Defence Offset Policy
Indian Defense Offset policy provisions will apply to all
Capital Acquisitions categorized as ‘Buy(Global)’, i.e.,
Outright Purchase from foreign/Indian vendor, or ‘Buy and Make
with Transfer of Technology’, i.e., Purchase from foreign vendor
followed by Licensed Production, where the indicative cost in
the Request For Proposal (RFP) is Rs 300 crore (USD 75 million)
Initially, a uniform offset of 30% of the indicative cost of the
acquisition in ‘Buy(Global)’ category acquisitions and 30% of
the foreign exchange component in ‘Buy and Make’ category
acquisitions will be the minimum required value of the offset.
Based on a review of the experience of implementing these
provisions, the minimum offset percentage for the following two
years will be prescribed with the approval of the Defence
The DAC may, after due deliberation, also prescribe varying
offset percentages above 30% for different classes of cases or
for individual cases depending upon the factors involved such as
strategic importance of the acquisition or technology, enhanced
ability of Indian defence industry to absorb the offset, export
potential generated, etc.
These provisions will also apply with appropriate modifications
to ‘Buy’ and ‘Buy and Make with TOT’ components for warship
construction where the value of individual contracts is Rs 300
crore or more. In such cases, references to the acquisition wing
will mean the DDP or shipyard which is building the ship and
procuring the system or sub-systems.
Defence Offset Obligations
For the purpose of defence purchases made under the DPP 2006,
offset obligations shall be discharged directly by any
combination of the following methods:
Direct purchase of, or executing export orders for, defence
products and components manufactured by, or services provided
by, Indian defence industries, i.e., Defence Public Sector
Undertakings, the Ordnance Factory Board, and any private
defence industry manufacturing these products or components
under an industrial licence granted for such manufacture. For
the purpose of defence offset, “services” will mean maintenance,
overhaul, upgradation, life extension, engineering, design,
testing, defence related software or quality assurance services.
Direct foreign investment in Indian defence industries for
industrial infrastructure for services, co-development, joint
ventures and co-production of defence products.
Direct foreign investment in Indian organisations engaged in
research in defence R & D as certified by Defence Offset
Facilitation Agency (DOFA).
The Indian defence industries or organisations concerned are
here after referred to as the Indian offset partner.
The offset obligations are to be fulfilled coterminous within
the period of the main contract.
All offset offers which satisfy the minimum eligibility
conditions will be placed on par and no preference will be given
for any extra amount offered.
The advisability of giving additional weights to offers having
multiplier effects in terms of exports generated or building
indigenous capability in strategic technology products, or other
issues may be considered after reviewing the experience of
implementing the above policy.
Defence Offset Facilitation Agency
The Ministry of Defence will establish a ‘Defence Offset
Facilitation Agency’ (DOFA) under the DDP as a single window
Facilitate implementation of the offsets policy.
Assist in vetting offset proposals technically.
Assist in monitoring the offset provisions.
Suggest improvements in the policy and procedures.
Interact with Headquarters Integrated Defence staff and Service
Advise, in consultation with the Headquarters Integrated Defence
staff, Services and Defence Research and Development
Organisation, areas in which offsets will be preferred.
Promote exports of defence products and services.
Provide advisory clarifications on the policy and procedures (in
consultation with the Acquisition wing wherever necessary).
The DOFA will assist potential vendors in interfacing with the
Indian defence industry for identifying potential offset
products/ projects as well as provide requisite data and
information for this purpose. The agency will function under the
supervision of a designated Joint Secretary of the Dept of
Defence Production, and have representatives from the Service
HQrs, HQ IDS, DRDO, DPSUs and OFB as well as from CII, FICCI and
ASSOCHAM and other agencies as deemed necessary. DOFA may set up
committees and sub groups as considered necessary or based on
the inputs received from DRDO.
DOFA may also engage, following a fair, rational and transparent
process, reputed independent professional expert bodies, as
suggested by DRDO, to assist in its functions and commission
studies by such bodies on offset policies, their implementation,
utility and impact.
Acceptance of Necessity Stage
While being considered by the Services Capital Acquisition Plan
Categorization Higher Committee (SCAPCHC), Capital Acquisition
Projects of the ‘Buy’ or ‘Buy and Make with TOT’ categories
whose indicative cost is Rs 300 crore or more, will be
recommended for application of the standard 30% offset clause.
However, based on detailed examination of the capability of the
defence industry to absorb the offset value available and its
strategic importance, the SCAPCHC may recommend increased offset
percentages in selected cases. The DOFA may also advise on areas
where offsets will be preferred. The DAC will consider the
recommendations and take the final decision. This offset
condition will form a part of the RFP and, subsequently, of the
Solicitation of Offers
Para 26 read with Schedule I of DPP 2006 prescribes the
standardised RFP document. Para 6 of the RFP format will apply
wherever offsets are attracted. In order that the secrecy of the
commercial bid is maintained, the vendor is only required to
give a written undertaking to the effect that it will meet the
offset obligation laid down in the RFP. This undertaking in the
format at Appendix A to these guidelines will be included in the
envelope containing the vendor’s technical offer. It will be
binding on the vendor and will clearly state that failure at any
stage, on the part of the vendor to meet the offset obligation
specified in the RFP at any stage will disqualify the vendor
from any further participation in the contract and render its
offer as null and void.
