India’s Defence Offset Policy

:
Opportunities and Challenges
Synopsis
Indian Institute of Foreign Trade (IIFT)
Executive Post Graduate Diploma in International Business (2013-15)

Dissertation Project Report

2014

Avinash Katoch
Roll no. 17
IIFT, Executive Post Graduate Diploma in International Business (2013-15)

................................................................................................................................................................................ IIFT............................................................................................................................................................ 5 Objective ................. 6 References ........................................... 5 Chapters .............. 5 Expected Outcome .................... 5 Notes and References ............................................ 5 Chapters Scheme ..................Avinash Katoch................................... EPGDIB 2013-15 India’s Defence Offset Policy: Opportunities and Challenges Contents Executive Summary ...... 3 Brief overview …........ 3 Introduction .............................................................................................................................. 5 Research Approach and Methodology ....................................................................................................................... 5 Scope of the study ................................................................................................................. 6 Executive Summary ..................................................................................................

The government opened this sector to private and foreign investment in 2001. it has sought to build a domestic industrial base and has set itself a challenging target of achieving 70% indigenisation. which is revised annually. Offset credit for ToT shall be 10% of value of buy back. About 70% of its defence requirements are met through imports. Between 2006 and 2010. Design and Development related to defence products and services and (iii) encouraging development of synergistic sectors like civil aerospace.90% of its GDP. the Government has made transparent global bidding guidelines in the Defence Procurement Procedure (DPP). and internal security. India is one of the largest importers of conventional defence equipment and spends about 40% of its total defence budget on capital acquisitions. (ii) augmenting capacity for Research. To broad base the acquisition. The Indian offset policy imposes an offset obligation on capital acquisitions valued over INR 300 crore categorized under ‘Buy Global’ and ‘Buy and Make with Transfer of Technology’ i. reflecting the nation’s intent to modernise its armed forces and replace obsolete equipment. EPGDIB 2013-15 India’s Defence Offset Policy: Opportunities and Challenges Brief overview The Indian aerospace and defence market presents an attractive and significant opportunity for Indian and foreign companies across the supply chain. Further. The DPP also lays out the Defence Offset Policy. or services provided by Indian enterprises b. Investment in ‘kind’ in Indian enterprises in terms of provision of equipment through the non-equity route for the manufacture and/or maintenance of eligible products and provision of eligible services. India has the third-largest armed forces in the world.Avinash Katoch. India’s defence spending has grown tremendously to 38 billion USD in 2012 as against 30.58%. Offsets obligations can be discharged by any combination of the following methods: a. e. d. The defence expenditure of the government accounts for about 13% of its total expenditure. Direct purchase of.52 billion USD in 2009 at a compounded annual growth rate (CAGR) of 7. India surpassed China as the world’s largest importer of weapons systems. Provision of equipment and/ or ToT to government institutions and establishments engaged in the manufacture and/or maintenance of eligible . IIFT. The key objective of the Defence Offset Policy is to leverage capital acquisitions to develop Indian defence industry by (i) fostering development of internationally competitive enterprises. FDI in joint ventures with Indian enterprises for manufacture or maintenance of eligible products and provision of eligible services c. executing export orders for eligible products manufactured by. or. Vendor to buy back minimum 40% of eligible products and services.e Purchase from foreign vendor followed by Licensed Production. and its defence budget is about 1. Investment in ‘kind’ in terms of ToT to Indian enterprises for manufacture or maintenance of eligible products and provision of eligible services (through joint ventures or through the non-equity route).

