In 2015, Govt eased defence offset rules for foreign vendor to name Indian partner

In its report tabled in Parliament, the CAG painted a grim picture of the efficacy of India's offset policy saying it did not find a single case of foreign vendors transferring high technology to the Indian industry. The rule made in August 2015, gives an option to the foreign military equipment making company (OEM) to disclose details of the Indian Offset Partner (IOP) or products at a much later stage, writes senior journalist, Sanjib Kr Baruah

New Delhi: After coming to power in May 2014, the NDA government made an important but key change in the offsets policy, the report of the Comptroller and Auditor General (CAG), tabled in Parliament on Wednesday, has revealed.

The latest CAG report—a castigating one on management of defence offsets—has stirred up a controversy on the failure of Dassault Aviation and MBDA to discharge their offset obligations after they were contracted by India to supply 36 Rafale multi-role fighter aircraft, the first five of which have already been operationalised by the Indian Air Force.

An offset is a mechanism to partially compensate for a significant outflow of a buyer country’s resources in large purchases of foreign goods or by transferring technology or by adding to the capacities and capabilities of the domestic industry.

The rule change, made in August 2015, gives an option to the foreign military equipment making company (OEM) to disclose details of the Indian Offset Partner (IOP) or products at a much later stage.

Therefore, a foreign vendor is under no obligation to name the IOP along with related details during the signing of the offset contract.

Before the change, after signing of offset contract, the vendor was required to submit offset contracts signed with IOPs and their details within 60 days of signing the contracts.

“This was first extended to 90 days, and subsequently it was provided that if the vendor was unable to provide details pertaining to IOPs, the vendor can provide the same at the time of seeking offset credits or one year prior to discharge of offset obligations. This was done to allow vendor adequate time to plan the offset project with the IOPs,” the national auditor’s report says.

Under the new rules, while the offset obligations of Dassault and MBDA began from September 23, 2019, the first annual commitment should have started by September 23, 2020 (Wednesday).

The CAG report says: “Since the discharge period has started, MoD (defence ministry) needs to get the details of the specific products/services being offered for the discharge of offset, to monitor and ensure that the objectives of the offset are achieved.”

Another important offset rule that has been changed enhances the minimum threshold for which offsets are mandatory from Rs 300 crore to Rs 2,000 crore.