The political grandstanding of the Narendra Modi government on the mysterious Rafale deal says a lot about its vulnerability on the issue. Instead of straight-forwardly answering the questions that have been raised by defence analysts and opposition leaders, senior ministers are trying to confuse the media with a deluge of irrelevant and misleading information. The latest example of this is the lengthy interview finance minister Arun Jaitley gave ANI on Thursday. Later, Jaitley wrote a blog post in the form of 15 questions to Congress president Rahul Gandhi that he said “expose [the] Congress party’s falsehoods on Rafale”.
While the BJP and Congress are free to take potshots at each other, it is striking that Jaitley avoids the five key questions on the Rafale deal that the critics have asked of his government, namely,
- Why was the original deal for the purchase of 126 Rafale aircraft – which involved the outright purchase of 18 fighters and the manufacture of 108 more in India on the basis of transfer of technology – abandoned in favour of the purchase of 36 aircraft?
- Why is the price being paid for each aircraft so much higher than what the earlier deal envisaged, especially when the two governments had said in April 2015 that “the aircraft and associated systems and weapons would be delivered on the same configuration as had been tested and approved [earlier] by [the] Indian Air Force”?
- How did Dassault choose as its Indian partner for the purpose of offset contracts a company, Reliance Defence, whose promoter has no attractive track record in the sector, whose businesses had run up debts and whose executives were, at the time, being prosecuted for their involvement in a major scam (2G)?
- How did Prime Minister Modi unilaterally decide to scrap a deal that had been duly cleared without first referring the matter to the cabinet committee on security?
- If Modi had decided for whatever reason that the earlier deal involving transfer of technology and ‘Make in India’ was not viable, why was no attempt made to get a price quotation for the other fighter that had cleared the IAF’s technical criteria, the Eurofighter?
Instead of answering these questions, the finance minister has posed a set of irrelevant and misleading queries of his own. As we shall see below, the answers to his own posers, ironically, do no credit to his government’s case or image.
Since many of Jaitley’s questions are rhetorical or repetitive, I have summarised the points he has raised under the four broad themes mentioned in the blog post: the delay; the facts about pricing; the role of private industries; and procedure.
1. ‘The Manmohan Singh government is guilty of delaying the fighter aircraft deal by a decade due to its indecisiveness and incompetence.’
Let us consider the timeline for the Rafale acquisition process from the UPA days to the present.
The story begins in 2000, when the Indian Air Force informed the ministry of defence of its desire to purchase more medium multi role combat aircraft (MMRCA) citing the ageing fleet of Soviet era MiG-21s. A year later, in 2001, the IAF issued a Request For Information (RFI) for the aircraft. In 2003, the IAF approached the government requesting the purchase of 50 Mirage fighters to enhance the dwindling fleet size which the government refused. In 2004, the government asked the IAF to initiate a larger tender for the MMRCA. In 2005, the first MMRCA tender was floated but it was withdrawn immediately for reasons not known to the public. In 2006, the then IAF chief, Air Marshal S.P. Tyagi informed the goverment that the squadron strength of the IAF is 33 compared to the minimum required strength of 39.5. Finally, the government floated a formal tender for 126 MMRCA in August 2007.
A government press release of August 28, 2007 tells us that is the day the 211-page request For proposal (RFP) was floated for the purchase of 126 medium multi role combat aircraft (MMRCA) to the six contenders. Six months was the stated time for submission of proposals. Since some of the participants asked for an extension citing the complexity of the RFP, a one month extension was given.
In other words, by March 27, 2008, all the six contenders had submitted their proposals. In August the same year, the then IAF chief, Fali H, Major, told reporters that the technical evaluation of the bids was under process and that the IAF would start field trials of all the participating aircraft later that year. In January 2009, Major said the evaluations were almost complete and the field trials would start by April-May. However, the IAF submitted its final technical evaluation report to the government only in May 2009. The air force started its aircraft trials in August 2009 and submitted its report to the government in March 2010. One month later, in April 2010, the government asked the contenders to submit their updated bids. In December 2010, the IAF submitted its final report to Ministry of Defence.
In April 2011, IAF announced that Dassault Rafale and Eurofighter Typhoon are the two final contenders. The MoD approved the offset proposals in October 2011 and the final bid of the two remaining contenders, Rafale and Eurofighter, were opened on November 4, 2011. And on January 31, 2012 Dassault’s Rafale was announced the winner.
