The global arms trade is increasingly becoming a two-way process. Instead of the traditional off-the-shelf procurement involving goods/ services being exchanged for money, more and more arms buyers are now demanding that some form of work should also directly flow from the contracts they sign with foreign entities. The flow back arrangement in the contract, widely known as offsets, is usually demanded as a certain percentage of the contract value. Offsets are also demanded in various other forms ranging from traditional counter trade practices (barter, buying goods from the purchasing country of defence equipment ) to practices such as co-production, investment, and technology transfer. The purpose for demanding offsets also varies from country to country, depending upon their priorities. While some countries seek offsets in the form of foreign investment and the like for general economic development, others demand technology transfer and a definite work share in the items being procured.
India, predominantly an arms importer country, has evolved its offset policy over the years. Defence Offset Policy will enable creation of local employment, upgradation of technology levels while ensuring substantial increase in both domestic production and export capability. Offset also provides leverage to the domestic industry specifically the SMEs [Small and Medium Enterprises] to enter the sophisticated markets of defence products.
Offset obligations were introduced in 2005 to develop the defence industrial base in the country. It stipulates that for deals worth over Rs. 300 crore, the Original Equipment Manufacturer (OEM) has to reinvest 30 per cent of the contract value in the country.