The Indian government imposed a fine on French company Dassault Aviation last month over delays in offset obligations that were part of a 2016 deal for 36 Rafale fighters.
Dassault Aviation S.A is an international French aircraft manufacturer of military and business jets.
“The fine has been imposed on MBDA after it slipped in discharging its offsets obligations for the first applicable year from September 2019-September 2020,” a source said.
The decision is in line with the new policy to “tighten the screws on defaulting armament majors.”
The French and Indian governments signed the €7.8 billion (U.S. $8.8 billion) contract in September 2016.
The 2016 deal to purchase 36 Rafale jets from Dassault Aviation in “flyaway” condition, has conditions mandating at least 50% of the total contract value, or around Rs 30,000 crore, be made in India through procurement of components or R&D.
Under the arrangement, the contract value was to be offset and executed by Dassault Aviation and its partners Safran and Thales in seven years’ time.
To implement the offsets, the three firms teamed with more than 70 Indian companies and the Defence Research and Development Organisation.
A senior defense scientist in India said DRDO is seeking from French businesses several technologies related to stealth capabilities, radar, aerospace engines, thrust vectoring for missiles, and materials for electronics.
An Indian Ministry of Defence official told Defense News that the penalty will come from the €185 million bank guarantee funded by Dassault Aviation as a safeguard against contractual violations.
Missile-maker MBDA is the weapons package supplier for the Rafale jets. The fine has been “imposed and collected,” top defence sources told Times of India.
While MBDA has paid the penalty, it has also protested with the Indian Ministry of Defence (MoD). The company refused to comment on the matter.
The fine is understood to be less than 1 million euros as 5% of the shortfall in a particular year is the penalty.
Under MoD policy, original equipment manufacturers can discharge offsets by purchasing related goods or services from Indian suppliers, by making a foreign direct investment in India’s defense industry, or by transferring advanced technology.
When asked for comment, the French Armed Forces Ministry referred Defense News to Dassault Aviation, which did not return requests for comment.
French Armed Forces Minister Florence Parly and Indian Defence Minister Rajnath Singh met Dec. 17 to discuss ways to increase bilateral defense cooperation. During the 3rd annual dialogue, the MoD pointed out that several French defense companies were not cooperating in the transfer of technology to DRDO.
The MoD source said French businesses have been claiming the Indian firms who were expecting to receive technology transfers do not meet the necessary core competencies.
“It is well known that the original equipment manufacturers have been facing difficulty in discharging their offset obligations. This may partly be on account of the policy,” said Amit Cowshish, a former financial adviser for acquisitions at the MoD.
He recommended the ministry meet with OEMs, ascertain difficulties their facing and then take corrective action.
