Deal for SU-30s deprives industry of Rs 2,711 crore

The mighty SU-30s are the pride of the IAF, but their procurement has generated some turbulence. A deal to procure 40 such aircraft has apparently deprived the Indian industry of Rs 2,711 crore in offset benefits. This has happened because the Ministry of Defence and the IAF failed to go in for an offset clause as stipulated in the Defence Procurement Procedure (DPP). In order to arrest declining force levels, the IAF concluded a contract worth Rs 9,000 crore with Hindustan Aeronautics Limited (HAL) in March, 2007, for the supply of 40 aircraft. These were to be delivered in phases between 2008-11.While revealing this in its latest report, the Comptroller and Auditor General (CAG) has also pointed out that the IAF did not have any funds allocated for this acquisition and funds were diverted from other programmes. Further, the delivery schedules have been pushed from 2011 to 2012. Against eight aircraft to be delivered in 2008-09, only two were delivered till February, 2009.The DPP classifies acquisitions as Buy-Indian, Buy and make with Transfer of Technology (ToT) or Buy-Global. Offset clause is applicable in the latter two cases. The MoD and IAF categorised the procurement as Buy-Indian on the grounds that the procurement was a repeat order for equipment developed through ToT.

The CAG termed this categorisation as incorrect. Buy-Indian implied that the indigenous content is a minimum of 30 per cent when an Indian vendor integrates the systems. In the said contract, however, the indigenous content was just five per cent, with 95 per cent of the material being imported. The MoD maintained that categorisation of the procurement was discussed by the Defence Acquisition Council (DAC) and it was decided to procure the aircraft in the Buy-Indian category taking into account the urgency of procurement, indigenous content and price link and insistence of the offset clause would have delayed negotiations and negated price advantages.The CAG termed the ministry’s contentions as unacceptable as adherence to the DPP was mandatory. It pointed out that the advice of the Defence Offset Facilitation Agency was not obtained in the matter. Moreover, the DAC was not empowered to supersede provisions of the DPP.

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