Defence Offset Policy - Booster Effect for Indian Manufacturing Industry
                     Defence Offset Policy - Booster 
Effect for Indian Manufacturing 
Industry
Neel Rao
Writes on Reitz industrial fan manufacturers & 
Reitz India's ID Fans and FD Fans.
Based on the recommendations of the Vijay Kelkar Committee, the offset policy was 
first introduced in 2005. During an import agreement between an importing public 
entity and a foreign exporter or a government, the offsets act as provisions. Offset 
agreements are often applicable while trading in military goods and services.
The offset policy underwent revisions in 2006, 2008, 2011, 2013, and 2016. The 
defence offset policy aims to boost the acquisition of manufactured in India products 
for the Indian defence industry. It achieves this through the domestic development 
of various enterprises that are internationally competitive. As a result of the 
domestic development, expenses made on the purchase of foreign goods are 
reduced and the domestically developed goods compensate for the outflow. In this 
way, the offset policy helps to make the Indian defence sector self-sufficient rather 
than having to depend on imports.
What Does The Offset Policy Mean For The Foreign Suppliers? 
The Indian offset policy makes it compulsory for the suppliers to spend a minimum 
of 30% of their contract value in India. In 2018, the offset limit was raised from INR 
300 crore to INR 2000 crore. This implies that if the contract value of a deal is below 
INR 2000 crore, it would be immune to the offset. However, upon winning contracts 
worth INR 2000 crore or more, the foreign original equipment manufacturers 
(OEMs) would have to put at least 30% of the contract value into Indian enterprises.
How Does It Help To Start A Strong Defence Ecosystem?
The defence manufacturers in India depend on the Indian government for 
technological inputs and sales. Hence, the government regulates the defence 
ecosystem in India at a higher stake. Previously, India was able to acquire defence 
equipment from the Soviet Union at relatively friendlier terms. Now, the defence 
sector is forced to look for domestic options as the import costs are rising. The 
procedures for Indian defence exports have been simplified, as a result of which the 
sector witnessed exports worth INR 10,745 crore during 2018-19. It might be noted 
that this volume of exports was seven times the exports recorded during 2016-17.
The government has taken up multiple steps in the simplification of domestic 
defence manufacture. The FDI cap was increased and the licencing process has been 
simplified. In 2019, India ranked among the top five countries globally with the 
highest military spending. The private defence manufacturing sector has been 
provided with various trial and testing facilities owned by the government. The 
defence offset policy has been streamlined as well.
The Role Of The Make In India Initiative In Defence Manufacturing
Launched by the Indian government, the 'Make in India' initiative is aimed at 
promoting self-sufficiency and indigenous production of defence equipment. With 
the possibilities of private partnerships growing, various foreign OEMs are entering 
partnerships with the Indian company. The private sector is now capable of 
manufacturing major items like armoured vehicles, submarines, helicopters, and 
fighter aircrafts too.
Conclusion
Domestic defence equipment manufacturing capabilities are necessary for a country 
to be independent of foreign suppliers in the hours of need. This is why various 
companies invest greatly in developing their domestic manufacturing capabilities 
and India is doing the same. The entire defence ecosystem in India is undergoing 
vast changes, especially in production and procurement. Although the public sector 
still plays a key role, privatisation and foreign investment are becoming increasingly 
prominent in the defence ecosystem.
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