DRDO was to “obtain Technical Assistance for the indigenous development of engine (Kaveri) for the Light Combat Aircraft (LCA). Till date the Vendor has not confirmed the transfer of this technology,”a press release on the report from the CAG said.

The CAG casts a shadow over the oversight mechanisms in place currently for enforcing such offset contracts. A press statement on the report said that audit was being undertaken after a decade of the offset policy’s implementation to assess the extent to which its objectives were met. France is regarded by India as a close strategic partner. Five of the 36 Dassault Aviation made Rafale aircraft ordered by India in 2016, arrived in India in July and some of them are deployed in Ladakh where India and China are engaged in a major military faceoff. The offset contract in the Rafale deal is valued at approximately ₹30,000 crore. Two people familiar with the matter separately said that the critical issue was the implementation of the offset contract and not how it was done.

According to the CAG report, Dassault Aviation and MBDA – which manufactures the MICA air-to-air missile system that the Indian ordered Rafale comes equipped with — are not the only foreign vendors who have failed to fulfill their offset obligations.

“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,” the CAG report said.

“From 2005 till March 2018, 46 offset contracts had been signed with foreign vendors, valuing Rs. 66,427 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% of the commitment,” the CAG report said.

“Only 48 % (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. The remaining offset commitments of about Rs. 55,000 crore would be due to be completed by 2024 i.e. within next six years. The rate at which the foreign vendors have been fulfilling their offset commitments was about Rs. 1300 crore per year. Given this situation, fulfilling the commitment of Rs. 55,000 crore by the vendors in the next six years remains a major challenge,” the report said.

India had put together an offset policy in 2005 to ensure that a foreign vendor from whom defence hardware worth over ₹300 crores was procured, invested at least 30 % of the value of the purchase, in India. This was against the backdrop of the fact that India is one of the top three buyers of military hardware. The investment by the foreign vendor was to be made into the defence and aerospace. The foreign vendor could do this either through foreign direct investment, offering of free transfer of technology to Indian firms or purchasing products and components manufactured by Indian firms. To complete their offset obligations, foreign vendors had to select an Indian firm as a partner.

The Rafale contract had attracted a great deal of attention after the opposition led by the Congress Party accused the government of corruption in the deal. In December 2018, the Supreme Court ruled that it found no evidence of wrongdoing in the government’s decision-making process and rejected petitions for an investigation into the Rafale deal.