Defense Procurement Policy (DPP) with an offset clause was introduced in 2005.
The DPP and Offset Policy are still evolving.
DPP was last reviewed in 2010 on the basis of experience gained during its implementation and feedback received from various stakeholders including Armed forces, Indian defense industry, Industry Associations and Original Equipment Manufacturers.
The Defense Acquisition Council(DAC) approved revised Defense Offset Guidelines(DOG) at its meeting held on 23rd July, 2012. The following are the salient features of the guidelines that will be effective from August 1, 2012.
The revised DOG recognize co- production, co- development, TOT and R&D assistance as substitutes for equity investment under certain conditions.
Investment in 'kind' in terms of TOT must cover all documentation, training and consultancy required for full TOT (civil infrastructure and equipment are excluded). The TOT should be provided without license fee and there should be no restriction on domestic production, sale or export. The offset credit for TOT shall be 10% of the value of buyback by the OEM during the period of the offset contract, to the extent of value addition in India.
Provision of equipment and/or TOT for Research, Design & Development, Training and Education in DRDO laboratories, Army Base workshops, Air Force Base repair depots, and Naval aircraft yards, etc. could also be equated as offset.
Technology Acquisition by DRDO for a list of specified technologies will be treated as an eligible Offset with a multiplier up to 3.
Tier-l sub-vendors under the main procurement contract could discharge part of the offset obligations on behalf of the main vendor. However, overall responsibility for discharge of offset obligations shall rest solely on the main vendor.
The revised guidelines allow offset obligations to be discharged within a timeframe that can extend beyond the period of the main procurement contract by a maximum period of two years. In the earlier policy, offset obligations had to be discharged during the period co-terminus with the main procurement contract.
Under the existing guidelines, banked offset credits were valid for a period of two years. The period of validity has been increased to seven years under the revised guidelines.
Multiplier for MSMEs
In the discharge of offset obligations relating to direct export, FDI, TOT or investment in 'kind' in Indian enterprises through non-equity "route, a multiplier of 1.50 will be permitted where Micro, Small and Medium Enterprises are lOPs. The monetary limits specified by the Department of Micro, Small and Medium Enterprises, Government of India shall be applicable for identification of MSMEs.
R&D collaboration
R&D services (from Government recognized R&D facilities) have been included in the list of eligible services for Offset Credits. This will facilitate R&D collaboration as well as direct purchase and export of R&D services related to eligible defence products from both public sector and private sector enterprises.
17 Offset contracts have been signed so far with a value of about US $ 4.279 billion. Details are given in table below. The offset contracts are at various stages of execution.
The amount spent on Capital Acquisition from indigenous sources during the last five years is as follows:
