Offset clause in Indian Defense purchases

The concept of offset, in context to the defence sector, aims to provide a certain percentage of value addition/ order value to the domestic industries. It can take various forms:-

  • helping domestic industries with additional works contracts;
  • transferring complicated technology to the domestic industry;
  • Technology transfer & access to technology;
  • Employment opportunities.

Offsets can be direct as well as indirect.
An example of the indirect offset will be to
help finance the sale with a subsidised loan.

Since defence procurements involve a substantial amount of public money, Offset clause ensures that public money involved in the procurement can be ploughed back in the economy. The main objective of India’s offset policy is to make the defence sector self-sufficient and not dependent on imports. An offset clause in the Indian industry will give access to modern technology, can change the indigenous defence industry and provide a much-needed boost to the R&D sector.

For a long time now, the defence sector in India has been dominated by the public sector undertakings like Bharat Electronics, Hindustan Aeronautics, Bharat Heavy Electricals etc. The offset clause in the defence contract helps in spurring the domestic production, technology transfer & acquisition, self-reliance and creating employment opportunities. Of late, conglomerates like Mahindra, Adani, TATA, Bharat Forge have entered the defence market in a big way.

The annual defence budget is USD 44 billion (2019) and spends of USD 130 billion in defence procurement is planned over the next five-seven years. The sheer volume of defence purchases by India provides the country with a huge kitty of offset which has enormous potential to be used for the development of the defence sector in India.

Foreign OEMs are relied upon more than ever to not only meet the country’s defence requirements but to also assist the indigenous sector so that India can be more self-sufficient. At the same time, complex legal and regulatory requirements cause a chilling effect for foreign investors, especially newcomers, looking to operate in India. Their entry in the Indian market can be supported and hand-held by a reliable player like Route2Market®.

Route2Market® has decades of experience operating in the Indian market, It is an asset-backed company, with professional management, family-run board and offers a customised solution for India entry.

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