Coming down heavily on the government’s offset policy for defence procurement, the national auditor cited the instance of the 36 Rafale fighter jets bought from Dassault Aviation and said that the French manufacturer has not delivered on its promises regarding transfer of technology.
In a statement issued Wednesday, after its latest reports were tabled in Parliament, the Comptroller and Auditor General (CAG) said: “…it was found that the foreign vendors made various offset commitments to qualify for the most supply contract but later, weren't earnest about fulfilling these commitments.”
Referring to the Rafale deal during this context, the CAG said: “For instance, within the offset contract concerning 36 Medium Multi Role Combat Aircraft (MMRCA), the vendors M/s Dassault Aviation and M/s MBDA initially proposed (September 2015) to discharge 30 per cent of their offset obligation by offering technology to DRDO” (Defence Research and Development Organisation).
The CAG said: “DRDO wanted to get Technical Assistance for the indigenous development of engine (Kaveri) for the sunshine Combat Aircraft. Till date, the seller has not confirmed the transfer of this technology.”
The CAG statement doesn't mention any evaluation of the 50 per cent offset clause that was at the centre of a political firestorm before the 2019 general elections due to the involvement of an Anil Ambani-led Reliance firm on the Indian side.
On August 22, supported a report that the CAG had dropped the audit of the Rafale offset deal, Congress leader Rahul Gandhi had tweeted: “Money was stolen from the Indian exchequer in Rafale.”
When contacted by The Indian Express, an India representative of Dassault Aviation didn't discuss the CAG’s statement.
In its statement, the CAG said that from 2005 till March 2018, 46 offset contracts were signed with foreign vendors totalling Rs 66,427 crore.
“Under these contracts, by December 2018, Rs 19,223 crore worth of offsets should are discharged by the vendors. However, the offsets claimed to possess been discharged by them was only Rs 11,396 crore, which was only 59 per cent of the commitment. Further, only 48 per cent (Rs 5,457 crore) of those offset claims submitted by the vendors were accepted by the Ministry,” the CAG noted.
The offset policy was adopted by India in 2005 for all capital defence purchases above Rs 300 crore made through imports. The foreign vendor, or Original Equipment Manufacturer (OEM), was required to take a position a minimum of 30 per cent of the worth of the acquisition in India’s defence or aerospace sectors.
There are several ways for OEMs to satisfy their offset obligations, including Foreign Direct Investment (FDI), offering free transfer of technology to Indian firms, and buy of eligible products manufactured by Indian firms. To discharge these obligations, OEMs got to select Indian organisations as partners.
However, the CAG noted that getting technology transfer has been a specific failure. It said that “90 per cent of the investment by the vendors was within the sort of direct purchase of products and services from the Indian industry”. Besides, it said, “of the entire value of offsets only 3.5 per cent was contracted to be discharged through FDI”.
The audit, CAG said, “did not find one case where the foreign vendor had transferred technology to the Indian industry”. It said that “the defence sector is ranked 62nd out of the 63 sectors in India in terms of FD” and there was “hardly any equipment supplied ‘in kind’ to the Indian industry by the foreign vendor”.
“Thus, the objectives of the offset policy remain largely unachieved, even after quite a decade of its adoption,” CAG stated, adding that “the (Defence) Ministry must review the policy and its implementation”.
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