The Basic Fundamentals About Defense Offset Guidelines – Miracle Electronics

1
A defense offset policy is drafted to leverage
capital acquisitions in order to develop the
Indian defense industry by fostering the
development of internationally competitive
enterprises, augmenting capacity for RD, and
encouraging the development of synergistic
sectors like civil aerospace and internal
security.
But, so as to achieve such a partnership, there
is a list of defense offset guidelines that need
to be followed. While the number of guidelines
are umpteen, lets help you get a brief in this
blog below. Application of provisions The
provisions apply to every capital acquisition,
may it be outright purchase from a vendor, or
purchase from a vendor that is followed by
Licensed Production, where the estimated cost of
the acquisition proposal is 300 crores or more.
Generally, 30 each of both these costs of
acquisition will be the required value of the
offset
2

• obligations. However, the Defence Acquisition
  Council may prescribe varying offset obligations
  in special cases if required. Nevertheless, these
  provisions will not apply to procurements under
  the Fast Track procedure, and those under the
  Option clause, where an offset obligation was
  not stipulated in the original contract.
• Discharge of offset obligations
• The offset obligations may be discharged by one
  or more of the following methods
• Direct purchase or export orders for eligible
  products manufactured or serviced by Indian
  enterprises
• Foreign direct investment in joint ventures with
  Indian enterprises for the manufacture and/or
  maintenance of eligible products and provision of
  eligible services
• Investment in kind in terms of transfer of TOT
  (Transfer OF Technology) to Indian enterprises
  for the manufacture and/or maintenance of
  eligible products and provision of eligible
  services
• Investment in kind in Indian enterprises in
  terms of provision of equipment through the
  non-equity route for the manufacture and/or
  maintenance of eligible
• products and provision of eligible services,
  excluding TOT, civil infrastructure and
  second-hand equipment.
• Provision of equipment and/or TOT to government
  institutions and
• establishments engaged in the manufacture and/or
  maintenance of eligible products and provision
  of eligible services.
• Technology Acquisition by the DRDO in areas of
  high technology
• Then, there are a multitude of other offset
  obligation discharge policies that are divided
  into different sectors, such as vendor
  responsibility, performance bond, offset
  credits, offset banking, value addition, Buy
  Global procurements, offset valuation, and more.
• Submission of offset proposals
• Vendors are required to submit a written
  undertaking to the effect that every offset
  obligation will be met. Any failure on the part
  of the vendor to comply with the guidelines may
  result in disqualification of the vendor from any
  further participation in the contract. The
  proposals should be submitted by a specified
  date, failure of which may render the bid
  non-responsive, and liable to be rejected.
• Evaluation of offset proposals

3
The Acquisition Wing in the Department of Defence
is responsible for technical and commercial
evaluation of offset proposals received in
response to RFPs, and the conclusion of offset
contracts. The Defence Offsets Management Wing in
the Department of Defence Production is
responsible for the formulation of the offset
guidelines, auditing and reviewing or progress
reports, and post contract management. And, both
these wings work in close collaboration for the
smooth implementation of the guidelines. Processi
ng of offset proposals Technology acquisition
The Technology Acquisition Committee is
responsible for assessing the offset proposals,
covering both technical and financial parameters,
including valuation of technology, and the
timeframe and strategy for utilizing the
technology. Technical evaluation The Technical
Offset Evaluation Committee (TOEC), constituting
of representatives of the Service Headquarters,
Defence Finance, DRDO, DOMW, and other experts,
is responsible for scrutinizing the technical
offset proposals to ensure conformity with the
offset guidelines. The TOEC report is then
forwarded to the Technical Manager, who will then
process the report for acceptance. Approval
authority After the offset proposals are
processed by the Acquisition Manager, they will
be approved by the Raksha Mantri. Penalties If
a vendor fails to fulfil the obligations as
agreed to, a penalty equivalent to 5 of the
unfulfilled offset obligation will be levied,
after which the unfulfilled offset value will be
re-phased over the remaining period of the
contract. The vendor may also be liable for
debarment from participation in future defence
contracts for a period of up to 5 years, the
decision that will depend upon the Director
General of Acquisition. Re-phasing requests A
vendor has the advantage of requesting re-phasing
of the offset obligations within the period of
the offset contract, providing valid reasons. If
justified, the request may be granted. Annual
reporting An annual report is submitted to the
Defence Acquisition Council in June every year,
regarding the details of the contracts signed,
and the status of implementation of all on-going
contracts.
4
Indian enterprises, institutions, and
establishments engaged in the manufacture of
eligible products and/or provision of eligible
services are referred to as Indian Offset
Partners, who are required to comply with all the
above guidelines/licensing requirements and many
more. Vendors are free to select such a partner.
If youre looking for the same too, Miracle
Electronics can prove to the best Offset Partner
For Indian Defense, thanks to their complete
adherence to the obligations, proven industry
capabilities, consistent RD, and every necessary
quality certification in place!