Challenges Since offsets come at a price. lest it should become a sterile investment of scarce resources.Avinash Katoch. EPGDIB 2013-15 India’s Defence Offset Policy: Opportunities and Challenges products and provision of eligible services. . including the Defence Research and Development Organisation (DRDO) f. there is a need to ensure that the policy is most carefully calibrated to focus development in identified areas as opposed to the aim of creating general defence capability. implementation of the policy also implies that the Armed forces do not get what they would have got in the absence of offset provisions. Therefore. These policy initiatives have the potential to transform the Indian Defence industry through carefully orchestrated offsets. IIFT. Opportunities The government has permitted 49% FDI in Defence sector and has launched a massive `MakeinIndia`’ campaign to encourage manufacturing in domestic industry and thus create jobs. Technology acquisition by DRDO in areas of high technology However apprehensions remain in the industry on effecting offsets in a manner that has the potential to create a win-win situation for the country and industry as well as foreign vendor.

reference books. Data collection methods  Secondary Data – This will be collected to add value to the primary data. industry reports from consultants. news articles. databases.Avinash Katoch. Chapters Chapters Scheme  Chapter 1 – Industry overview – Indian Defence Sector  Chapter 2 – Defence Procurement Policy in India  Chapter 3 – Defence Offsets Policy Framework  Chapter 4 – Opportunities and Challenges  Chapter 5 – Recommendations  Chapter 6 – Conclusion  Chapter 7 – Notes and References  Chapter 8 – Questionnaire (if any) . websites. The experts from the Industry.  To understand Defence Procurement Policy particular wit regards to offsets and their evolution over the years. Primary objective  To understand India’s Defence Offset Policy and the opportunities and challenges that it presents for the development of Indian Defence Industry. will be made. India representatives of foreign vendors and Govt officials will be contacted to get a grip on the issues that pose challenges to successful implementation of Offset Policy. . Reference to various websites on the internet. IIFT.  To understand offsets and the relevant provisions that apply to their implementation in the Defence Sector. journals etc. EPGDIB 2013-15 India’s Defence Offset Policy: Opportunities and Challenges Introduction Objective The research project will study and analyse India’s Defence Offset Policy as promulgated vide Defence Procurement Procedure 2013 and critically examine its salient features and the potential impact on development of a military-industrial base in India.  To understand the Opportunities that the offsets provide  To understand the challenges in implementation of current Offset Policy and the way ahead Scope of the study The study is limited to a Offsets in Defence Sector in India . Research Approach and Methodology An exploratory research will be conducted to get a better understanding of the problem. company websites. magazines. Secondary objectives  To understand the industry overview of the Indian Defence sector.

pdf)  EY (http://www.in/webcms/Upload/Enhancing%20role%20of%20SMEs %20in%20Indian%20defence%20industry1.Defence Offset Guidelines 2012 (http://www. IIFT.pdf)  Deloitte (http://www.pdf) Other Resources  Govt of India (http://www.cii.com/global_locations/asia/india/en/our_people/~/media/mckins ey%20offices/india/pdfs/a_bright_future_for_indias_defense_industry.pdf)  KPMG. EPGDIB 2013-15 India’s Defence Offset Policy: Opportunities and Challenges Notes and References References Databases  CII Reports on Defence  IDSA Journals  Indian Military Review  CENJOINS Articles  DPP 2013  DDP Discussion Papers  FICCI Seminar Proceedings Big 4 Companies’ Resources  McKinsey : A Bright Future for India’s Defence Industry (http://www.makeinindia.ashx)  PricewaterhouseCoopers : Decoding the Indian Aerospace and Defence sector: Domestic and foreign Investments and offset obligations (http://www.gov.mckinsey.ey.com/Publication/vwLUAssets/Capitalizing_on_the_India_opportunity_ 11Feb10/$FILE/Capitalizing_on_the_India_opportunity_11Feb10.cii.in/webcms/Upload/Enhancing%20role%20of%20SMEs%20in %20Indian%20defence%20industry1.in/sector/defence-manufacturing /)  Govt of India Min of Defence : Defence Procurement Policy 2013 .Avinash Katoch.kpmg. Concept Note .in/en_IN/in/assets/pdfs/industries/aerospace-and-defenceservices.pwc.com/Ca/en/IssuesAndInsights/ArticlesPublications/Documents/KP MG-Flash-News-on-Revised-Offset-Policy-August-2012.pdf)  EY (http://www.