If we consider the documented time line of the 126 MMRCA deal finalisation, the UPA government was involved in actual negotiations with the French for 26 months – from February 2012 to April 2014 – and not 10 years as Jaitley implied. And in those 26 months, Dassault Aviation signed a detailed work share agreement with HAL in March 2014 to have transfer of technology and production of the Rafale in India.
So, Arun Jaitley’s first set of questions is baseless and rhetorical in nature. The “decade long negotiations” story has no truth in it. The BJP seems to repeat this theory to divert attention from the real questions, which they haven’t answered yet.
The Narendra Modi government took over on May 26, 2014 and today, after 51 months, there is not a single Rafale added to the IAF fleet and as per the projections. If everything goes well, the first Rafale will come to India only in September 2019.
Even after Modi announced his decision to go ahead with 36 Rafales instead of 126 in April 2015, his government took 17 months to sign the formal contract. If a deal for the purchase of 36 aircraft off-the-shelf without any transfer of technology and with all the parameters mentioned by IAF in their RFP already at hand could take 17 months to negotiate, Jaitley’s argument that the previous government’s “inefficient and incompetent” ways were to blame for not concluding a 126 aircraft deal with ToT in 26 months is really absurd.
If the Modi government had expeditiously concluded the negotiations on the original deal based on the original RFP since it is clearly more “competent and efficient”, the first Rafales would have landed in India by September 2019 or even earlier. Indeed, on August 8, 2014, Jaitley himself told parliament,
“The 18 direct fly away aircraft are expected to be delivered in three to four years from the signing of the contract. The remaining 108 license manufactured aircraft in India are expected to be delivered during the following seven years.”
Jaitley’s own statement from August 2014 throws the “urgency” argument he is now raising out of the window.
Besides, if the depleting fleet strength of the IAF was the primary concern of the Modi government, how does the reduced figure of 36 aircraft – the complete 36 will only be delivered by mid 2022 – dramatically enhance the IAF’s operational strength as its ministers claim? If the original deal as per the RFP had been completed by this government, then India would have added all the intended 6 squadrons by 2028, which is not going to happen now with the new deal.
If the original RFP was not feasible, why did the Modi government float another RFP this year for 110 fighter jets of the same broad specifications as the previous MMRCA tender (i.e. twin engines), to the same six manufacturers? Hasn’t the government further delayed the process by a few years because now the IAF will have to test all these aircraft (including those they have tested and rejected) before shortlisting the Eurofighter Typhoon and Rafale? After cancelling the previous RFP with ToT, why did the Modi government float a new RFP with ToT if ToT negotiations are time consuming and tough to conclude?
In a nutshell, the Modi government’s claim, which Jaitley has echoed, that the off-the-shelf purchase of 36 Rafales was needed urgently to address gaps in the IAF’s capabilities simply does not hold.
2. ‘The government’s critics are distorting the facts on the price of the Rafale’
Jaitley says that there was an escalation clause in the original deal and the price would have kept escalating with every passing year. But there is a simple question here. If Jaitley is right, why did Eric Trapier – the CEO of Dassault Aviation – tell reporters on February 19, 2015 that there was no change in pricing and that his company was sticking to the same price it had quoted in the RFP?
“The pricing issue is very clear. Our pricing remains the same from day one of LI (Lowest bidder). So there has been no change on that front.”
Trappier also said he was confident of completing the final negotiations and signing the deal. Remember, this was for the full complement of 126 planes. Fifty days later, however, Modi announced that he had decided to scrap the old deal to go ahead with the standalone purchase of 36 Rafales. What was the urgency and threat India faced in the time span of these 50 days for Modi to take such a call?
Jaitley accuses Rahul Gandhi of mentioning different prices at different times and he is right. But the fact is that Manohar Parrikar, who was defence minister at the time of Modi’s announcement, is on record mentioning three different prices to different TV channels on three different occasions.
First, he said the total value of the original deal for 126 aircraft would have been around 90,000 crore rupees “inclusive of everything”. Two weeks later, he changed the figure to one lakh crore and after one month he said it would have cost Rs 1,30,000 crore for 126 Rafales inclusive of everything. In the first interview where he said Rs 90,000 crore “for everything”, he elaborated the everything by saying it includes training, ToT, warranty, maintenance cost for three year maintenance, missiles and other weapons.
