The national auditor severely criticised the government’s offset policy for defence procurement in its latest reports tabled in Parliament on September 23, 2020.
The CAG referred to the 36 Rafale fighter jets bought from Dassault Aviation and stated that the French manufacturer had not kept its words transfer of technology.
The CAG further said that in the offset contract relating to 36 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 high technology to Defence Research and Development Organisation (DRDO) in 2015. However, in spite of repeated offset commitments to qualify for the main supply contract, the manufacturer has not yet earnestly fulfilled the commitments. The CAG also said that DRDO wanted to obtain technical assistance for the indigenous development of engine (Kaveri) for the Light Combat Aircraft. But the vendor has not confirmed the transfer of this technology till date.
As per the CAG, from 2005 till March 2018, 46 offset contracts were signed with foreign vendors totalling Rs 66,427 crores. According to these contracts, Rs 19,223 crore worth of offsets should have been discharged by the vendors. However, they discharged offsets worth only Rs 11,396 crore. Besides, the Ministry accepted only 48 per cent of these offset claims, submitted by the vendors.
In 2015, the offset policy was adopted by India for all capital defence purchases above Rs 300 crore made through imports. The original equipment manufacturer (OEM) was required to invest at least 30 per cent of the value of the purchase in India’s defence or aerospace sectors. But the report of the CAG put a question mark on the government’s assurance on technology transfer in the Rafale fighter jet deal. Experts see the provision for offsets in defence procurement as an engine to revive the downing and contracting economy.
How to Meet Offset Obligation
The OEMs can meet their offset obligations in several ways, including Foreign Direct Investment (FDI), offering free transfer of technology to Indian firms, and purchase of eligible products manufactured by Indian firms. For this purpose, OEMs need to select Indian organisations as partners. But obtaining technology transfer has been a particular failure. Some 90 per cent of the investment by the vendors was in the form of direct purchase of goods and services from the Indian industry. Besides, of the total value of offsets, only 3.5 per cent was contracted to be discharged through FDI.
According to CAG, the audit did not find a single case where the foreign vendor had transferred high technology to the Indian industry. The defence sector is ranked 62nd out of the 63 sectors in India in terms of FDI. However, there was no supply of equipment ‘in kind’ by foreign manufacturers to the Indian industry. The CAG also suggested that the Ministry of Defence should review the policy and its implementation as its objectives have so far been unachieved.
Courtesy: Indian Express