India’s ministry of defense has expanded the list of projects that foreign vendors can use to fulfill their defense offset obligations, to include domestic security and civil aerospace work.

The policy change is part of the ministry’s long-awaited Defense Procurement Procedures (DPP) for 2011, which took effect Jan. 1.

While the change is being hailed by foreign vendors who have found Indian defense offset requirements onerous, some analysts say the ministry’s original intention with the policy — to help build an indigenous defense industry — may now be undermined.

Boeing and EADS would expect to benefit from the new policy, given that they already have products in the civil aerospace and internal security markets.

“This is clearly a very forward-looking policy change [and] a positive step toward broadening the aperture,” says Vivek Lall, head of Boeing Defense, Space and Security in India. “[We hope] that some of the large programs would benefit from this policy.”

The new offset policy will not apply to India’s Medium Multi-Role Combat Aircraft program, for which vendors will have to come up with defense offsets worth 50% of the approximately $11 billion order for 126 fighters.

Internal security products on the DPP 2011 list include arms and ammunition, protective equipment, vehicles, riot control equipment, surveillance devices and training aids such as simulators.

Civil aerospace products, according to the policy, can include all types of fixed- and rotary-wing aircraft work, including airframes, engines, components, avionics, design and engineering services, technical publications, raw material, semi-finished goods and training facilities.

Another major change is the policy’s chapter on shipbuilding, which lays out procedures to encourage private shipbuilding in the country for defense contracts.

There are some disappointments for industry in the new policy as well, which did not include any relaxation of technology transfer rules or extensions to the time periods allowed to execute offsets.