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The Indian Defence Ministry has finally revealed the amount of business the Defence Offset Policy has generated in the country. The Defence Offset policy was initiated in 2005 wherein every foreign defence purchase above $60 million would impose on the vendor an offset liability of 30 per cent of the contract value.
The Chief of the Defence Offsets Facilitation Agency (DOFA) Satyajeet Rajan revealed that since 2007, foreign vendors have signed up for offsets worth about $1.6 billion. In 2007, a mere $48.6 million worth of offsets were firmed up. The figure rose tenfold to $519.5 million in 2008. In 2009, DOFA has already cleared $974 million worth of offsets.
The DOFA indicated that the values that were calculated to determine the offset were of planned production and added that actual production is still to begin is some offset partnerships that were tied in the last two years or so.
In the current scenario the Indian defence industry, the foreign players can pursue their offset obligations by the investing the (defence) industry or by purchasing defence products from India’s defence manufacturers for export. The investments made for research and development in Indian facilities will also fulfill the offset criterion. The offset clause was amended in the Defence Procurement Policy (DPP) in 2008 which permitted “offset banking” and the waiving of offsets in “fast track” purchase. In 2009, the DPP permitted the pending request by foreign vendors which permits them to change offset partners.
DOFA has revealed that 94 per cent of all planned offsets are in the aerospace sector and the rest covers the manufacture of naval systems. The offset business is only going to grow bigger as India’s $8.4 billion tender for the purchase of 126 medium fighters will trigger more offset partnership with Indian public and private limited firms. Besides, India currently procures foreign weaponry worth about $10 billion annually. The minimum offset liability of 30 per cent alone would garner offsets to the tune of $3 billion.
DOFA added that the breakdown of offsets in terms of private and public sector reveals that 40 per cent of all offsets have gone to defence ministry-owned entities which includes Ordnance Factory Board (OFB) and the eight defence public sector units (DPSU), 33 per cent of the offsets have gone to major private companies and a 27 per cent have gone to small and medium-sized manufacturers.
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