No offset clause in future defence deals

| | New Delhi
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No offset clause in future defence deals

Tuesday, 29 September 2020 | PNS | New Delhi

No offset clause in future defence deals

Defence Acquisition Procedure does away with provision in all future cases of Govt to Govt defence contracts

After the CAG disclosed that the French manufacturers of the Rafale jets have failed to meet their offset obligations, the Defence Acquisition Procedure (DAP)-2020 unveiled here on Monday has done away with the offset clause itself in all future cases of Government to Government defence contracts the type of which India and France Governments entered into as a part of the Rafale deal.

The Congress had launched a scathing attack on the NDA Government last year alleging that an Indian industrial house was favoured in bagging offset contracts worth over Rs 30,000 crore in the Rafale deal.

Offset clause was brought in to allow the Indian defence industry to acquire world-class technology and tie-ups with foreign vendors. The foreign companies supplying weapon to India are mandatorily obliged to plough back at least 30 per cent of the total contract value if the tag is over Rs 300 crore. In the Rafale deal, the offset cap was raised to 50 per cent.

The CAG observed in its report last week that in most of the deals critical frontline technology from abroad did not come in.

In the Rafale deal, the Government watchdog observed that, “For instance in the offset contract relating to 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 high technology to the Defence Research and Development Organisation (DRDO). The DRDO wanted to obtain Technical Assistance for the indigenous development of engine (Kaveri) for the Light Combat Aircraft. Till date, the vendor has not confirmed the transfer of this technology.”

The CAG report said in many cases it was found that the foreign vendors made various offset commitments to qualify for the main supply contract but later were not earnest about fulfilling these commitments.

Under the new policy, the offset guidelines have also been revised to give preference to defence majors offering to manufacture products in India instead of meeting the offset obligations through other means, officials said.

However, the offset clause is not applicable to the Government to Government deals and single-vendor contracts. The Rafale deal is one of the most prominent such contracts in the recent past. In such deals, the Government, from which the weapon platform is procured, stands guarantee for all issues, including delivery schedule and availability of critical spares besides maintenance.

Meanwhile, Defence Minister Rajnath Singh unveiled the DAP that features steps to turn India into a global manufacturing hub of military platforms, reduce timelines for procurement of defence equipment and allow purchase of essential items by the three services through capital budget under a simplified mechanism.

The latest DAP also incorporates new chapters on information and communication technologies, post-contract management, acquisition of systems developed by the state-run defence entities like the Defence Research and Development Organisation (DRDO) and Defence Public Sector Undertakings (DPSUs), they said.

In a significant move, the DAP featured measures to reduce delay in the procurement of essential items by the three services as it proposed a new enabling provision to acquire them through capital budget under a simplified procedure in a time-bound manner.

The Defence Minister also said the DAP has also included provisions to encourage foreign direct investment (FDI) to establish manufacturing hubs both for import substitution and exports while protecting the interests of the Indian domestic industry.

He said the DAP has been aligned with the vision of the Government’s ‘Aatmanirbhar Bharat’ (self-reliant India) initiative and to empower the Indian domestic industry through ‘Make in India’ projects with the ultimate aim of turning the country into a global manufacturing hub.

The policy also provides for single-stage accord of Acceptance of Necessity (AON) in all cases up to Rs 500 crore to cut delays in approval of acquisition proposals.

The DAP also mentioned measures to reform pre-induction testing of defence equipment.

The new guidelines also allow the armed forces to go in for having a weapon system on lease rather than buying. At present, the Navy has used this clause by leasing a Russian nuclear-powered submarine for 10 years. This is the second time they have done so.


SIG-716 assault rifles for Army, SAAW for Navy, Air Force


The Defence Acquisition Council (DAC), chaired by Defence Minister Rajnath Singh on Monday approved proposals for capital acquisitions worth approximately Rs 2,290 crore including 72,400 SIG-716 assault rifles for the Army and Smart Anti Airfield Weapon (SAAW) for the Navy and Air Force.

The procurement of the rifles from a US manufacturer will greatly enhance the firepower capabilities of the frontline troops deployed on the Line of Actual Control (LAC) facing China and the Line of Control (LoC) with Pakistan. The first of 72,400 SIG-716 rifles procured under fast track procurement have already been delivered to the Army some months back.

On the other deals given the go ahead by the DAC, officials said under the Buy Indian (IDDM) category, the procurement of Static High Frequency (HF) Tans-receiver sets and Smart Anti Airfield Weapon (SAAW) will commence for the IAF and Army. The HF radio sets will enable seamless communication for the field units of Army and Air Force and are being procured at an approx. cost of Rs 540 crore, the Ministry said in a statement. The SAAW are being procured at an approximate cost of Rs 970 crore.

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