The Ministry of Defence (MoD) has decided to crack the whip to get top foreign defence companies to honour their offset commitments linked to multi-billion-dollar contracts received from India.
The Defence Acquisition Council (DAC), which is the apex body of the MoD for finalising procurement for the three services, is scheduled to meet at the end of this month. The review committee that prepares the agenda for the DAC is scheduled to meet on May 11. Sources said offset default is one of the subjects that would come up at the DAC. The MoD, according to sources, is preparing to issue a final warning to the defaulters with a message that if they do not deliver on their offset promise the government would be forced to bar them from bidding for any future contracts.
The biggest names in the world's defence industry have won contracts to supply a range of products including from airplanes to missiles, helicopters, guns, etc to India. As per the government of India's defence offset policy 2005, 30% of the value of the contract has to be spent in India by companies winning Indian defence contracts. Over the last 15 years, offset commitments to the tune of US$ 13 billion have been made by foreign original equipment manufacturers. But these companies have so far executed contracts worth only US$ 2.4 billion. Among the defaulters are top foreign defence suppliers.
The MoD has issued warnings and show-cause notices and imposed penalties on several overseas suppliers. But the foreign OEMs have still not honoured their commitment.
Sources said the OEMs who have been issued show-cause notices for defaulting on offsets implementation are as follows: Russian Aircraft Corporation (MiG) for a $964 million contract signed in 2008 for the upgrade of 69 MiG-29 fighters; Boeing of US for a $1.09 billion contract signed in 2010 for the supply of 10 heavy-lift aircraft; Rafael Advanced Defense Systems for a $200 million contract signed in 2014 for the supply of Barak missiles; Elbit Systems of Israel for $270 million contract signed in 2014 for the supply of thermal imaging fire control systems for T-72 tanks; BAE Systems' GCS International Limited for $542 million contract for the supply of 140 ultra-light howitzer guns; Dassault Aviation, Safran, Thales of France for $8.7 billion contract signed in 2016 for the supply of 36 Rafale fighters; Elta Systems of Israel for the supply of air route surveillance radars; etc.
Sources said besides issuing show-cause notices to the companies named above, the MoD has imposed penalty on the following OEMs for their repeated refusal to honour the offset commitment: Rosoboronexport of Russia for a $1.34 billion contract signed in 2008 for the supply of 80 Mi-17V5 helicopters; Israel Aerospace Industry for a $700 million contract signed in 2009 & 2011 for the supply of Herop and Heron drones; Lockheed Martin of US for $962 million contract signed in 2009 for the supply of six C-130J transport aircraft; Textron Inc. of US for $257.7 million contract signed in 2010 for the supply of 512 CBU-105 sensor fuzed weapons; Thales & Dassault Aviation of France for € 1470 million contract signed in 2011 for the upgrade of 52 Mirage-2000H fighters; MBDA of France for € 958 million contract signed in 2012 for the supply of MICA missiles; Pilatus Aircraft of Switzerland for $700 million contract signed in 2012 for the supply of 75 PC-7 turbo trainers; Fincantieri SpA of Italy for €160 million contract signed in 2008 contract for the supply of two fleet tanker ships, etc.
The offset policy was introduced in 2005 for every defence purchase of over Rs 300 crore. In 2016, the Union government changed the policy and made the offset clause applicable on contracts of over Rs 2,000 crore. In 2020, however, the government exempted all government-to-government contracts from offset obligations. Most of the purchases from the US are done under US’ Foreign Military Sales rules and come under government-to-government sales.