NEW DELHI: French aerospace specialty Dassault Aviation and European missile manufacturer MBDA have yet to fulfill their compensation obligations to offer high-tech to India as part of the deal related to the acquisition of 36 Rafale jets, the Controller and Auditor General it said in a report published Wednesday.
Dassault Aviation is the manufacturer of the Rafale jets, while MBDA supplied the missile systems for the aircraft.
In its report presented in Parliament, the CAG also painted a grim picture of the effectiveness of India’s compensation policy saying that it did not find a single case of foreign suppliers transferring high technology to Indian industry, adding that the sector of Defense ranked 62nd out of 63 sectors that received FDI. .
“In the offset contract for 36 medium multi-role combat aircraft (MMRCA), vendors M / s Dassault Aviation and M / s MBDA initially proposed to meet 30% of their offset obligation by offering high-tech to DRDO.” the CAG said.
“DRDO wanted to obtain technical assistance for the indigenous development of the engine (Kaveri) for the light combat aircraft. To date, the supplier has not confirmed the transfer of this technology,” according to a press release issued by CAG.
The first batch of five Rafale aircraft arrived in India on July 29, nearly four years after India signed an intergovernmental agreement with France to acquire 36 aircraft at a cost of Rs 59,000 crore.
Under India’s compensation policy, foreign defense entities are mandated to spend at least 30 percent of the total value of the contract in India through the procurement of components or the installation of research and development facilities.
The clearing rules are applicable to all capital purchases above Rs 300 million made through imports. Compensation obligations can be performed through Foreign direct investment, free transfer of technology to Indian companies and purchase of products manufactured by Indian companies.
The auditor said that although the suppliers did not meet their compensation commitments, there were no effective means to penalize them.
“Failure to meet compensation obligations by the supplier, especially when the contract period of the main acquisition has ended, is a direct benefit to the supplier,” he said.
The CAG said that since the compensation policy has not yielded the desired result, the Defense Ministry should review the policy and its implementation.
It needs to identify the constraints faced by foreign suppliers as well as the Indian industry to take advantage of the offsets, and find solutions to overcome these constraints, “he said.
The CAG said that 48 compensation contracts were signed with foreign suppliers from 2005 to March 2018 with a total value of Rs 66,427 crore, and that the suppliers should have settled a value of Rs 19,223 crore in compensation by December 2018.
But the amount released by them was only Rs 11,396 crore, which was only 59 percent of the commitment.
“Furthermore, only 48 percent (Rs 5,457 crore) of these compensation claims submitted by vendors were accepted by the ministry. The remainder were largely rejected because they did not meet the contractual conditions and the Defense Recruitment Procedure. “.
He said that the remaining compensation commitments of around 55 billion rupees would be completed in 2024.
“The rate at which foreign suppliers have been meeting their compensation commitments was approximately Rs 1.3 billion per year. Given this situation, meeting the Rs 55 billion commitment by suppliers over the next six years it remains a great challenge, “said the CAG. .
The auditor found that of the total value of offsets, only 3.5 percent were contracted to be offloaded through FDI with Indian Clearing Partners or IOP, adding that it did not find a single case where the foreign supplier had transferred high technology to the Indian industry.
“Defense sector ranks 62nd out of 63 sectors in India in terms of FDI. Similarly, the foreign supplier hardly supplied equipment ‘in kind’ to Indian industry. Therefore, the policy objectives of compensation remain largely unreached, “the report said.
The CAG said it carried out the performance audit of the compensation policy after a decade of its implementation to assess the extent to which its objectives were met.
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