Accuses Dassault, MBDA of violating obligations
The much-awaited report of the Comptroller and Auditor General of India into the Rs 60,000 crore Rafale fighter jet deal has said the French manufacturer Dassault and MBDA are yet to honour their commitment about offset clause to the Defence Research and Development Organisation (DRDO).
The offset clause stipulates the foreign vendor has to plough back 30 per cent of the contract price into the Indian defence and aerospace industry. In the Rafale deal, the limit was raised to 50 per cent to enable the Indian industry to tie up with world class foreign companies and gain first world technology.
The Government watchdog said on Wednesday it studied 17 deals inked in the last one decade to analyse the efficacy of the offsets clause introduced in 2005. It said the Defence Ministry has to overhaul the policy as the offset policy has not yielded the desired results.
Congress leader Rahul Gandhi has repeatedly alleged that the Government favoured a private Indian company for granting the offsets in the Rafale deal. The main Opposition party also claimed that company was given the offsets contract worth over Rs 30,000 crore.
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.
“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 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 then noted.
Giving background of the offset policy adopted in 2005, the CAG said it was applicable for all capital purchases above Rs 300 crore. The foreign vendor was required to invest at least 30 per cent of the value of the purchase, in India. This investment could be made avenues like foreign direct investment, offering of free transfer of technology to Indian firms, purchase of eligible products manufactured by Indian firms (exports). For the discharge of these offsets the foreign vendor had to select an Indian firm as a partner (Indian Offsets Partner or IOPs).
From 2005 till March 2018, 46 offset contracts had been signed with foreign vendors, valuing Rs 66,427 crore. Under these contracts, by December 2018, Rs 19,223 crore worth of offsets should have been discharged by the vendors.
However, the offsets claimed to have 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 these offset claims submitted by the vendors were accepted by the ministry.
The rest were largely rejected as they were not compliant to the contractual conditions and the Defence Procurement Procedure.
The remaining offset commitments of about Rs 55,000 crore (Rs 66,427 crore - Rs 11,396 crore) would be due to be completed by 2024 i.e. within next six years.
The rate at which the foreign vendors have been fulfilling their offset commitments was about Rs 1,300 crore per year. Given this situation, fulfilling the commitment of Rs 55,000 crore by the vendors in the next six years remains a major challenge.
The CAG test checked claims valuing Rs 2,710.98 crore submitted by vendors relating to 17 contracts in detail. It was found that only claims valuing Rs 409.83 crore were passed by the Ministry (i.e. only 15 per cent) and the remaining claims were rejected due to various deficiencies.
Despite the fact that the vendors failed to keep up their offset commitments, there was no effective means of penalising them. Non fulfillment of offset obligations by the vendor especially when the contract period of the main procurement is over, is a direct benefit to the vendor, the CAG observed. The audit also found that there was not a single case where the foreign vendor had transferred high technology to the Indian industry.
