India Revises Defense Offset Policy

 - April 6, 2012, 10:30 AM

India has published changes to its offset policy for foreign defense acquisitions. The revised guidelines come as a relief to foreign OEMs thus far hard pressed to devise offset options for India’s yet-to-mature manufacturing base. But Defence Minister A.K. Anthony dashed the hopes of some foreign defense companies, that the country might increase the limit on foreign direct investment in Indian defense companies from 26 percent to 49 percent or more.

The changes to the offset policy “augment the capacity for R&D, foster development of international competitive enterprises and give a boost to synergistic sectors of homeland security and civil aviation,” according to the government. They increase the time to comply–from two years to seven–and they recognize the value of the transfer of technology for offset purposes. “Extending the period of performance beyond the main contract is a huge improvement. This has been the key issue for almost every one of my clients and [signifies] the MoD’s willingness to work with OEMs to achieve viable offset implementation plans,” John Williams, founder of Williams Global Advisors, told AIN. But, he cautioned, “It is still unclear how the Defence Ministry plans to monitor and govern offset implementation in a systematic and consistent way.”

“Concerns for the security of transferred technologies and intellectual property rights [IPR] are paramount in the minds of OEMs. Demonstrable qualitative and quantitative metrics and process maturity on technology and IPR policing, protection and enforcement are the key differentiators for attracting foreign direct investment,” Ajay Batra, an author on IPR, told AIN.

Major acquisition programs for which offset is being implemented now, such as the Boeing C-17 and Lockheed Martin C-130J, could benefit from these changes if they become retroactive, said Williams.