French aerospace major Dassault Aviation and European missile maker MBDA have till date “not confirmed” the transfer of technology for the indigenous development of engine for the Light Combat Aircraft (LCA) by the Defence Research and Development Organisation (DRDO), under the offset contract relating to the ₹60,000 crore deal for 36 Rafale fighter jets , the Comptroller and Auditor General (CAG) said in a report tabled in Parliament on September 23.
The report on offset clauses in defence deals observed that in October 2019, the Ministry of Defence (MoD) informed that the vendor had not yet been able to confirm their capability for doing the requisite upgradation. “Thus, it is not clear if this technology transfer will take place, and there is need for MoD/DRDO to identify and acquire the right technologies in order to comply with the directions of Defence Acquisition Council (DAC) given in September 2016,” the report said on the offsets in the Rafale deal.
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In September 2015, Dassault Aviation and MBDA initially proposed to discharge 30% of their offset obligation in the Rafale deal by offering high technology to the DRDO, and as per the contract, acquisition of technology by the DRDO is envisaged, subject to discussions between the vendor and the DRDO, the report said.
Six new technologies
In April 2016, the DRDO identified six new technologies to be obtained from the firms under the offset obligations, but the vendors “did not agree on transfer of five technologies as most of them were not within the vendor’s core competence”. The sixth proposal of the DRDO was to obtain technical assistance for the indigenous development of an engine (Kaveri) for the LCA, which also has not been confirmed so far.
“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,” the CAG observed, giving the Rafale deal as example.
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To develop the Indian defence industry and bring in high technologies, the offset policy for defence deals was adopted in 2005 for all defence capital imports above ₹300 crore under which the foreign vendor is required to invest at least 30% of the value of the contract in India.
The Rafale deal signed in September 2016 has a 50% offset clause to be discharged by the four French partners — Dassault Aviation, MBDA, Safran and Thales. Dassault Aviation has set up a joint venture with Anil Ambani’s Reliance Defence — Dassault Reliance Aerospace Limited — in Nagpur to manufacture components for the former’s civil jets. The MoD informed the CAG that the offset obligations of the vendor are to start from September 23, 2019 and the first annual commitment would have to be completed by September 23, 2020.
Auditing the offset policy in defence deals, the CAG said that from 2005 till March 2018, 46 offset contracts were signed with foreign vendors, valued at ₹66,427 crore, of which, by December 2018, ₹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 ₹11,396 crore, which was only 59% of the commitment,” the report said.
Further, only 48%, or ₹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 CAG said.
The remaining offset commitments of about ₹55,000 crore would be due to be completed by 2024 but the rate at which the foreign vendors have been fulfilling their offset commitments was about ₹1,300 crore per year. “Given this situation, fulfilling the commitment of ₹55,000 crore by the vendors in the next six years remains a major challenge,” the federal auditor stated.