If everything was included in that Rs 90,000 crore figure, this would have worked out to Rs 715 crore per aircraft inclusive of all the things he mentioned. Even if we take the Rs 1.3 lakh crore figure mentioned by Parrikar, the per plane still comes to nearly Rs 650 crore less than the Rs 1611 crore (7432 million euros at the 2015 exchange rate) the Modi government is paying for each Rafale. Logically, a deal which involves technology transfer would have been more expensive because any manufacturer will charge hefty sums when they have to transfer their technology – which is the core secret of their business. Here, in Modi’s deal of 36 Rafales, it worked out other way round and the government has not given any satisfactory explanations for such a contradiction.
Next, let us examine the “India specific changes” BJP leaders are speaking about. Jaitley in his blog also writes of “add-ons such as India-specific adaptations, weaponry” which have made the deal a better one.
If Jaitley is right, he is accusing the IAF of slipshod preparation for not incorporating everything it needed in the aircraft while preparing the RFP. If Jaitley is right, the IAF is answerable. At the end of the day, it is public money which is spent. But the fact is that right after Modi’s April 10, 2015 announcement from France, the joint statement by two leaders mentioned:
“…the aircraft and associated systems and weapons would be delivered on the same configuration as had been tested and approved by Indian Air Force”.
So where did these additional India specific changes, weapons and all other add ons Jaitley and other BJP leaders speak about come from? If it was all included in the cost mentioned in the RFP, why there is a cost escalation of this magnitude? – from Rs 715 crore to Rs 1,670 crore per aircraft, at current exchange rates?
3. ‘Can the Opposition deny that the process followed by the government was by the book?’
On November 22, 2017, The Wire had asked how a deal that was 95% complete ended up collapsing in 15 days. On March 25, 2015, Dassault CEO Eric Trappier told the press in the presence of the then Indian ambassador to France, senior HAL and IAF officials:
“You can imagine my satisfaction to hear … from the HAL Chairman, that we are in agreement for the responsibilities sharing, considering as well our conformity with the RFP in order to be in line with the rules of this competition. I strongly believe that contract finalisation and signature would come soon”.
What happened in the 15 days from Trappier’s press conference to Modi’s announcement is still a mystery and instead of answering that question, Arun Jaitley wants answers from the opposition.
Even though Modi and his ministers are not answering what exactly happened in those 15 days, something interesting did happen. In the span of three days from Trappier’s press conference in France, a company called Reliance Defence Limited was incorporated by the Anil Ambani-led Reliance group.
Screenshot from MCA showing the date of incorporation of Reliance Defence Ltd.
Subsequently, it emerged that Parrikar, who was then India’s defence minister, was kept in the dark about Modi’s announcement till just a week before it was made. Even S. Jaishankar, the then foreign secretary, had no idea Modi would be making such an announcement from France. “In terms of Rafale, my understanding is that there are discussions underway between the French company, our Ministry of Defence, the HAL which is involved in this… We do not mix up leadership level visits with deep details of ongoing defence contracts. That is on a different track. A leadership visit usually looks at big picture issues even in the security field,” he said on April 8, 2015.
When it is confirmed that the India’s defence minister had no clue about the deal Modi was cooking, it shows that the decision was a unilateral call that Modi himself made. And that raises a lot of questions on the procedures Arun Jaitley says the government followed.
The Modi government also says that since the deal for 36 Rafale aircraft was an emergency decision, it didn’t consider the other contender (Eurofighter) which was technically fit as per the IAF and had lost out in the original deal only in its financial bid. There are documents available in the public domain to prove that the manufacturer of the Eurofighter kept its office running in India till the Modi government signed the contract with France in the hope that it would consider the company’s renewed proposal which they sent to the PMO and Ministry of Defence seeing the delay in finalising the deal with Dassault Aviation. But they never received any revert for reasons best known to Modi and Jaitley.
The question is not unimportant for if IAF chose both the Rafale and Eurofighter on technical grounds and the Eurofighter lost only because of its financial bid, why didn’t the Modi government consider their renewed proposal before ordering 36 Rafales at Rs 1,611 crore a piece? What and who stopped them from considering that offer?
Now let us come back to the procedures that Jaitley says his government followed.
