After Rafale Deal, India Does Away With Offset Clause In Defense Procurement

The Indian Government announced a breakthrough “improvisation” of its defence acquisition procedures in a new policy on Monday, which shed the offsets in any future government-to-government deals and single-vendor contracts.

In order to attract more Foreign Direct Investment (FDI) in the defence sector, the earlier offset policy required the vendor to invest at least 30% of the decided sum on acquisitions worth more than Rs. 300 Crore.

It has also allowed the military to take various equipment on lease from friendly countries. Additional defence equipment like tanks, light transport aircraft, and UAVs which were considered to be critical for the services can now be operated by the services while reducing upfront costs and giving the forces an option to operate a wider array of specialized equipment.

According to the defence ministry officials, the earlier offset policy failed to achieve its goal of bringing new technologies into the country. The removal of this would also mean that the defence procurements could now be done at lower costs because the vendors used to do 8-10% extra cost-loading to cater to the offset requirements.

However, the competitive multi-vendor procurement still has the offset clause, the removal is only for single-vendor or government-to-government (G2G) procurements.

In a statement given to the Economic Times, Director General (Acquisition) Apurva Chandra said, “No offset has led to a transfer of technology, most have to do with product purchase as has been brought out in a recent Comptroller and Auditor General report”.

The move comes after the Comptroller and Auditor General of India (CAG) highlighted the problems with the offset policy and the practical objectives it had achieved or, rather failed to achieve.

Controversies over the Rafale deal’s offsets also surfaced and were a topic of debate for quite some time in India. The recent CAG report said that Dassault Aviation, Rafale’s manufacturer, and weapons manufacturer MBDA have not confirmed the transfer of technology to the DRDO yet, which were finalized under the offset agreements.