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India is preparing to recast its defense offset policy under the proposed Defense Acquisition Procedure (DAP) 2025, narrowing the scope of offset obligations to advanced technology transfers and military maintenance infrastructure as New Delhi seeks to convert billions of dollars in defense imports into long-term industrial capabilities.
The proposed changes, outlined by the Ministry of Defense before Parliament’s Public Accounts Committee (PAC), come after two decades of offset implementation that generated USD 13.215 billion (about Rs 1.14 lakh crore) in contractual obligations across 56 defense acquisition contracts. While the program has helped expand India’s defense manufacturing ecosystem, policymakers now want future offsets to deliver strategic technologies rather than primarily procurement-linked sourcing.
The PAC, in its 50th Report on the Management of Defense Offsets, said the next generation of offset policy should focus on strengthening indigenous capabilities in critical technologies, aerospace maintenance and advanced manufacturing, supporting India’s broader vision of defense self-reliance.
Under the draft DAP 2025, offset avenues are proposed to be restricted largely to two areas: foreign investment in military aircraft and helicopter Maintenance, Repair and Overhaul (MRO) facilities in India, and transfer of advanced technologies to Indian government institutions, defense public sector undertakings and private industry. The Ministry has also proposed higher incentive multipliers for investments in Defense Industrial Corridors, permitting overseas group companies to discharge offset obligations and introducing indemnity provisions to guard against non-performance.
Defense offsets were introduced in 2005 to ensure that foreign vendors reinvest a portion of high-value defense contracts into India through investments, purchases, technology transfers and research collaborations. Initially applicable to acquisitions above Rs 300 crore (about USD 35 million), the threshold was later raised to Rs 2,000 crore (about USD 230 million). Under DAP 2020, government-to-government procurements and Foreign Military Sales were exempted from mandatory offset requirements.
According to the Ministry, India has signed 56 offset contracts involving cumulative obligations of USD 13.215 billion (Rs 1.14 lakh crore). By December 2025, offset commitments worth USD 10.02 billion (Rs 86,700 crore) had fallen due, while foreign vendors had claimed discharge of USD 9.45 billion (Rs 81,800 crore), representing 94.3 percent of obligations due.
Of the total contracts, 20 have completed offset obligations worth USD 2.44 billion (Rs 21,100 crore), while another 10 contracts accounting for USD 632 million (Rs 5,470 crore) are awaiting audit. The remaining 26 contracts, carrying obligations of nearly USD 9.92 billion (Rs 85,900 crore), will continue through 2033.
The Ministry said the program has significantly broadened India’s supplier base. More than 350 Indian Offset Partners (IOPs) have been registered, with over 95 percent belonging to the private sector and nearly 40 percent classified as micro, small and medium enterprises (MSMEs). Offset projects have helped establish capabilities in titanium forging, advanced composites, precision machining, complex aerostructures, electronics and electro-optics.
The Committee noted, however, that technology acquisition remains the weakest component of the offset program. The Ministry acknowledged that overseas suppliers have largely preferred meeting obligations through purchases of products and services rather than transferring high-end technologies or making foreign direct investments. Several technology proposals submitted to the Defense Research and Development Organization (DRDO) were either found unsuitable or involved technologies already available within the country. Revised guidelines issued in 2024 have streamlined technology evaluation, and seven technology-transfer proposals are currently under examination.
The reforms coincide with rapid growth in India’s defense industry. Defense production has increased from Rs 46,429 crore (about USD 5.3 billion) in 2014-15 to Rs 1.54 lakh crore (about USD 17.8 billion) in 2024-25, while defense exports have surged from Rs 1,000 crore (USD 115 million) to Rs 23,622 crore (about USD 2.7 billion) over the same period, according to Ministry data.
The Ministry has also implemented eight of the 13 recommendations made by the Manohar Parrikar Institute for Defense Studies and Analyses (MP-IDSA), including measures to strengthen technology transfer, improve scrutiny of offset proposals and expand industry participation. Two additional recommendations are under consideration for inclusion in DAP 2025.
With DAP 2025 expected to redefine how offsets are earned and discharged, the government is seeking to ensure that future multi-billion-dollar defense acquisitions generate measurable gains in technology, manufacturing capability and industrial competitiveness, rather than merely fulfilling contractual investment obligations.
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