Defence Offset Policy

Last Updated on October 21, 2018 by Bharat Saini

Defence Offset Policy’s key objective is to leverage capital acquisitions to develop Indian defence industry by:

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

Ministry of Defence gave a clarification on Offset Policy on 22 September 2018 on controversies being sought to be created following media reports regarding a statement purportedly made by the former French President, Francois Hollande, concerning the selection of Reliance Defence as the Offset partner by Dassault, the manufacturers of Rafale aircraft. It reiterates that the Government of India has no role in the selection of Indian Offset partner which is a commercial decision of the Original Equipment Manufacturer:

• Offset Policy was formally announced for the first time in 2005 and has been revised several times.
• Offset is a flow-back arrangement made in the defence contracts and constitutes a certain percentage of the contract value to leverage its huge arm-imports in order to develop a strong indigenous industry.
• Offset can be discharged by many means such as direct purchase of eligible products/services, FDI in joint ventures and investment towards equipment and transfer of technology.
• As per Defence Offset Guidelines, the foreign Original Equipment Manufacturer (OEM) is free to select any Indian company as its offset partner.
• It has been reported that a JV between Reliance Defence and Dassault Aviation came into being in February, 2017.
• This is a purely commercial arrangement between two private companies.
• Media reports of February 2012 suggest that Dassault Aviation, within two weeks of being declared the lowest bidder for procurement of 126 aircraft by the previous Government, had entered into a pact for partnership with Reliance Industries in Defence sector.
• Dassault Aviation has issued a Press Release stating that it has signed partnership agreement with several companies and is negotiating with hundred odd other companies
• As per the guidelines, the vendor is to provide the details of the offset partners either at the time of seeking offset credit or one year prior to discharge of offset obligation, which in this case will be due from 2020.