Offsets can broadly be termed as formal arrangements of trade, wherein a foreign supplier undertakes specified programmes with a view to compensate the buyer as regards his procurement expenditure and outflow of resources.
Also read: Indian Defence Offset Regime: Need for reforms
Direct Offsets
In direct offsets, the compensatory dispensation remains limited to the main weapon system, its sub-assemblies and components. It is done through a buy-back or co-production or licensed production or sub-contracts of the system and its sub-systems.
Semi Direct Offsets
It indicates a new trend wherein offsets sought in defence deals are not confined to the defence equipment under procurement, but can relate to all defence goods and services. India demands semi direct offsets.
Indirect Offsets
Indirect offsets are more broad based and transcend all economic or social activities and generally take the form of compensatory trading (reciprocal trade, counter purchase, switch trading, counter deliveries and parallel trade).
Offset Threshold
It is the value fixed by a country above which all import deals will necessarily have associated offsets.
Offset Credit Value
The value of an offset is generally expressed in terms of offset credit value, as a percentage of the contract value. It represents actual credit accruing to an offset provider against his offset obligation. It may be greater than the actual value of the offset programme due to the application of the multiplier value.
Multiplier Value
It is a factor applied to the actual value of an offset transaction to calculate the offset credit value earned. In other words, offset credit value is determined by multiplying the programme base value by its multiplier value. It is a methodology of assigning weightage to different offset programmes. Buyers use multipliers to provide sellers with incentives to offer offsets in targeted area of their choice. The standard multiplier value is 1.
Classical Offset
The importing country pays for imports in its local currency and the currency has to be utilised within the importing country and cannot be repatriated.
Dual Purpose Offsets
These are offsets that have military as well as non-military use.
Earnest Offsets
In some countries, all vendors who wish to compete for a contract are required to offer earnest offsets. It is a firm commitment and all vendors have to fulfill their obligations even when they fail to get the contract. The quantum may vary from 5 to 10 per cent of the indicative value of the contract.
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