The basis premise of offsets is to leverage the buying power of the home country to access expertise, manufacturing capabilities, products and services that it does not possess. Literally taken as compensation involvement or balancing, it seeks to acquire capabilities in order to ensure economic development of the country as well as future capacities. The mechanics usually involves assumption of a commitment by the exporter to acquire, build, operate, or initiate acquisition in the home country of a fixed value agreed upon by the two parties.

The Indian Scenario

India’s substantial defence needs has many opportunities available to the industry. Apart from routine purchase of defence systems, up gradation of legacy systems for land , air and sea defence is abundant. Newer forms of warfare cause requirements to emerge faster than their fulfillment. To establish a broad indigenous defence industry, the government has mandated a policy of Offsets for sizable defence contracts. In particular:

  • Sector: Defence
  • Percentage offset: Minimum 30% of contract value
  • Threshold: INR300 crores  (approx. $60 million USD)
  • Discharge Mechanisms: Direct and limited Indirect
  • Offset Banking: Allowed

In the Indian context, Offsets can be executed by :

  • Direct purchase of defence, civil aviation products or services
  • Execution of export orders in these sectors
  • Foreign Direct Investment (FDI) to form JV’s
    • Creation of industrial infrastructure for provision of services
    • Creation of industrial infrastructure for co-production
  • FDI in Research & Development