India’s offset requirements major hurdle in defence trade: Ex-Pentagon official

Washington, April 28

India offers huge opportunities for the US in bilateral defence trade but its offset requirements pose an enormous challenge in doing business with the country, a former top Pentagon official has told top American lawmakers.

Ellen Lord, who previously served as the Under Secretary of Defence for Acquisition and Sustainment (Aamp;S), told members of the House Armed Services Committee on Wednesday that the US is in talks with India on several multi-billion key defence sales, including the Guardian drones.

“India has enormous opportunities but also enormous challenges. We have never been able to get the overarching security agreements with India that we would hope.

“We have challenges with things like the S-400 (Russian anti-aircraft missile system being bought by India) being on contract and so forth. Additionally, the challenge of doing business, I can tell you in India is enormous because of offset requirements there to be able to provide a local business,” Lord said.

Under India’s offset policy, foreign defence entities, for all contracts worth Rs 2,000 crore or more, are mandated to spend at least 30 per cent of the total contract value in India through procurement of components, transfer of technologies or setting up of research and development activities.

However, the offsets are not applicable to procurements under ‘fast track procedure’ and in ‘option clause’ cases if the same was not envisaged in the original contract.

Over the past decade, the volume of defence trade between the two countries has increased from almost zero to USD 18 billion.

Major American companies like Boeing, Lockheed Martin and General Atomics are eyeing the Indian market now, which is projected to grow exponentially over the next decade.

“So, enormous potential, but I would say the opportunity and the challenge is to work with the Indian government to streamline policies and procedures, make them consistent so that it is a pretty predictable venue for the US business and government to invest in,” Lord said responding to Senator Mark Kelley, who recently returned from a trip to India.