Study Of Indian Defence Offset Policy And Its Impact On Growth Of Aerospace Industry

Abstract

Out of the large range of defence equipment, the major high cost and technologically newlinehighly complex equipment categories are aircraft, helicopters, naval ships and newlinesubmarines, highly sophisticated land based weapons, and defensive or offensive newlineshielding systems. Most often all of these are acquired through government to newlinegovernment deals. Even where there is a purchase from a major equipment company, the newlinet is largely necessary. The choice for these categories newlineof equipment depends upon the international relationship and equations of the purchasing newlinenation. All these factors make their purchase, ownership, operation and upkeep very newlineinvolved activities for these categories, amongst all defence equipment. newlineThe purchase procedures for defence equipment and more so for aircraft and related newlinehardware are also quite intricate, including complex selection process to choose the most newlinesuitable product amongst the available options; extensive and prolonged negotiations due newlineto multifarious factors like high cost, high level of technology, long period of usage of a newlineproduct, complex operational conditions and parameters; complex payment processes newlinewhich can spread over a prolonged period; and many times long lead time for delivery newlineand spread of supplies over a period. The Buyer nation, therefore, has to put in place newlineadequate processes to ensure its interests are protected. The Seller has to work for newlinederiving optimum price advantage, keeping in view intense competition. This situation newlinemakes the entire cycle of aircraft purchase very intricate. newlineFor purchasing aircraft, one straight forward method can be payment of the full value to newlinethe Seller as a down payment. But most often the purchase values are high, running into newline5 newlinebillions of dollars, requiring alternate and innovative methods for payment. A widely newlinefollowed practice for major purchases is that the Buyer country stipulates that the Seller newlineshould compensate a part of the purchase by counter purchase from the Buyer country, in newlinea certain agreed proportion. There are two distinct forms of counter-purchase. One newlinepractice is known as Counter Trade and the other is known as Offset. newlineCounter Trade and Offset are refined forms of Barter Trade, discussed earlier. A Seller newlinehas to compensate the Buyer nation at least partially for the cost of purchase, at an agreed newlineproportion of the Sale Value, by procuring from the Buyer country either goods or newlineservices or both. The Offset Policy has undergone many changes and improvements since that time, but newlinethere is a perception amongst many stakeholders in the domain that it has not been able newlineto deliver the desired results. In respect of leveraging procurement of passenger airliners, newlineeven till date no formal Offset Policy has been formulated. newlineConsequent to the adoption of Offsets, some of the defence procurement contracts have newlinestarted yielding offset business for the country. newline