster the development of internationally competitive enterprises, to augment Indian capacity for research and development (R&D) and the design of defence products and services and to encourage the development of “synergistic sectors like civil aerospace and internal security”. The revised offset policy recognises foreign companies for technology transfer to Indian government institutions as defense offsets. This will facilitate capacity building for research, design and development, training and education in Defence Research and Development Organization. In the earlier policy, the offset obligations had to be discharged co-terminus with the main procurement contract. The revised guidelines allow offset obligations to be discharged within a timeframe that can extend beyond the period of the main contract, but within two years of the deal being implemented.