The Ministry of Defense (Ministry of Defense) has sent a stern message to arms companies, which are looking for repeated extensions of time to meet their compensation commitments, which will no longer work as usual, according to major sources.
“This is the first time that the Ministry of Defense has shown its teeth in such a way. A warning has been issued that if companies fail to meet their compensation obligations on time, existing performance bank guarantees in other contracts could be lost or deducted from scheduled payments, ”a source said.
“If these options are not available against a company, a notice of cause will be issued to explain why it should not be banned. The U.S. company in question, to which five or six notices were previously issued for “The Ministry of Defense, however, has a strong case,” he added.
Under the defense compensation policy first enacted in 2005, at least 30% of the total contract value in an agreement had to be returned to India as a reinvestment. Compensation for some contracts, such as the 59 billion for 36 French Rafale fighters inked in 2016, has been set at 50%.
Overall, India has signed around 55 defense compensation contracts with a total value of about $ 12 billion ($ 87.6 billion) so far. “But so far only about $ 5 billion has been unloaded, some of which is still under clarification or review. The figure should have been much higher by now, but companies are crawling to meet the contractual obligations, ”said an official.
In a report presented to Parliament in September last year, the Comptroller and Auditor General of India (CAG) had called for a major overhaul of the entire compensation policy, stressing that “it had barely met its targets” to introduce advanced technology, attract FDI and strengthen the national defense industrial base.
The compensation policy requires a foreign original equipment manufacturer (OEM) to discharge compensation through a combination of eligible avenues if it incorporates a capital purchase agreement in excess of Rs 2 billion. Previously, the threshold limit was set at 300 million rupees.
MoD officials admit that shipowners “charge additional costs” on contracts, often raising the price by about 8-10% to meet their offset commitments. Some compensation policy reforms were included in the revised defense procurement procedure (DAP) last year, with a new impetus to attract investment and technology transfers for defense manufacturing by assigning multipliers to them. higher. Compensation in government-to-government agreements and “ab initio single supplier agreements” were also abolished in the new DAP.