28 Sep, 2016
As a part of its new defence procurement policy adopted in 2005, the government introduced a clause for ‘defence offset’ in order to boost manufacturing capacity and technological capability of the local military complex. The offset clause binds foreign defence manufacturers to invest a portion of the total revenue in Indian defence firms.
Vendors often look at the offset as a burden and try to find ways to bypass the clause. A report published by Bloomberg reveals that offset obligations on 25 contracts signed by the government since 2008 show a shortfall in implementation in 13 cases. In other cases, the investment is often offered for low-technology products. These deals don’t involve the transfer of technology and do not contribute to technological innovation and capacity building. With this being the state of offset investment, defence vendors in India have hardly reaped any benefits from the revised policy.
Being the largest importer of defence equipment in the world, the country needs sustained investment in the defence industry to reduce dependence on foreign vendors. Vendors have often complained about the complexity of India’s procurement procedures and the offset clause. Refined policies, that promote foreign investment in the Indian defence industry and also addresses the concerns of the investors, should replace the existing framework. This, in turn, will help in capacity building and technological innovation.
In its current state, with over $15 billion in outstanding investment and the apparent failure of the offset clause, the Indian defence industry is far from fulfilling Prime Minister Narendra Modi’s dream of transforming India into an exporter of military equipmen
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