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eDefense Online reports that India has set new guidelines regarding military acquisitions from other countries. The most controversial clause of the new guidelines, which came into force on July 1, 2005, includes a key offset clause for any foreign vendor who wins a defense contract worth over $70 million. Under the offset clause, any qualifying defense contract with a foreign vendor will not become effective until after that vendor has concluded the offset contracts for the required 30% of the total cost. This means that the foreign vendor will have to buy defense or other specified equipment from Indian industry.

In addition, the government has also incorporated a new clause stating that the lowest bidder for a program may not necessarily be the winner of a contract, as considerations of strategy and politics may also be taken into account. These clauses could particularly affect the planned purchase of 126 light multirole fighter planes. Due to existing arangements, the requirements tilt the playing field somewhat toward the MiG-29, and raise the bar for U.S. aircraft like the recently-presented F/A-18E/F Super Hornet.

Updates:

Aug 28/07: The MMRCA RFP is released. It requires 50% industrial offsets, instead of the 30% listed in the policy. DID offers an in-depth look at the $10 billion fighter competition.

May 5/07: India’s MoD:

“In this connection it is clarified that the offset policy has been designed by Ministry of Defence carefully after studying all aspects between direct and indirect offset. In order to encourage Indian Defence Industry, a well considered decision was taken not to allow indirect offset. There is no rethinking on this subject as reported in a section of the media.”

Dec 13/06: DID’s article “US Firms Lobby India re: Offsets on Fighter Deal” covers their efforts to get the offsets rules relaxed.