India Releases New Defense Offset Policy

AIN Defense Perspective » August 3, 2012
Indian private industry
Indian private industry should be boosted by the country’s new defense offsets policy. Here, a worker from aerostructures specialist Dynamatic Aerospace assembles a flap-track beam for an Airbus A320. (Photo: Dynamatic Aerospace)
August 3, 2012, 12:03 PM

The much-delayed revision to the Indian Ministry of Defence offset guidelines has been released and will take effect immediately. But it will apply only to new solicitations. A newly formed agency, the Defense Offset Management Wing (DOMW), will handle offset contract management.

For the first time, India’s defense offset policy defines objectives that include the development of competitive industries, the need to add R&D and design capabilities and the development of synergistic sectors. The policy now includes coastal security, in addition to internal security.

“I’m particularly impressed that some of the basic issues that have previously plagued implementation have been addressed,” John Williams, of the consultancy Williams Global Advisors, told AIN. He said that the major enhancements include a two-year extension (beyond the time specified in the main contract) for the offset discharge period of performance; extension of offset banking to seven years; extra credit given for choosing medium and small manufacturing enterprises as offset partners; transferring technology to Defense Research Development Organization (DRDO); and permission to transfer dual-use technology.

“The policy gives an impetus to OEMs to invest in technology aimed toward legacy maintenance systems in India. It focuses on service-oriented industries,” Rahul Gangal, a director of the Aviotech consultancy, told AIN. While raw materials and semi-finished goods no longer qualify as offsets, the policy clearly spells out details on coastal and naval equipment, which will be a precursor to naval shipbuilding and manufacturing, Gangal added.

Specialized equipment for harbor security and coastal defense now includes seabed/maritime surveillance sensor chains, sonar, radars and optical devices. Vessel traffic management systems and software are also included. Guidance and navigation equipment, and gear required for testing, certification, qualification and calibration, can also be tapped for offsets under the new policy.

There is concern among OEMs about the inclusion of a disqualification penalty for failure to comply with offset timelines. However, an Indian official speaking with AIN claimed that this is an international practice. But one OEM told AIN that because the new policy is not retroactive, “India has missed an opportunity to develop its industry.” For example, the 2006 policy will apply to the $16 billion medium multi-role combat aircraft (MMRCA) contract, for which the commercial bids were opened in November 2011. Negotiations continue toward a contract with winning bidder Dassault for the Rafale.

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