Defence offsets policy makes encouraging impact: CII survey

The Confederation of Indian Industry (CII) has found that the major stakeholders in defence procurement place a lot of importance on offsets, the latter viewed increasingly as an important means of increasing the production of defence equipment in India.

In a recent survey conducted by the CII, the key findings included the fact 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 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.

The survey reveals that industry’s participation in the offsets programme has been spread across the DPSUs and OFBs, the private sector and the medium and small enterprises (MSMEs).

The survey also highlights the sector-wise distribution of offsets contracts. The manufacturing sector accounts for the lion’s share of the offsets with 35%, followed by infrastructure with 23% share. Further, while the engineering and software sectors have a share of 15% each, the simulator segment accounts for 12%.