Offset Contracts on the Rise As Defence Ministry Initiates an Offsets Monitoring Wing

With the advent of the Defence offset policy in 2005, India’s offset contracts have risen sharply enabling the growth of the Indian Defence industry.  Local firms in the country had signed 19 offset contracts with international firms since the inception of the offset policy. In addition, a Defence offsets monitoring wing to monitor and audit the implementation of offsets by foreign arms vendors.
 
Indian Air Force (IAF) procurements have generated the largest chunk of offsets amounting to 80 percent. The remaining 20 per cent of offsets have come from naval procurements while the army procurements have not led to any offsets. According to media reports, the total amount of these offsets are to the tune of roughly $ 5 billion (Rs.25,000 crores).
 
The offsets policy was made imperative in the Defence Procurement Policy of 2005 (DPP-2005) and has been updated over the years. The mother of all offsets contract has been the outcome of the acquisition of the C-17 Globemaster III transport aircraft from the US for the IAF which is an over $ 1.1 billion contract. Following this is the roughly $ 1 billion offsets contract with the upgrade of Mirage 2000 fighter aircraft which involves aerospace majors Thales and MBDA.
 
At present, the Defence offset policy makes it mandatory for international arms vendors who win contracts worth Rs 300 crore or more to plough back at least 30 per cent of the contract value into Indian indigenous industries. Since 2011, offsets can be discharged in the fields of civil aviation and internal security. In 2011 and 2012, offset contracts worth $ 2.2 billion were signed.

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Meanwhile, the Defence Ministry has initiated the creation of a crucial department which will overlook and audit the roughly $ 1.7 billion worth of offsets per annum that international players will plough back to India.  In august, Defence Ministry announced new offset guidelines as well. Basically, a new department called Defence Offset Monitoring Wing (DOMW) has been initiated and the ministry has been sanctioned an additional secretary just to head the DOMW. One of the crucial functions of the DOMW will be to hire a private agency for physically auditing the implementation of offsets by foreign arms vendors.

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