Indian defence firms may have lost out on investments of more than Rs. 3,410 crore with international arms contractors being allowed to flout a crucial government policy aimed at ramping up the indigenous defence sector, the Comptroller and Auditor General has found.

In a report tabled in Parliament on Thursday, the country’s auditor said spin-off benefits of big-ticket arms deals awarded to global vendors were not flowing into India as the “monitoring mechanism” for the implementation of the defence ministry’s offset policy was “weak”.

The policy makes it mandatory for foreign vendors to invest at least 30% of every contract worth more than Rs. 300 crore in the country through investments, transfer of technology and R&D. But after scrutinising 16 offset contracts worth Rs. 18,444.56 crore, signed between 2007 and 2011, it found that in five contracts worth Rs. 3,410.49 crore, “ready-built equipment” was accepted as offsets, bringing in no “value addition”.

The CAG said the offset contracts that brought no value addition for the indigenous sector included the ones linked to the purchase of 10 C-17 Globemaster III military planes worth $ 4.1 billion ( Rs. 22,550 cr) from US defence giant Boeing, eight P-8I submarine hunter aircraft worth $2.1 billion ( Rs. 11,550 cr)  from the same firm, six C-130J special operations aircraft worth $1.2 billion ( Rs. 6,600 cr) from US aerospace giant Lockheed martin and a contract signed with Russian firm RAC MiG Corporation for upgrading MiG-29 fighter planes.
 

Where are the billions? The offset policy, if implemented completely, is projected to generate commercial activity worth more than $30 billion (Rs 1,65,000 crore) in India during 2010-20 India allows foreign suppliers to invest only in defence, civil aerospace and internal security sectors to fulfill their contractual obligations The aim of the policy is to establish a level playing field for the Indian defence industry