The Indian Defence offset policy was enacted in 2005 and till date there had been no review of the projects executed. This is the first account of all contracts signed and executed till date.

1. CAG Report on Offset
The CAG has pulled up the MoD for allowing the selection of ineligible offsets partners for the offset
contracts in cases in which the purported Indian Offsets Partner (IOP) was actually a 100 per cent owned
subsidiary of the foreign vendor. Some of these are:-
Ø Russian company, RAC MiG, won a $964 million contract to upgrade 69 MiG-29 fighters, incurring an
offset liability of $289 million. Six MiG-29s were to be upgraded in Russia and the remaining in India,
for which MiG charged hefty licence fees in the contract. But MoD officials reveal that the
Acquisition Wing permitted RAC MiG to also claim the licence fee as an offset. RAC MiG was also
irregularly allowed to claim the cost of training IAF personnel as an offset. Training costs can now be
claimed as offsets, but this was not permitted in the rules under which the contract was signed.
Ø Boeing signed a $2.1 billion deal to supply eight P8I Neptune Long Range Maritime Reconnaissance
(LRMR) aircraft to the Indian Navy. The MoD decided that ultra-secret electronics e.g. Identification
Friend or Foe (IFF) system would be procured from Bharat Electronics Ltd and Electronics
Corporation of India Ltd. This was done to keep US components out of these sensitive systems. But
the Acquisition Wing then permitted Boeing to claim their cost as an offset, as if it had indigenised
them. Furthermore, Boeing is being allowed to claim the cost of ToT as a P8I offset even though ToT
was ineligible for offsets then.
Ø Boeing has also benefited enormously from the Acquisition Wing’s clearance of half a billion dollars
worth of offsets arising from the IAF’s purchase of ten C-17 Globemaster-III transporters for $4.1
billion. The Acquisition Wing has okayed Boeing’s proposal to supply the DRDO a “tri-sonic wind
tunnel” which can develop wind speeds of Mach 3.7. Indian industry points out that this is vintage
technology with the US having built a tri-sonic wind tunnel in the 1950s. Indian company, L&T, has
recently built a Mach 12 wind tunnel for the Indian Space Research Organisation (ISRO).
Ø Boeing has also been allowed offset credit for a super-expensive “high-altitude jet engine testing
facility” for the DRDO. DRDO is presently developing a jet engine with French company, Snecma,
which already has its own high-altitude testing facilities. But now, after the Acquisition Wing cleared
these offsets, the DRDO will get an old toy in new wrapping and Boeing will get offset credit worth
dozens of millions of dollars.
Ø Agusta Westland AW-101 VVIP helicopters. This high profile $800 million (Rs 3700 crore) purchase of
twelve AW-101 VVIP helicopters from Agusta Westland has violated multiple provisions of the DPP
which does not permit the purchase of civilian aircraft, but the PMO pushed the MoD into the
purchase, arguing that the IAF flies the helicopters. No relaxation was sought under para 75 of the
DPP. The offsets irregularities include indirect offsets and ineligible offsets, such as the expenses of
holding project committee meetings.

2. Ø US defence major Lockheed Martin’s offset proposal, arising from its sale to India of six C-130J Super
Hercules transport aircraft for US $962 million (about Rs 3835 crores), is violating provisions of the
offsets policy. The largest component of Lockheed Martin’s offset offer is a US $121 million proposal
to import and operate a “weapons system trainer” (WST), which is a simulator on which instructors
from Indian company, Mahindra & Mahindra will train IAF crews of the C-130J. The first shocker is
the cost of the WST for which Lockheed Martin is claiming offsets credit worth US $121 million,
almost 45% of its entire offset liability. Simulator was not included in the deal and would have given
an additional 30% as offsets. On the contrary offset credit was claimed for $48 million to directly
import the simulator. Straight imports of defence equipment cannot be treated as offsets under the
Defence Offsets Policy. The other credits claimed by Lockheed Martin, in connection with the WST
are:
o Offset credit for US $15 million, for technology transfer while DPP-2008 had no provision for
technology transfer to be treated as offsets.
o Offset credit of US $55 million, for contracts that will be given to the Mahindras to operate and
maintain the simulator.
o Offset credit of US $3 million, for travel savings, which has been calculated in terms of air
tickets, lodging, TA/DA etc, for IAF personnel who would otherwise have had to travel to the US.
This is not permissible as offsets in DPP-2008.
o Offset credit of US $20 million for “aircraft engine design services” with Bangalore-based
engineering firm, QuEST. This would only be treatable as an offset if the design services were for
military engines, but there is no way of ensuring that.
o Offset credit of US $15 million for “manufacture of F-16 avionics components” with Tata Power.
While this would indeed be eligible for offsets, Tata Power confirms that there is no ongoing
dialogue with Lockheed Martin.
o Finally, offset credit of US $119 million for “manufacture of RFID components” with Bharat
Electronics. RFID components are not military equipment under the DPP-2008, and this
manufacture does not qualify for offsets.
Ø French company, Thales, was allowed to get away with providing 100 cc motorcycles, domestic air-
conditioners, bicycles, cars, shelters, etc in its fulfillment of Rs 171 crore worth of offsets related to
the Rs 570 crore sale of Low Level Transportable Radars (LLTR).
Ø Fincantieri, for the supply of a fleet tanker, was to source certain specified “buyer nominated
equipment,” or BNE. This included engines from Wartsila India; a combat system from Bharat
Electronics Ltd; an AK-630 gun from the Ordnance Factory Board; and several other components.
Fincantieri quoted accordingly, factoring in the cost of building components in India. But then, again
providing a double benefit, Fincantieri was also granted offset credits for the BNE that was sourced
from India.
Ø Offsets worth Rs 1,485 crore arising from the Rs 4,950 crore purchase of eighty Mi-17V5 medium lift
helicopters from Russia’s Rosoboronexport. In violation of the DPP, the IAF (rather than an Indian
company) has been designated as the Indian Offset Partner (IOP), through which Rosoboronexport

3. will discharge offset obligations. Instead, offset proposals involve training the IAF’s Base Repair
Depots in issues like spares management.
In two contracts, penalty charges of Rs 3.06 crore viable on vendors on account of unfulfilled offset
obligation had not been recovered from defaulting vendors including American Lockheed Martin (Rs
1.02 crore) and Israeli IAI for Harop systems (Rs 2.04 crore).