If this was an emergency purchase – whether government-go-government or otherwise – this would have been processed through the Fast Track Procedure (FTP) mentioned in the Defence Procurement Policy (DPP) 2013, which was in effect at the time of Modi’s announcement.
The “acceptance of necessity” clause of the DPP reads:
“The adoption of FTP to meet urgent operational requirements will be authorised by special DAC meeting chaired by the Raksha Mantri based on proposals moved by respective SHQs with the approval of the concerned Service Chief. This Committee would comprise of the Service Chief(s), Defence Secretary, Secretary (Defence Production), Secretary (R&D), Secretary Defence (Finance), Director General (Acquisition), HQ IDS (CISC) and other officials of the MoD as deemed necessary. The proposal would be processed by HQ IDS which will act as secretariat to the special DAC. Copies of the proposal/s would also be circulated to the other members of the committee. The projected requirement must be related to an operational situation foreseen as imminent or for a situation where a crisis has emerged without prior warning. The requirement, as projected, must identify the items required, their numbers, mode of procurement, broad Operational Requirements (ORs) / Services Qualitative Requirements (SQRs) desired and the time-frame within which they need to be inducted.”
Here, in this particular case, we can be sure that neither had the IAF passed on an urgent requirement of 36 Rafales nor had it even been consulted by Modi before he took his own call. Because if such a requirement had been moved by the IAF, Manohar Parrikar – the then defence minister – would have chaired the meeting for the initial approval. But in this case, Parrikar was not aware of Modi’s decision to go ahead with a strategic defence procurement till just a week prior to the announcement of the procurement, that too of a multi billion dollar fighter jet deal.
In any case, for this kind of deal to be made through FTP, at the very least, there should have been a special request from the IAF citing a looming enemy threat which has to be addressed with immediate effect. Then the Cabinet Committee on Security should have been convened to take such a decision, which should have been informed to the complete cabinet and opposition to avoid any questions on the transparency aspect. However, nothing of the sort happened in this deal. And even for the prime minister to announce a defence purchase deal, he has to have the approval of the CCS. In this case, Modi announced his decision on April 10, 2015, but CCS approval came on 2September 21, 2016. And still, Jaitley want the country to believe all the procedures were followed.
4. ‘The selection of Reliance as offset partner has nothing to do with the government’
In his blog, Jaitley says there was no interference from the government for Dassault to choose its offset partner. In other words, Dassault Aviation acted all on its own in selecting an Indian promoter as JV partner whose defence companies were some Rs 9000 crore in debt and making losses.
In May 2016, the Hindu reported about the business affairs of Anil Ambani:
The Anil Ambani-led Reliance Group alone owes Rs 1,21,000 crore of loans to the banks and had an annual interest liability of Rs 8,299 crore against earnings before income tax of Rs 9,848 crore. Some of the group’s firms, like Reliance Infrastructure and Reliance Defence, don’t earn enough to service the interest outgo.
In March 2016, six months before India officially signed the agreement with France for 36 Rafales, major newspapers in India reported the Union law ministry’s objections to the draft by pointing out the agreement was heavily loaded in favour of France. When the DPP clearly mentions that the supplier should give the bank guarantees for the advance payment given by India, France was willing to give only a comfort letter signed by its prime minister. And again in violation of the DPP clauses, instead of India, France suggested the seat of arbitration as Geneva and the Modi government agreed to that. India was also too lenient to France in the liability clause. The Indian Express quoted a defence ministry official:
“… we were left wondering as to how could India agree to all the stipulations suggested by the French side. In our opinion, the two documents were not drafted with the interest of the Government of India in mind. Many suggestions have been forwarded. But it is for the Prime Minister’s Office and the Defence Ministry to take a final view.”
To date, the Modi government has not clarified whether these objections were addressed appropriately to protect India’s interests. And if they have been, what Jaitley needs to answer is why the ‘nationalist’ Modi government watered down laid out procedures and violated key clauses of the DPP in the first place? On whose instructions were these things done?
Since this story came in to the public domain last year and the opposition parties and the general public started to question the logic and legality behind Modi’s unilateral decision on the 36 Rafales, the BJP and its ministers have done nothing but avoid giving answers. Jaitley’s “15 questions” is nothing but another desperate attempt to create a smokescreen.
Ravi Nair can be contacted on Twitter @t_d_h_nair.