Offset obligations

Five years after India signed an agreement with France to procure 36 Rafale jets at a cost of Rs 59,000 crore, the Ministry of Defence (MoD) has made European missile maker MBDA pay a fine of nearly 1 million euros (around Rs 8.5 crore) for delay in fulfilling its offset obligations. French aerospace major Dassault Aviation manufactures the jets, while MBDA supplies their missile systems. Both companies have been under scrutiny ever since the Comptroller and Auditor General (CAG) tabled its report on the Management of Defence Offsets in Parliament last year. The national auditor had called out the two firms for not honouring the offset clause of offering high technology to India under the Rafale deal. As per the agreement, 50 per cent of the total contract value has to be reinvested in India as offsets between September 2019 and September 2022. This compensatory clause is aimed at giving a boost to ‘Make in India’ in the defence sector, primarily through transfer of technology.

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The MoD’s stern action is expected to send out a clear message to foreign firms — fulfil your offset obligations or pay a hefty fine. However, the country needs to firm up its offset policy to make foreign defence entities do the needful in terms of investments and setting up of research and development facilities. It’s a matter of concern that defence ranks a lowly 62nd among 63 sectors receiving FDI, as pointed out by CAG.

The offset policy also has a long way to go as far as transparency and ensuring a level playing field are concerned. The Rafale deal has remained mired in controversy over allegations that the Indian Government gave ‘exceptional’ waivers to Dassault Aviation and MBDA in the offset contracts. Questions have also been raised over the alleged payment of kickbacks for the selection of a certain company as an Indian offset partner, even as the government has repeatedly denied any involvement in this regard. A fair and unambiguous policy can help in preventing the recurrence of such unsavoury situations, besides giving Atmanirbharta a fighting chance in the defence sector.