Rafale deal: CAG pulls up MBDA and Dassault for violating offset clause

CAG report on “management of defence offsets” said on Wednesday that French company Dassault Aviation and European missile maker MBDA has not transferred technology to DRDO which they had initially proposed in the 59,000 crore deal for 36 Rafale jets.

Dassault Aviation is the manufacturer of Rafale jets and MBDA provided missiles Meteor, MICA and SCALP for the fighter jet.

CAG in its report submitted in Parliament said that in many cases, it was found that the foreign vendors made various offset commitments to qualify for the main supply contract but later, were not earnest about fulfilling these commitments.

“For instance in the offset contract relating to 36 Medium Multi Role Combat Aircraft (MMRCA), the vendors M/s Dassault Aviation and M/s MBDA initially proposed (September 2015) to discharge 30 per cent of their offset obligation by offering high technology to DRDO,” said CAG report. It said that DRDO wanted to obtain Technical Assistance for the indigenous development of engine (Kaveri) for the Light Combat Aircraft. “Till date the Vendor has not confirmed the transfer of this technology,” said the report.

India and France in 2016 had signed an inter-governmental agreement (IGA) which has a 50 per cent offset clause to be executed by the French partners. However a controversy arose when Dassault Aviation chose Anil Ambani-owned Reliance Defence as their offset partner which had no experience in the defence sector.

In 2005, India adopted the offset policy for defence capital purchases. This meant that for all capital purchases above Rs 300 crore made through imports, the foreign vendor was required to invest at least 30 per cent of the value of the purchase, in India. This investment was to be made in the Indian defence and aerospace sector.

Various avenues were available to the vendor to discharge these offset obligations. This included foreign direct investment, offering of free Transfer of Technology to Indian firms, and purchase of eligible products manufactured by Indian firms (exports) among others. For the discharge of these offsets the foreign vendor had to select an Indian firm as a partner (Indian Offsets Partner or IOPs).

CAG report said that from 2005 till March 2018, 46 offset contracts had been signed with foreign vendors, valuing Rs 66427 crore. Under these contracts, by December 2018, Rs 19,223 crore worth of offsets should have been discharged by the vendors. “However, the offsets claimed to have been discharged by them was only Rs. 11,396 crore, which was only 59 per cent of the commitment,” it said.

Further, only 48 per cent (Rs 5,457 crore) of these offset claims submitted by the vendors were accepted by the Ministry. The rest were largely rejected as they were not compliant to the contractual conditions and the Defence Procurement Procedure.