The whopping purchase order would benefit the Indian defence industry in a big way because of the inflow of $30 billion (Rs I.5 lakh crore) as offset in the industry, officials informed the Parliamentary Standing Committee on Defence that submitted its report on Wednesday.
Under Offsets policy—a provision in the military procurement policy—if the government wants to purchase any military equipment worth more than Rs 300 crore, the supplier will have to re-invest 30 per cent of the contract amount in Indian defence, homeland security and aviation industry for the growth of the domestic industries.
Incidentally, while the 2005 policy envisages 30 per cent offset, the government hiked the its limits to 50 per cent in India’s biggest defence deal —$10.4 billion race to buy 126 medium multi-role combat aircraft.
The offset policy is in existence since 2005 and has been refined over the years now.
The Defence Research and Development Organisation (DRDO) had benefited from the offset policy in the recent past.
Offset amount
As India plans to buy 10 heavy-lift C-17 Globemaster aircraft from the US aviation major Boeing for Indian Air Force at a cost of $ 4.1 billion, the offset amount comes down to about $1 billion, which roughly translates to Rs 4500 crore.
Almost half of the offset amount—about $500 million—is being used to purchase equipment to set up a new high-altitude engine testing facility under the DRDO, which now goes abroad for such tests.
In addition, equipment worth $ 300 million are being brought to establish a new wind tunnel facility for testing missiles and fighter aircraft of the future, a defence ministry official informed the House panel.