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'Opening a Can of Worms?' Chidambaram Slams Govt as CAG Report Sheds Light on Unmet Offsets in Rafale Deal

File photo of Congress leader P Chidambaram.

File photo of Congress leader P Chidambaram.

India has an offset policy of 30%, which means that any capital purchases above Rs 300 crore made from a foreign defence vendor, require the vendor to invest at least 30% of the value of the purchase in India in return. This clause is meant to strengthen India’s domestic defence and aerospace sectors.

Congress leader P Chidambaram on Thursday slammed the Centre after the Comptroller and Auditor General of India (CAG) called for a review of the Defence Ministry's policy for offsets over the Rs 59,000-crore Rafale deal with French firm Dassault Aviation in a report.

Both Dassault, the manufacturer of Rafale fighters, and MBDA, the European weapon maker whose hardware has been installed on the aircraft, were “not earnest” about fulfilling their offset commitments, the CAG report noted.

India has an offset policy of 30%, which means that any capital purchases above Rs 300 crore made from a foreign defence vendor, require the vendor to invest at least 30% of the value of the purchase in India in return. This clause is meant to strengthen India’s domestic defence and aerospace sectors. Foreign vendors are allowed to discharge their offset obligations through Foreign Direct Investment (FDI) by offering free Transfer of Technology (ToT) to Indian firms, purchasing products manufactured by Indian firms, etc.

"CAG finds that the vendors of the Rafale aircraft have not confirmed the transfer of technology under the offset contract," Chidambaram said in a tweet.

He referred to the report as the "opening of a can of worms", and said the offset obligations should have started on September 23, 2019 and the first annual commitment should have been completed by September 23, 2020, which was yesterday. "Will the government say if that obligation was fulfilled?," he asked in a tweet.

The CAG report - ‘Performance Audit Report on Management of Defence Offsets’ – noted there was not even “a single case where the foreign vendor had transferred high technology to the Indian industry”.

“Similarly, there was hardly any equipment supplied ‘in kind’ to the Indian industry by the foreign vendor. Thus, the objectives of the offset policy remain largely unachieved, even after more than a decade of its adoption,” the report added.

In scathing comments, the CAG suggested that the non-compliance in offsets were happening because the rules of contract and the various amendments that were made to the Defence Procurement Procedure (DPP), did not have any provision of penalising foreign defence contracts if they were found not to be honouring their offset obligations.


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