UPSC CSE Mains Syllabus: GS-3- Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

Defence Offsets

The Defence Ministry came up with its latest Defence Acquisition Procedure 2020 (DAP 2020) on Monday, which comes into effect from Thursday, October 1. Changing a 15-year old policy, the government has decided to remove the clause for offsets if the equipment is being bought either through deals or agreements between two countries, or through an ab initio single-vendor deal.

Defence offsets:

The offset is an obligation by an international player to boost India’s domestic defence industry if India is buying defence equipment from it.

Since defence contracts are costly, the government wants part of that money either to benefit the Indian industry, or to allow the country to gain in terms of technology.

The Comptroller and Auditor General (CAG), in a report, defined offsets as a “mechanism generally established with the triple objectives of:

(a) partially compensating for a significant outflow of a buyer country’s resources in a large purchase of foreign goods

(b) facilitating induction of technology

(c) adding capacities and capabilities of domestic industry.

An offset provision in a contract makes it obligatory on the supplier to either “reverse purchase, execute export orders or invest in local industry or in research and development” in the buyer’s domestic industry, according to CAG.

How it began in India:

New changes:

CAG’s findings:


What are Defence offsets? Explain their purpose. Critically examine the issues in its implementation.