NEW DELHI — India is likely to further relax its defense offset guidelines to leverage capital acquisitions and develop the country’s defense industry.
Under the offset policy, any international vendor landing an Indian defense deal worth more than 3 billion rupees ($53 million) must reinvest 30% of the value with Indian industry.
The proposed amendment would allow foreign parts purchased by Indian offset partners to count toward the offset value total, provided the Indian subvendor providing the parts is paid in rupees. Under current rules the value of such parts are deducted from the offset total.
The new norms also would give foreign vendors incentives to choose micro, small and medium enterprises as their offset partners, a defense official says.
The new amendments are aimed at fostering development of internationally competitive enterprises and encouraging development of synergistic sectors like civil aerospace and internal security, among other things, the official says.
India recently allowed foreign vendors to use transfer of technology (TOT) to fulfill their offset credits, easing the policy aimed at developing indigenous industry. The government also increased the time for bank offset credits from two to seven years, allowing foreign vendors more time to execute their offset obligations.
The country also made it compulsory to cover all documentation, training and consultancy required for investment in kind in terms of TOT.
“The TOT should be provided without license fee and there should be no restriction on domestic production, sale or export. The offset credit for TOT shall be 10% of the value of buyback by the OEM [original equipment manufacturer] during the period of contract, to the extent of value addition in India,” the official says.
India has already attracted more than $4.27 billion in defense offsets through arms contracts signed since October 2007. The offsets figure is likely to increase further with India poised to ink several more large defense deals in the coming years.
The $20 billion Medium Multi-Role Combat Aircraft program, which will acquire 126 fighters for the, for instance, specifies a 50% offset obligation on the foreign vendor.
Defense Minister A.K. Antony recently said that 17 offset contracts have been signed so far valued at about $4.279 billion.
Roughly $3.435 billion of those deals were for aircraft, radars, drones and other systems for the Indian air force, while naval contracts reached $843 million for fleet tankers, maritime reconnaissance aircraft, radars and UAVs. India still imports almost 70% of its defense equipment.