Q&A: OFFSETS

Question: It is reported that Reliance benefitted from a Rs 30,000 crore contract

from the MoD, related to offsets for 36 Rafale aircraft.
Answer: Reliance Defence or any other Reliance group company has not received any
contract from the MoD till date, related to 36 Rafale aircraft. This is absolutely
unfounded and incorrect.

Question: How do you explain Reliance getting offsets, overlooking HAL?

Answer: HAL was a nominated Production Agency for the 126 MMRCA program,
which never reached the contract stage.

In the case of this Government-to-Government deal for 36 Rafale, all aircraft are to be
delivered in a ‘Fly-Away’ condition—in other words, they are to be exported from
France by Dassault Aviation. HAL or anyone else cannot be the Production Agency,
for the simple reason that no aircraft are to be produced in India.

Question: It is being said that Reliance was selected because of proximity to the
Prime Minister, Mr Narendra Modi.
Answer: As per DPP, the Ministry of Defence has no role in the selection of Indian
partners by the foreign vendors. This has been the position right from 2005, when
offsets were first introduced in the country.

In the more than 50 offset (export obligations) contracts signed in the country till date,
the same process has been followed. Therefore, this is a deliberate attempt to mislead
people and cloud the issue.

Question: The Defence Minister is on record to say that MoD has no knowledge
about the contract being given to Reliance. Was this an attempt to deny
information?
Answer: This question can be best answered by the MoD.

However, it will be good to understand that as per DPP 2016, the foreign vendor has a
choice to submit the details of its offset partners at the time of claiming offset credits.
In this case, offset obligations are due only after September 2019. It is, therefore,
possible that the MoD has no formal communication from Dassault Aviation about the
choice of its partners for the offsets (export obligations).

Question: Is it not correct that under DPP, JS & AM is required to countersign

the contract. How can then the MoD deny the knowledge?
Answer: As per DPP, the offset (export obligations) contract is signed between the
MoD and the foreign vendor. MoD does not sign any contract with the Indian Offset
Partners.

As explained above, Dassault is required to inform the MoD about its offset partners at
the time of claiming credits, which I am sure they will do.

Question: It is being said that Reliance was selected even though it had no
experience of making fighter aircraft.
Answer: We need to understand the issue at hand and get our facts right.

There are no fighter aircraft to be made in India as part of this contract, as all aircraft
are to be delivered as ‘Fly-Away’ from France.
No company in India, except HAL, has the experience of making fighter aircraft. If we
were to follow the above logic, would that mean that we will never create any new
capability beyond what exists and will continue to import more than 70% of our
defence hardware?

In any case, Reliance will be participating in the offset (export obligations) program
through Dassault Reliance Aerospace Limited (DRAL). Dassault hold a 49% stake in
the company and brings in its 90 years of Aerospace manufacturing experience,
thereby positioning DRAL as a most qualified vendor.

Question: But you cannot deny that Reliance benefitted with a Rs 30,000 crore
contract.
Answer: This is absolutely wrong.

Dassault’s share of offsets is approximately 25%, with the remaining offset obligations
being shared by Thales, Safran, MBDA and others. Therefore, the basic premise of
Dassault giving Rs 30,000 crore worth of offset (export obligations) contracts to
Reliance is totally unfounded.

Dassault and its other Tier I suppliers have already indicated more than 100 Indian
companies which will participate in the offset contracts. This includes Joint Ventures
with Public Sector Undertakings like HAL and BEL.

We can also not lose sight of the fact that up to 30% of total offsets can be discharged
through Transfer of Technology to DRDO, as per DPP.

Question: It is a fact that Reliance Defence was incorporated days before the
announcement of the Rafale deal?
Answer: We incorporated three companies in December 2014. In February 2015, we
publically announced our entry in the Defence segment in the presence of hundreds of
mediapersons at Aero India. A formal notification was sent to Stock Exchanges in
February 2015. Ten more companies were incorporated between January and April
2015.

Given the above, how can one link the date of incorporation of Reliance Defence to an
announcement of the purchase of the Rafale aircraft?

Also, on the one hand, there are reports in the media that as late as end-March 2015,
Dassault officials were on record to say that the MMRCA deal is 95% done. If this is
correct, what is the linkage with the date of incorporation of Reliance Defence?

Question: Why was Mr Anil Ambani present in Paris at the time of

announcement of the deal by the Prime Minister?

Answer: Mr Anil Ambani is part of the CEOs’ Forum for France and also many other
countries. He was in Paris because there was a meeting of the CEOs’ Forum on the
sidelines of the Prime Minister’s visit.

More than 25 other CEOs from the Indian companies were also present, including the
Chairman of HAL.
Question: If you are saying there are 100 other companies involved in the
discharge of offsets (export obligations), how much share will Reliance have?
Also, what would be the share of others?
Answer: Offset obligations are to be discharged during the period from September
2019 to September 2023, as per the contract.

The exact share of each company involved in the offset (export obligations) contracts
will be known only after completion of offset obligations by Dassault, Thales, Safran,
MBDA and others.

Question: It has been claimed that Reliance actually got contracts worth Rs
1,30,000 crore, and not Rs 30,000 crore...
Answer: There cannot be anything further from the truth.

As I understand, this amount of Rs 1,30,000 crore is coming from projections of

Rs 30,000 crore for offsets (export obligations) and another Rs 100,000 crore towards
the lifecycle cost over 50 years.

The facts of the matter are:

 Reliance has received no contract from the MoD related to 36 Rafale or
lifecycle management.
 To the best of my knowledge, the Government has not signed any lifecycle
contract for 50 years with Dassault. Therefore, the very question of Reliance
getting a contract does not arise.

Question: Questions have been raised on how Dassault Aviation and Reliance
can partner to manufacture Defence parts without approval from DIPP and MoD.
Has there been any violation or any preferential treatment for DRAL?

Answer: There is absolutely no violation of any rule or any preferential treatment for
DRAL. Under the FDI Policy, as long as the foreign vendor’s equity holding is within
the prescribed limits for the ‘automatic’ route, it can enter into a Joint Venture with an
Indian company.

DIPP Press Note No. 3 (2014 series) is very clear on Defence products that require an
Industrial License. In the case of DRAL, no Industrial License is required, as no
Defence aircraft are proposed to be manufactured by DRAL.

Offsets are to be claimed by the prime vendor, Dassault Aviation in this case, and not
by DRAL, one of the Indian Offset Partners. These will be approved, subject to DPP
Regulations, by the MoD, when claimed by Dassault. DRAL has no role in claiming
offsets.