For more than two decades, India's defence offset policy aimed to be a powerful instrument to strengthen indigenous defence manufacturing, attract cutting-edge technologies, and reduce dependence on foreign suppliers.
The concept was straightforward: if India spends billions of dollars on importing military hardware, a portion of that expenditure should return to the country through investments, technology transfers, local production, research partnerships, and industrial development. Basically, the policy was well-intentioned, having looked at developing countries striving to build a military technological base while purchasing military equipment from advanced countries.
However, it looks like that never worked in India.
Even I recall my discussion with then Defence Secretary Ajay Kumar, and he understood the problem, then told me: "Plan to get rid of offset policy; it does not do much good."
Not to say that the policy did not produce any gains. Large defence contracts did generate substantial business for Indian companies, expanded the private sector, and enabled many MSMEs to become suppliers to global aerospace and defence manufacturers.
Several Indian firms today manufacture components for international defence companies - an outcome that would have been difficult without offset obligations.
Yet, despite these achievements, the policy has fallen significantly short of its original strategic objectives. India continues to rely heavily on imports for advanced military technologies and critical components. The country's ambition of using offsets to build tech sovereignty remains only partially fulfilled.
The Public Accounts Committee (PAC), in its Fiftieth Report on the "Management of Defence Offsets," adopted on June 4 and presented to Parliament this month, provides perhaps the most comprehensive assessment of the programme's shortcomings. The report makes it clear that the problem extends far beyond delayed vendor obligations. It reveals deeper structural weaknesses in planning, project evaluation, technology selection, and contract management.
Large Pending Obligations
The most immediate concern is the pace of implementation. Among 26 ongoing offset contracts, the total offset obligation stands at nearly USD 9.92 billion. However, vendors have submitted claims worth only USD 5.47 billion, representing just 55.14 % of the obligation. Nearly USD 4.45 billion, or 44.86%, remains unsubmitted.
Such a large pending obligation raises serious questions regarding execution and monitoring. While delays are often attributed to vendors, the PAC correctly observes that responsibility also lies with the Ministry of Defence. Several projects approved during contract negotiations later proved commercially or technically unviable. This indicates weaknesses in project appraisal, partner selection, and post-contract supervision rather than mere vendor non-compliance.
So, it's important that experts in the MoD now look at technological and commercial aspects on a separate, clear basis and the vendor's long-term commitment in India.
Completion Does Not Mean Success
The Ministry has signed 56 offset contracts over the years.
Of these, only 20 contracts, roughly 35.7%, have been fully completed, audited, and closed. Another 10 contracts remain under final audit, while 26 contracts, almost half the programme, continue to remain operational.
Simply reaching the end of a contractual period cannot be treated as success. Offset obligations should be considered discharged only after auditors verify that every vendor claim is legitimate, valued, and supported by evidence.
Financial closure alone cannot substitute for strategic outcomes.
Technology Transfer Is The Weakest Link
Perhaps the greatest disappointment has been the failure of technology transfer (ToT). Offsets were expected to provide India access to advanced military technologies that the domestic industry could absorb and develop further. Instead, technology acquisition has delivered virtually no meaningful results.
Up to July 2018, only five technology-transfer proposals were examined. Four were rejected by the Defence Research and Development Organisation (DRDO) because either India already possessed the offered technology, or they were of little strategic value, or vendors shifted to other methods of fulfilling their obligations. The fifth proposal remained unresolved even after years of examination. Not a single technology acquisition was successfully completed.
Although the Ministry informed the PAC that seven fresh ToT proposals had been received following revised guidelines issued in 2024, all remained under consideration when the Committee examined the programme. Officials also acknowledged another persistent problem: foreign companies frequently offer second-tier or obsolete technologies rather than genuinely advanced capabilities.
This exposes a major weakness in the negotiating framework. Unless one clearly identifies key technologies before issuing tenders, vendors are likely to offer mature technologies that no longer provide strategic advantage.
