Row over offset commitments: Global defence biggies to face government’s wrath

NEW DELHI:  The Union 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 any future bidding.

The biggest names in the global defence industry have won contracts to supply a range of products — from airplanes to missiles, helicopters and guns — 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 $13 billion have been made by foreign original equipment manufacturers (OEMs). But these companies have so far executed contracts worth only $2.4 billion. 

Sources said the defaulting OEMs that have been issued offset show-cause notices are: 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.

Failed to respond despite multiple warnings

The ministry of defence has issued multiple warnings and show-cause notices and imposed penalties on several suppliers.

Yet, the foreign original equipment manufacturers have not honoured their commitments