Updated: September 24, 2020 3:22:20 pm
An Indian Air Force officer wearing a protective mask at Ambala Air Force Station before the induction ceremony for the five Rafale aircraft on September 10, 2020 (Express photo by Tashi Tobgyal)
In strongly influencing the government’s compensation policy for defense acquisitions, the national auditor cited the example of the 36 Rafale fighter jets It bought Dassault Aviation and said the French manufacturer has not kept its promises regarding technology transfer.
In a statement issued on Wednesday, after its latest reports were presented in Parliament, the Comptroller and Auditor General (CAG) said: “… foreign suppliers were found to have made various compensation commitments to qualify for the main supply contract. but then, they were not sincere in fulfilling these commitments. “
Referring to the Rafale agreement in this context, the CAG said: “For example, in the compensation contract related to 36 medium multi-role combat aircraft (MMRCA), suppliers M / s Dassault Aviation and M / s MBDA initially proposed (September 2015) to fulfill 30 percent of its compensation obligation by offering high technology to DRDO ”(Defense Research and Development Organization).
The CAG said: “DRDO wanted 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 ”.
The CAG statement does not mention any evaluation of the 50 percent compensation clause that was at the center of a political storm ahead of the 2019 general election due to the involvement of a Reliance company led by Anil Ambani on the Indian side.
On August 22, based on a report that the CAG had abandoned the audit of the Rafale compensation deal, Congressional Leader Rahul Gandhi tweeted: “Money was stolen from the Indian treasury at Rafale.”
When contacted by The Indian Express, a Dassault Aviation representative in India did not comment on the CAG statement.
In its statement, the CAG said that from 2005 to March 2018, 46 compensation contracts were signed with foreign suppliers totaling Rs 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 Rs 11,396 crore, which represents only 59 percent of the commitment. Furthermore, only 48 percent (Rs 5,457 million) of these compensation claims submitted by providers were accepted by the Ministry, ”noted the CAG.
The compensation policy was adopted by India in 2005 for all defense capital purchases above Rs 300 crore made through imports. The foreign supplier, or original equipment manufacturer (OEM), had to invest at least 30 per cent of the purchase value in the Indian defense or aerospace sectors.
The findings raise questions
The Comptroller and Auditor General’s (CAG) findings put a question mark on the government’s assurance on technology transfer in the Rafale fighter jet deal. More so, when the provision of offsets in defense procurement agreements was seen as an engine to revive economic growth.
There are several ways that OEMs can meet their offsetting obligations, including foreign direct investment (FDI), offering free technology transfer to Indian companies, and the purchase of eligible products made by Indian companies. To meet these obligations, OEMs must select Indian organizations as partners.
However, the CAG noted that securing technology transfer has been a particular failure. He said that “90 per cent of the suppliers’ investment was in the form of direct purchase of goods and services from Indian industry.” In addition, he said, “of the total value of the compensation, only 3.5 percent was contracted to be downloaded through FDI.”
The audit, CAG said, “did not find a single case where the foreign supplier transferred high technology to Indian industry.” He said that “defense sector ranks 62nd out of 63 sectors in India in terms of DF” and that “there was hardly any equipment supplied ‘in kind’ to Indian industry by the foreign supplier.”
“Therefore, the objectives of the compensation policy remain largely unfulfilled, even after more than a decade of its adoption,” stated the CAG, adding that “the Ministry (of Defense) needs to review the policy and its implementation ”.
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