The Right Definitions
Technology transfer should never be reduced to handing over manufacturing drawings or assembly manuals. Every future ToT package should clearly specify complete design and production data, intellectual property or licensing rights, access to source codes as applicable, and testing and certification authority. It must also ensure technical training commitments, upgrades, and modification rights.
However, the most important is clearly measurable technology absorption milestones.
Offset credits should be granted only after Indian organisations demonstrate that they have successfully absorbed and applied the transferred technology rather than merely receiving documentation.
Claims vs Outcomes
Perhaps the PAC's strongest criticism concerns the Ministry's method of measuring success. The Ministry largely evaluates offsets by examining the monetary value of vendor claims submitted and accepted.
This, however, measures only expenditure. It does not measure national capability. There is currently no comprehensive framework to evaluate whether offsets have actually strengthened India's defence industrial base, reduced import dependence, or better military preparedness. Nor has the Ministry conducted any detailed assessment of how offsets have contributed to India's long-term defence manufacturing ambitions.
Recognising this gap, the PAC has recommended mandatory quarterly reviews through the Defence Offset Management Wing (DOMW) portal. More importantly, those reviews must focus on outcomes rather than paperwork.
Future evaluations should examine a few important elements: Strategic relevance and quality of transferred technology, intellectual property rights secured by Indian entities and indigenous design and upgrade capability. Then it must evaluate new manufacturing capacity and domestic value addition through patents, prototypes, and research capabilities, which ultimately lead to operational improvements for the armed forces. Additionally, it must look at technical workforce development, reduction in import dependence, and supply-chain resilience during crises, sanctions, or conflict. Without such indicators, India may demonstrate financial compliance but cannot establish strategic success.
Penalties Lack Deterrence
The PAC has also questioned whether existing penalties are sufficient to enforce compliance. Current defence offset guidelines permit a penalty of only 5% of the annual unfulfilled obligation. Across the programme, penalties imposed total USD 94.98 million - just 0.72% of the total offset obligation and 0.95% of obligations due. Even more concerningly, the Ministry has not publicly disclosed how much of these penalties have actually been recovered.
A 5% penalty may simply become a manageable business cost for multinational vendors, particularly when fulfilling technology or investment commitments proves more difficult.
The Committee has thus recommended stronger enforcement through indemnity clauses, progressive penalties, extended bank guarantees, cancellation of offset credits, and vendor-performance ratings linked to future defence contracts. Such measures would significantly improve compliance.
The Government-to-Government Gap
One of the most important policy issues highlighted by the PAC concerns Government-to-Government (G2G) purchases. Under the Defence Acquisition Procedure (DAP) 2020, Inter-Governmental Agreements and Foreign Military Sales (FMS) are exempt from formal offset requirements.
The exemption undoubtedly simplifies negotiations and provides sovereign assurance of supply. However, it also excludes some of India's largest defence acquisitions from industrial participation.
Rather than abandoning industrial objectives altogether, India should negotiate parallel government-level industrial cooperation packages covering licensed production, local assembly, component sourcing, military MRO, software support, joint research, technical training, upgrade rights, and export opportunities.
The absence of formal offsets should never translate into the absence of industrial collaboration.
Abandon or Overhaul?
While India's defence offset policy has unquestionably helped expand domestic manufacturing and integrate Indian companies into global defence supply chains, the policy's central objective was never merely to generate contracts. It was to build tech competence, strengthen domestic design capability, and secure intellectual property, to reduce India's strategic dependence on foreign suppliers.
Those goals remain only partially achieved. The next generation of offset reforms must, therefore, move beyond accounting exercises and financial compliance. Success should be measured by India's ability to design, manufacture, upgrade, and sustain advanced military systems independently.
Now, the government must not only audit afresh but also engage deeply with foreign suppliers on such matters. For future offsets, a new policy is a must, on a case-by-case basis, where Tech transfer remains at the core for India.
(The author is a national security expert, defence editor, and the founder of the military think tank Strategic Insights)
Disclaimer: These are the personal opinions of the author