The technical and commercial offset offers would have to be
submitted by the vendors by a date to be specified in the RFP,
which would be not earlier than three months from the date of
submission of the initial technical and commercial offers. These
offset offers would have to be submitted together in two
separate sealed covers to the Technical Managers.
Technical Evaluation of Offset Offers
The technical offset offer would contain details of the
products, services and investment proposals indicating relative
percentages, proposed Indian partners for offset investment and
other relevant information in the format given at Appendix B.
The commercial values of the offset proposals are not to be
indicated in this technical offset offer.
The technical offset offers would be scrutinised by a Committee
to be constituted by the concerned Technical Manager of the
Acquisition Wing, with the prior approval of Director General
(Acquisition). The Committee may include representatives of the
Services, Defence Finance and DRDO. DOFA will assist the
Committee in the scrutiny by providing information as to the
technical feasibility of the offset offer, in terms of
capability of the Indian Offset Partner for supplying the
products or services required within the stipulated time frame.
The Committee may also incorporate experts as identified by the
DRDO for scrutinising the technical offset offers. This
Committee will examine the technical offset offers and shortlist
the vendors meeting the offset obligations. The Technical
Mangers will process the report of this Committee for approval
by the Director General (Acquisition).
The vendor will be free to select the Indian offset partner for
implementing the offset requirement.
Only contracts for export of defence products or services or
investment made after the signing of the main contract will be
reckoned for discharging offset obligations. For products which
contain imported components, only the value addition in India
will count towards offset obligations.
For `Buy (Global)’ category procurements, where offset is
applicable if an Indian firm is bidding for the proposal and is
offering an indigenously developed product, then for such a case
offset would not be applicable. However, to ensure that the
offset obligation is not circumvented by Joint Ventures (of
Indian and foreign firms) where Indian firm is bidding, the
foreign firm concerned will have to discharge offset obligation
as per the RFP requirement.
Commercial Offset Offers
The Commercial Offset Offer, format in Appendix C, will contain
the detailed offer specifying the absolute amount of the offset
with a break up of the details, phasing, Indian partner etc.
The model formats at Appendix B and Appendix C may be amended by
the vendor without however deviating from the mandatory offset
Examination of Offset Offers
The offset offer will be examined in two stages by the
Acquisition Wing. In the first stage, the first part of the
offset offer (refer Para 6.1 and 6.2 above) will be examined to
ensure that the offset offer fulfils the mandatory requirements
and thereby qualifies the vendor for opening of its commercial
These commercial offset offers would be opened along with the
main commercial offer. The Contract Negotiating Committee (CNC)
would verify that the Commercial Offset Offers meet the
stipulated offset obligations. The CNC will be advised by an
official representative of DOFA(government/DPSU/OFB or as deemed
necessary) on offset matters, whenever required.
The Commercial Offset Offer Would have no bearing on the
determination of the L1 vendor. After the CNC is satisfied that
the offset offer is in accordance with the prescribed norms, the
L1 vendor will be invited to sign the main contract and the
The offset contract is to be signed simultaneously with the main
contract. The vendor will not under any circumstances delay the
execution of the main contract on the plea of failure of Indian
defence industry to execute various offset contracts.
The vendor will submit quarterly reports in the format in
Appendix E on implementing the offset contract to the
Acquisition Manager concerned. The DOFA will assist the
Acquisition Manager concerned in the Acquisition Wing in
monitoring the implementation of the offset contract. Where
necessary, an audit by a nominated official or agency may be
conducted to confirm the actual status of implementation.
A vendor may, giving reasons, request re-phasing of the offset
obligations within the period of the main contract. Director
General may allow the request if the reasons are considered
Any request on exceptional grounds for extension of the period
of the offset contract beyond the period of the main contract
will be examined by the Acquisition Wing and placed before the
Defence Procurement Board for decision. Requests for any further
extensions will be decided by the Defence Acquisition Council.
If a vendor fails to fulfil the offset obligation in a
particular year, a penalty equivalent to the unperformed offset
obligation will be levied. 5% of the value of the unfulfilled
portion of the annual offset obligation will be paid as penalty
or recovered from the bank guarantee of the main contract,
subject to replenishment, or deducted from the amount payable
under the main contract, and the unfulfilled offset value will
be carried forward to the subsequent year.
Any vendor failing to implement the full offset obligations
during the period of the main contract, or during the period
duly extended, will be liable to be disqualified for
participation in future defence contracts. The disqualification
will be decided by the Acquisition Wing after giving an
opportunity to the vendor to explain the reasons.
Any differences or disputes will be settled through discussions.
The decision of the Acquisition Wing will be final. The
provisions in the main contract regarding arbitration will apply
to the offset contract also.
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