Defense Ministry gets tough against 12 foreign arms companies

Defense Ministry warned foreign arms companies

A US company is opposing the show cause notice given to ban

Preparing to put many American, French, Russian and Israeli firms on the watch list

New Delhi, 30th August: The Defense Ministry has warned of sanctions on a US company and placing 11 other US, French, Russian and Israeli firms on a watch list for repeated failures to meet their offset obligations under defense contracts.

The Defense Ministry has said in a warning to foreign arms companies that now trade will not happen as before. The Comptroller and Auditor General of India (CAG) in a report tabled in Parliament last year criticized the offset policy of the Defense Ministry.

A report said that the Defense Ministry has spoken of imposing sanctions on an American company. In addition, 11 other American, Russian, Israeli and French firms have been placed on watch lists for fines. These are foreign companies that have failed to meet offset obligations in defense deals after inking arms deals with India.

The Defense Ministry has warned these companies and sent a ‘strong message’ that business will no longer be the same as before, repeatedly seeking extension of time to meet their offset commitments.

However, this is the first time that the Defense Ministry has issued such a warning that if companies do not meet their offset obligations on time, their bank guarantees in other contracts may be forfeited or fines may be deducted from the prescribed payments.

Defense sources said foreign arms companies failing to meet offset obligations would first be issued show-cause notices as to why they should not be banned. A US company has been issued five-six notices for meeting offset obligations but is now opposing the show-cause notice for imposing the ban.

During the monsoon session last year, the Comptroller and Auditor General (CAG) presented a report in Parliament on the Defense Offset Policy. In this report, the CAG had criticized the offset policy of the Defense Ministry, projecting a loss of Rs 8000 crore to India in defense deals with foreign companies in the last 15 years.

The CAG had questioned the French company Dassault Aviation, which manufactures the fighter jet Rafale, for not transferring the technology of the Kaveri engine as per the agreement.

In a report tabled in Parliament, the CAG said India had signed 48 agreements with foreign defense companies totalling Rs 66,427 crore between 2005 and 2018. As of December 2018, India was supposed to transfer an offset of Rs 19,223 crore but only Rs 11,396 crore was transferred. Of these, only commitments worth Rs 5457 crore have been accepted. That is, only 59 percent offset policy has been followed.

The CAG has said that foreign companies have to fulfil offset claims of about Rs 55,000 crore in the next six years. At present, only offset commitments of Rs 1,300 crore every year are being met. The offset policy has been changed by issuing a new Defense Acquisition Procedure (DAP)-2020 on 28 September after the question was raised by the CAG.

Meanwhile, the new guidelines have been made in such a way that now the offset policy will not be applicable in defense procurement from government-to-government, inter-government and single vendor.

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