India's official auditor Thursday sharply criticised the defence ministry for failing to effectively implement the offset contracts.
"Our scrutiny revealed that out of 16 offset contracts worth Rs.18,444.56 crore concluded between 2007 and 2011, in five offset contracts worth Rs.3,410.49 crore ready-built equipment without any value addition through the Indian Offset Partners (IOPs) were accepted as offsets, which was not in consonance with the offset provisions as prescribed in the Defence Procurement Procedure," the CAG said in a report placed in parliament.
An offset is a mechanism to partially compensate for the significant outflow of a forex resources in large purchases by making the foreign supplier invest in sectors like industry, or research and development in the buyer country.
The CAG said the IOPs selected for offsets in some cases were not valid, while the monitoring mechanism for implementation of offset contracts was weak.
The CAG said the defence ministry needs to ensure clarity in interpretation of the offset provisions so as to leave little room for ambiguity in their interpretation.
The auditor's report on the air force and navy points to several other shortcomings in the procurement process including "inordinate delay in procurement and integration of a Radar Warning Receiver system" by the defence ministry and "procurement of unsuitable Navigation Computers" by the navy.
The report highlights cases involving substantial expenditure in which either the procurement has been delayed or has failed to achieve its objective.
In the case of procurement of 336 Radar Warning Receivers (RWR), the Indian Air Force failed to derive intended benefits out of an investment of Rs.521 crore as the performance of the integrated RWRs was found unsatisfactory, leading to a decision to integrate these as an interim measure till development of an advanced system.
The CAG said the Indian Navy could derive no tangible benefits from an investment of Rs.167.64 crore made about a decade back, on procurement of a system for commissioning on board four submarines. Only two of these systems could be commissioned in 2011, which impacted the operational preparedness of the Indian Navy.
"Failure on the part of Integrated Headquarters (IHQ), Ministry of Defence (Navy) to synchronise the creation of a critical test facility with the procurement of a equipment led to continuous disuse of test equipment worth Rs.10.72 crore for over three years," the report said.
The CAG also underlined the need for the defence ministry and services headquarters to improve their decision-making processes to deliver value for money.