A defence ministry policy to promote military industry in the country has come in for criticism by the CAG, which also questioned the waivers given to foreign defence firms for fulfilling their offset requirements.
Under the offsets policy, foreign vendors bagging deals worth over Rs300 crore have to invest at least 30% of the worth of the deal back in Indian defence, homeland security or the civilian aerospace sectors.
In its report tabled in the Parliament on Thursday, the CAG pointed out that monitoring mechanism of the defence ministry for offsets was "ineffective as it was created without a clear definition of its objectives and role. It has remained only a paper exercise."
The government auditor also pulled up the defence ministry for allowing the selection of "ineligible offsets partners" for the offset contracts where in some cases the Indian Offsets Partner (IOP) was a 100% owned subsidiary of the foreign vendor.
The report said ministry allowed fulfilment of offset obligations through Foreign Direct Investment (FDI) by foreign vendors in specified Indian industry but "there was lack of clarity and type of foreign investment which would be eligible and interpretation of provisions of the clause."
The report said a Boeing proposal to set up a test facility at DRDO was an investment in kind, "even as it was not an eligible offset...the decision was taken without mandatory certification by the Defence Offsets facilitation Agency (DOFA)."
The CAG said the Ministry has stated that investment in the facility by Boeing "was accepted by the Defence Acquisition Council (DAC) and approval in principle for setting up the facility has also been accorded by the CCS."
"The reply is silent on whether the specific waiver of the Defence Minister was sought for the breach of provisions of Defence Procurement Procedures," it said.