Rakesh Sood
From 126 to 36
There are three questions that the government needs to address to neutralise the snowballing controversy. The first is the rationale for the announcement made by Mr. Modi, during his official visit to France, in April 2015, that India would buy 36 Rafale aircraft in a government-to-government deal, thereby scrapping ongoing negotiations with Dassault Aviation for 126 aircraft.
The process for acquisition of 126 aircraft to replace a part of the aging fleet in the Indian Air Force (IAF) had begun in 2000. After prolonged deliberations, a Request for Information was issued and based on the responses, technical specifications drawn up and a global tender issued in 2007 for 126 aircraft, with 18 to be delivered in flyaway condition and 108 to be assembled by Hindustan Aeronautics Limited (HAL) with gradually increasing domestic content. Six bids were received and technical evaluations over four years led to the short-listing of two — the Eurofighter Typhoon and the Rafale. Evaluation of financial bids in 2011 led to the Rafale’s selection and negotiations commenced with Dassault in 2012.
The Indian Air Force strength had reduced to around 32 squadrons against its authorised level of 42. Instead of fast tracking the negotiations, former Union Defence Minister A.K. Antony was indecisive, thereby prolonging the process. Negotiations were carried forward by the Modi government and in the run-up to Mr. Modi’s visit, official statements indicated that negotiations were in final stages. Inexplicably, these were jettisoned. Then Defence Minister Manohar Parrikar acknowledged that he was unaware of the decision. The decision for 36 aircraft was only formalised by the Defence Acquisition Council and the Cabinet Committee on Security after the visit and the formal cancellation of the negotiations for 126 aircraft announced in the middle of 2015, generating speculation about the Paris announcement. Last week, a bench of the Supreme Court, headed by the Chief Justice of India, Ranjan Gogoi, sought details of the ‘decision making process’ before the next hearing on October 31.
The aircraft are to be delivered between 2019 and 2022. Meanwhile, the government invited Expressions of Interest in April 2018 for 110 fighter aircraft, 17 in flyaway condition and the balance to be assembled in India, but assembly was not restricted to HAL. It has since received responses from the same six manufacturers. This makes it clear that the shortfall will not be made up by the indigenous Tejas aircraft which is suffering from delays and cost over-runs (HAL has raised the cost of Tejas Mark I from ₹135 crore in 2006 to ₹268 crore and Tejas Mark IA, in design stage, is quoted at ₹463 crore).
The second question relates to pricing. Since the earlier negotiations for 126 aircraft were never concluded, a straightforward comparison is not feasible. Earlier negotiations did not cover weapon systems or the performance guarantees and spares. However, since the Modi government boasted that it had negotiated a better deal and promised to provide details, it has now been hoisted with its own petard. It proudly announced that it had obtained a 50% offset undertaking which would give a boost (nearly ₹30,000 crore) to the ‘Make in India’ programme in the defence sector. Perhaps, it failed to realise that the higher offset would be factored into the aircraft price, driving it higher.
Number crunching
From the sketchy details provided, it would appear that the total outlay is €7.87 billion (₹59,000 crore at 1 euro to ₹73.88). This includes cost of weaponry (€710 million) and a performance guarantee of 75% (current performance level of the Sukhoi-30 fighter assembled by HAL is 50%) with spares (€2.16 billion). This brings the cost of the 36 aircraft, with the India-specific enhancements to €5 billion (₹36,900 crore or ₹1,025 crore per aircraft). However, Union Minister of State for Defence, Subhash Bhamre has put the cost at ₹670 crore per aircraft. Of course, the Congress claims that it was negotiating on the basis of a price per aircraft of ₹526 crore but omits to mention what this related to or the exchange rate.
The government has taken refuge behind the 2008 Agreement with France regarding Exchange and Reciprocal Protection of Classified or Protected Information, which it renewed in March 2018. This is unconvincing as the French President Emmanuel Macron has publicly declared that the French government has no objection to the Indian government sharing pricing details with Parliament. Therefore, the government’s obfuscation regarding pricing only generates doubts.
Offsets and coincidences
The third question relates to the offset share given to Dassault Reliance Aerospace Ltd, or DRAL (a 51:49 joint venture between Reliance Aerostructure Ltd and the Dassault Group). The Congress has cited ₹30,000 crore while the Dassault Chairman, Eric Trappier, has stated that the figure is 10% of it as it has signed offset partnerships with more than 30 other Indian partners and the choice of Indian partners was its independent decision. This is inconsistent with former French President François Hollande’s statement to a French news website, Mediapart, in September that Reliance was proposed by the Indian government and that the French did not have a choice in the matter.
Adding to this is a set of timing coincidences. Reliance Defence Ltd was registered in March 2015, weeks before Mr. Modi’s visit to France. Reliance Aerostructure was registered on April 24. The offset guidelines were amended in August 2015, weeks after scrapping the negotiations for 126 aircraft, relaxing the obligation on the foreign vendor to provide technical details about the Indian offset partner at the time of winning the contract by postponing it to when the offset credits are claimed or a year before it is due. This has permitted the government to feign ignorance about DRAL’s offset share.
The agreement for 36 aircraft was signed by the two Defence Ministers on September 23, 2016. DRAL was registered on October 3 while FDI in defence had been liberalised to permit 49% through the automatic route in June of the same year. In October 2017, the foundation stone of the DRAL facility was laid in Nagpur in the presence of Maharashtra Chief Minister Devendra Fadnavis and Union Minister Nitin Gadkari. Conflicting statements have been made about whether DRAL would produce components for the Rafale or for Dassault’s business jets.
Further, while total offsets amount to ₹30,000 crore, this is shared between: Dassault which provides the airframe and is the systems integrator; Safran, which provides the engine and the landing gear, and Thales, which delivers the radars and the avionics. Since Reliance subsidiaries were awarded a clutch of defence licences during 2016-17, it is unclear as to how many of these are engaged with the Rafale offsets. Mr. Hollande’s statement, which is coupled with the set of seemingly fortuitous coincidences, only adds to the controversy.
The casualty is national security because the IAF’s squadron strength will drop to 23 in 2032, unless there is fresh acquisition beyond the 36 Rafale and 123 Tejas fighter aircraft. The second casualty is the much-touted ‘Make in India’ defence programme. Sadly, this could have been prevented if only the government had chosen to address the three questions with candour and transparency.
Rakesh Sood is a former Ambassador to France and currently Distinguished Fellow at the Observer Research Foundation. E-mail: rakeshsood2001@yahoo.com
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