Two weeks after the Indian Air Force (IAF) formally installed five of the 36 Rafale jets ordered from France under a 59 billion rupee deal, the country’s lead auditor said on Wednesday that the aircraft’s maker Dassault Aviation and arms supplier MBDA have not confirmed the transfer of technology (ToT) to the Defense Research and Development Organization (DRDO), which was part of the contract.
The Comptroller and Auditor General (CAG), in a detailed report presented in Parliament, doubted whether the ToT would be carried out for a key engine, noting that various compensation contracts embedded in multiple defense agreements “have not produced the desired results”. .
The critical observations were part of CAG’s scrutiny of the status of a number of offset contracts, including the September 2016 Rafale deal, between 2005 and 2018.
India’s compensation policy stipulates that on all capital purchases above Rs 300 crore, the foreign supplier has to invest at least 30% of the purchase value domestically to boost local capabilities. In the case of the Rafale deal, it was 50%.
According to the CAG report, the defense ministry stated as recently as October 2019 (the first Rafale was delivered in France on October 8, 2019) that the suppliers had not yet been able to confirm their ability to transfer technology.
“In the compensation contract related to 36 medium multi-role combat aircraft (MMRCA), the suppliers M / s Dassault Aviation and M / s MBDA initially proposed (September 2015) to fulfill 30% of their compensation obligation by offering high technology to DRDO.
The DRDO wanted technical assistance for the indigenous development of the engine (Kaveri) for the light combat aircraft. To date, the provider has not confirmed the transfer of this technology, ”the report said.
HT has reviewed parts of the report and a press release issued by CAG.
CAG also said that DRDO should identify the correct technologies for the transfer, while harshly criticizing foreign providers who made various compensation commitments to qualify for a contract, but were later not serious about meeting their commitments.
Foreign suppliers must select Indian companies as their clearing partners to fulfill their obligations.
To be sure, in the case of the Rafale deal, DRDO’s compensation share was 30%, while 20% was allocated to the private sector, including Dassault Reliance Aerospace Ltd (DRAL), Dassault’s joint venture (JV). with Anil. Ambani Trust Group. CAG found no loophole regarding the allocation of 20% to the private sector and asked the Ministry of Defense for more details on its progress.
The report said the Defense Ministry stated in October 2019 that the vendors had not been able to “confirm their ability to carry out the required upgrade.”
“Therefore, it is not clear if even this technology transfer (for the engine) will take place, and it is necessary for the MoD / DRDO to identify and acquire the appropriate technologies to comply with the instructions of the Defense Acquisition Council ( DAC). given in September 2016, ”the report says.
The Defense Ministry and DRDO declined to comment on the matter. A response to an email sent to Dassault Aviation was expected when this report was submitted.
However, French industry officials said they had given a detailed list of 10 to 15 technologies that could be transferred to the DRDO and that “the ball was in the latter’s court.”
Officials said compensation obligations as part of the 36-plane deal were progressing on schedule in the case of the private sector joint venture (with Anil Ambani’s Reliance Group) despite the challenges posed by Covid-19.
“The DRDO has to find out what technologies it wants to take and what it can absorb,” the officials said, speaking on condition of anonymity.
In the case of private clearing partners, CAG said that since the download period began (September 23, 2019 to September 23, 2020), the Ministry of Defense “needs to obtain the details of the specific products / services that are offered to download the compensation, monitor and ensure that the compensation objectives are achieved ”.
The Comptroller and Auditor General of India said that the objective of the compensation policy was to develop the Indian defense sector to achieve self-sufficiency and reduce dependence on imports.
However, the audit found that the various suppliers were not meeting their obligations under their commitments.
“From 2005 to March 2018, 46 compensation contracts were signed with foreign suppliers, valued at ₹ 66,427 crore. Under these contracts, by December 2018, vendors should have settled Rs 19,223 crore. However, the compensations that they claimed to have been settled by them were only ₹ 11,396 crore, which was only 59% of the commitment. Furthermore, only 48% (₹ 5,457 crore) of these compensation claims submitted by providers were accepted by the ministry. The rest were rejected to a great extent for not complying with the contractual conditions and the Defense Acquisition Procedure, ”said CAG.
The auditor said that the remaining compensation commitments of approximately 55 billion rupees would be completed in 2024.
“The rate at which foreign suppliers have been meeting their compensation commitments was approximately Rs 1,300 million per year. Given this situation, meeting the 55 billion rupee commitment from suppliers over the next six years (CAG’s observation is from 2018) remains a major challenge, ”the report says.
CAG said there were no effective means to penalize suppliers for not meeting compensation commitments.
The experts said that the offloading of offsets by the providers was not satisfactory and that some changes were necessary.
Intergovernmental agreements and foreign military sales should be included in the scope of compensation, said Lt. Gen. Subrata Saha (retd), a member of the National Security Advisory Board and a former deputy army chief.
“In 2016, with skillful application of the policy, compensation was associated with the acquisition of the ultralight howitzer (ULH) from the US The number of industries that have successfully offloaded offsets is very limited. The main problem here is the fact that we have not mapped the industries that work in the defense sector and their capabilities. The number of defense MSMEs listed by different agencies varies widely. Proper mapping of defense industries will help make the offset facility much better utilized, ”said Saha, who was closely associated with defense acquisitions as deputy chief.
He said the ToT should be given top priority with due incentives.
“In addition to narrowing the avenues for offloading compensation, in order to improve India’s defense industrial capacity, there has to be a streamlining of the process as the multiplicity of agencies involved and the sequential process takes too long,” added Saha .
The decision by the National Democratic Alliance (NDA) government to sign an $ 8.7 billion government-to-government agreement with France to purchase 36 Dassault-made Rafale fighter jets was announced in April 2015, with an agreement signed little more. a year later.
This replaced an earlier decision by the United Progressive Alliance regime to purchase 126 Rafale aircraft, 108 of which were to be manufactured in India by state-owned Hindustan Aeronautics Ltd.
Congress argued that the new deal involved buying the fighter jets at a higher price. The government denied it, and the Supreme Court ruled that the deal did not require scrutiny.
The deal also became controversial due to the fact that one of the compensation agreements signed by Dassault was with Anil Ambani’s Reliance Group.
Congress affirmed that the previous agreement was scrapped and a new one was signed to give Ambani this opportunity for a compensation agreement. Both the government and Reliance have repeatedly denied it.
As mentioned above, the issues pointed out by CAG are not this part of the compensation agreement. A CAG report from February 2019 said the deal to buy the planes was more kosher and cheaper than the one the UPA government was negotiating.
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