The lastest government numbers indicate that the initiatives for boosting the Indian defence manufacturing sector through foreign contracts have failed to pick up pace since 2008.
As per the offset rules laid down by the central government, the foreign companies are mandated to outsource at least 30 percent of the total value of large contract to India. As per estimates by the defence ministry, these obligations were targeted at bringing in $11.2 billion over the 2008-2024 period.
However, the actual picture looks bleak at the moment. As per the data available with the defence ministry, barely 20 percent of the target has been met with more than half of the period already over. Notably, the efforts to liberalise the offset norms in the country have gone cold due to the latest Rafale controversy. The Economic Times reported that according to the data shared with parliamentary standing committee on defence until the end of 2017, offsets worth just $2.21 billion had been reported to be discharged by foreign vendors.
Till date the Rafale deal with Dassault Aviation has been the single-largest offset contract which would bring in $4 billion of offset contracts in the country. To fulfill the offset obligation under the contract, Dassault Aviation has planned to outsource work to over 70 companies, including the Defence Research and Development Organisation (DRDO). Out of the total offset amount DRDO is expected to receive the largest part is for a developing indigenous fighter jet engine.
There have been multiple reasons why the foreign companies have failed to meet the offset obligations. These include stringent rules, the inability of local companies to get used to the technology introduced by the foreign players and a lack of understanding as to what constitutes their discharge. The Ministry of Defence has admitted that till date it has signed a total 42 offset contracts out of which the Indian Air Force (IAF) in involved in 27.