The Indian government has finally begun to get serious about enforcing its contractual rights with foreign armament suppliers. According to a report in the Times of India, an American firm has been threatened with a ban and 11 other firms, including French, Israeli and Russian firms, are on the watch list for imposition of penalties.
One of the reasons that efforts towards indigenisation of defence equipment manufacturing have met with unsatisfactory results is that India has not been able to enforce its contractual rights in defence offsets.
Defence offsets represent the part of a purchase contract where the foreign supplier undertakes to manufacture a certain proportion of the order in India. The aim of the offset is to use the size of India’s purchase order to develop local industry and also ensure technology transfer.
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In September 2020, a CAG performance audit of defence offsets concluded the result was below par. To illustrate, between 2005 and March 2018, 46 offset contracts were signed. By December 2018, it should have translated into at least Rs 19,223 crore of offset contracts. However, only Rs 5,457 crore of contracts had come through.
Offset is an important mechanism to develop India’s defence industry. Unless the government enforces its contractual rights, an offset will represent a wasted opportunity.
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