Indian Audit Body Objects To Defense Offset Transactions

AIN DEFENSE PERSPECTIVE » DECEMBER 7, 2012

by  NEELAM MATHEWS

Aerospace offsets are under examination in India. Boeing is supposed to offset $600 million of the cost of supplying P-8I maritime patrol aircraft. (Photo: Boeing)

December 7, 2012, 9:22 AM

India’s audit body for government projects, the Comptroller and Auditor General (CAG), has censured the Ministry of Defense for violations in the offset clause of five projects for which waivers were given. As a result, the CAG says, more than $376 million in foreign direct investment for the Indian aerospace industry has been lost. The projects were all started before India introduced its latest offset policy earlier this year.

CAG named Boeing, Lockheed Martin, Rosoboronexport and MiG in its report, which noted the lack of any value addition by the nominated Indian service provider. The MoD did not respond to many of its queries, said the CAG.

Offsets offered by Boeing for India’s purchase of C-17 airlifters that did not meet the CAG’s approval include the establishment of a transonic wind tunnel test facility for the Defense Research and Development Organisation (DRDO); airworthiness seminars; transfer of metallurgy and hydraulic laboratory facilities; composite manufacturing assembly/tooling; mobile broadband; and aerostructures tools and processes. CAG described all these as “direct imports.” Other violations identified by the CAG included Lockheed Martin’s training simulator for C-130J aircrews; Rosoboronexport’s two mission training simulators for the medium lift helicopters buy; and MiG’s simulator center for the upgrade of MiG-29s.

“We are studying the fine print [of the CAG report]. It points out that certain proposals did not meet offsets…we returned them to Boeing…the P-8I offset liability is $600 million spread across seven years. Nothing is cleared yet,” said Indian Navy Chief Admiral DK Joshi recently. He conceded: “Offsets are a fairly complex process…we are learning each day.” The first P-8I is due for delivery next June.

“While we have the basics of the policy right, execution is vital. This includes selection of the right people, processes and implementation,” said Ajay Batra, managing partner of Delhi-based World Intellectual Property Optimization Bank.