By Vikram Bihani
29 Nov , 2016
The India Defense Industry has grown from USD 21.9 billion in 2010-11 to USD 37.3 billion in 2016-17, at a CAGR of 9.25%. India ranks among the top 10 countries in the world in terms of its military expenditure and import of defense equipment. It allocates about 1.8% of its GDP to defense spending, of which 36% is assigned to capital acquisitions. However, only about 35% of defense equipment is manufactured in India. Moreover, even when defense products are manufactured domestically, there is a large import component of raw material at both the system and sub-system levels.
Given the above, it makes sense to focus on increasing the effort to manufacture in India, to increase self-reliance in arms procurement, and save precious foreign exchange – hence the “Offset Program”.
What is the Indian Offset Policy?
Offset is an element that counter-balances or compensates an act. It is a set-off from a development, in this case, military acquisition. An element of “compensation”is a predominant import of the term. It occurs when a supplier places work to an agreed value with firms in the buying country, over and above what it would have brought in the absence of the offset.
India ranks among the top 10 countries in the world in terms of its military expenditure and import of defense equipment.
We have a formal offset policy in place since 2005, which the Indian Ministry of Defence‘(MoD’) has been operating as part of the Defense Procurement Procedure (‘DPP’), the procurement manual used for capital acquisition for the Indian Armed Forces. The policy has undergone many rounds of revisions over time and its prime objective is to leverage India’s huge arms import for strengthening the indigenous arms industry. The current DPP 2016 lays down various categories of procurement processes namely, in priority, Buy Indian – IDDM (Indigenously Designed, Developed & Manufactured), Buy Indian, Buy & Make (Indian), Buy & Make (Global) and Buy Global. Based on the Indigenous Content, as you go down the procurement category in priority, 30% offset is applicable on the foreign exchange component.