J. Brauer and J.P. Dunne in their article “Arms Trade Offsets and Development.” Africanus [South Africa] Vol. 35, No. 1 (June 2005), pp. 14-24,opine: “Arms importing countries’ offset objectives do of course evolve over time and they change their strategies. Some developing economies have targeted certain arms niches because of their desire to be learning master for themselves and they structure arms import acquisition and offset demands toward the fulfillment of that goal (e.g., Singapore, Taiwan).
Other countries (e.g., Brazil, India, Indonesia) appear to be driven by regional power ambitions that would dictate the development of an indigenous ability to produce a comprehensive range of weapon systems in-country and so they pursued or pursue an arms sourcing and offset strategy with broad technology transfer requirements. Yet other states (e.g., South Korea) seek an ability to produce a wide spectrum of systems not because of regional power ambitions but because of a generalized desire and increasing ability to participate broadly in all industrial markets.
With India planning to spend another $30 billion that is almost Rs. 120,000 crore on arms imports by 2012, countries as well as global armament companies continue to jostle with each other to grab big pieces of the lucrative action.
Still other states appear to view arms offsets as an opportunity to revive a collapsed or failed indigenous arms industry (e.g., Poland) and the countries (like South Africa,) appear to view arms offsets as a way to simply get the arms and keep the money at home as well”.
The Defence Procurement Procedure of the Indian Ministry of Defense includes Offsets as a part of the acquisition process. The stated intent of introducing offsets, which is known for its complex procedure is nothing but bringing in the latest technologies to the country, creating opportunities for export of Indian manufactured defense products and reducing dependency of Indian armed forces on imported weapons and equipment.
Offsets, as a part of the acquisition process, practiced by a very large number of countries, is not a new phenomenon. Nations have long used this as a tool to acquire technologies, seek investments in core industries or for creation of new industrial infrastructure, create export markets for their products and in some cases generally improve their quality of life in the fields of education, health and water supply etc.
The preliminary offset conditions have been kept simple with the intent of adding more conditions later when the users gained experience in handling various issues. The basic condition is that “the offset clause would be applicable for all procurement proposals where indicative cost is above Rs. 300 Crores and the schemes are categorized as ‘Buy (Global)’ involving outright purchase from foreign/Indian vendors (30% of the indicative cost as offset) and ‘Buy and Make with Transfer of Technology’ i.e. Purchase from foreign vendors followed by Licensed Production”(30% of the foreign exchange content as the offset).This is followed by a procedure, which allows the vendors extra time for submission of the offset proposal, after the submission of the Technical and Commercial bids in response to an RFP. This procedure, while retaining the option of only ‘Direct offsets’, does not limit offsets to any specific technologies or products.
That such a simple and straight forward offset condition started a major debate in the arms manufacturers’ circles possibly came as a surprise to the planners in the Indian MOD as well as the Service Headquarters. Such has been the intensity of this debate that the offset policy is already under a major revision even before its’ successful initial implementation, which was to form the basis for its improvement. An analysis of the debate on the offset policy has highlighted some very interesting aspects, which merit a mention.
These are :-
- The Indian offset policy is possibly the simplest in formulation and easiest to implement vis-a-vis the policies of many nations seeking offsets for their defense procurements.
- The policy in general is acceptable to a large number of vendors who have sold their products to Indian armed forces in the past and are indeed willing to do business with this simple addition of the offset clause.
- This rather gratuitous discourse on our offset policy, being spearheaded by some arms manufacturers, is the direct result of our policy of listening to all opinions, even when these are clearly subjective, and our sensitivity to criticism, which is sometimes patently unfair. Other nations, some the most prosperous, have formulated and implemented their offset policies after an internal debate on what is best for ‘their’ nation. We also seem to be moving in that direction at our own pace.