And according to offset rules, any foreign company winning a defence contract over $60 million must spend at least 30 percent of the contract value in procuring services or supplies from India as a means of encouraging transfer of critical technology to the country's fledgling defence sector. So the new rule which prevents companies from counting research and design, software testing and training as part of their offset requirement can cost companies like TCS, Infosys, Wipro and other IT majors deals worth $10 billion according to Deloitte, professional services network. The Indian IT industry could feel the pain severely because of tepid demand in its major markets — the U.S. and Europe.

However the Defence Ministry is said to be assuring Indian IT companies that it affects only select contracts and not future deals.  

The memo is apparently also aimed at promoting the indigenous Indian defence industry and applies not only to software, but all services.

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