Defence Offset Policy - Booster Effect for Indian Manufacturing Industry

Defence Offset Policy - Booster Effect for Indian Manufacturing Industry

Neel Rao Writes on Reitz Centrifugal blower manufacturers & high power industrial fan.

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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