India clocks defence offsets worth over $7 billion till January 2024

India, which is the world’s largest arms importer, has racked up over $7 billion worth of offsets from international entities who had sold defence goods to the country.
 

Defence firms that win large orders are required to compensate by investing in local industry or making purchases from them. This is referred to as defence offset and is essentially a mechanism whereby the resource outflow for defence is compensated by the development of local industry or transfer of technology.
 

The total amount under defence offset stood at $2.9 billion as of March 2020, according to data from the Department of Defence Production. This has more than doubled to $7 billion as of January 2024, according to the latest numbers (chart 1).

 

Companies are required to submit claims of offsets made to the government. These are then examined by the government before disposal. Nearly $800 million worth of such claims had been stuck as of March 2020 because they were incomplete or required additional clarification. The value of such claims has come down to around $300 million as of January 2024 (chart 2).

 

Between 2017 and 2022, a total of 15 offset agreements were executed in defence deals, involving nine foreign vendors and an aggregate deal value of $1.86 billion. The claim fulfilment of these agreements is 175 per cent, according to a parliamentary reply in March 2023. This means the fulfilment of claims in these cases exceeded the original obligation.
 

Previous parliamentary replies have said that companies have missed meeting their obligations. There were 15 companies that failed to meet requirements within their deadline, according to a Lok Sabha reply from the defence ministry in August 2023.

“For unfulfilled offset obligations, penalty as applicable has been imposed on the defaulting vendors according to the governing Defence Offset Guidelines. Further, in genuine cases, rephasing of offset obligations has been allowed to enable vendors to discharge the pending offset obligations,” said Minister of State Ajay Bhatt in his response.
 

The Comptroller and Auditor General of India has suggested that the policy requires an overhaul. It had noted in a report in 2020 that transfers of high technology had not yet happened, and there had been limited foreign investment according to the information available at the time.
 

India accounted for 11 per cent of imports of major arms between 2018-22, according to data from the Stockholm International Peace Research Institute.