Audit Reports
Defence
Report No. 17 of 2012-13, Air Force and Navy, Union Government, Defence Services (Compliance Audit)
Overview
The total expenditure of the Defence Services during the year 2010-11 was Rs.1,58,723 crore.Of this, the Air Force and Navy spent Rs.38,782 crore and Rs.27,285 crore respectively. The combined expenditure of the two services amounts to 41.62 per cent of the total expenditure on the Defence Services. The major portion of the expenditure of the Air Force and Navy is capital in nature, constituting almost 61.66 per cent of their total expenditure.
This Report contains major findings arising from the test audit of transactions of the Air Force,the Navy, the Coast Guard and the Military Engineer Services.An offset is a mechanism to partially compensate for the significant outflow of a country's resources in large purchases of foreign goods and services by making the foreign supplier to invest in industry, or in research and development, etc in the buyer country.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.This was largely due to varying interpretation of various authorities about the legitimacy or otherwise of the offsets being offered. The IOPs selected for offsets in some cases were not valid. The monitoring mechanism for implementation of offset contracts was weak.MoD needs to ensure clarity in the interpretation of offset provisions so as to leave little room for ambiguity in their interpretation.
The monitoring mechanism also needs to be reviewed to ensure effective implementation of offset contracts.Even after an expenditure of Rs.521 crore and delay of over seven years, IAF failed to derive intended benefits of integrating a state of the art RWR system on different aircraft desired by them. Out of the total 336 systems, only 73 systems have been integrated. Even in the systems integrated, the performance was largely unsatisfactory. The systems are being integrated as an interim measure till development of an advanced system.The commissioning and successful integration of four numbers of system 'A', on four submarines of the Indian Navy was plagued with delays for over a decade. The Indian Navy could, therefore, derive no tangible benefits from an investment of Rs.167.64 crore made in March 2001 on procurement/commissioning of the system 'A'. Ultimately, only two systems 'A' could be proven as late as 2011, which adversely impacted the operational preparedness of the Indian Navy.