However, the announcement of the Anil Ambani Group’s association with the deal has stirred up a hornet’s nest. Terming the deal to be a sign of increasing crony capitalism, the critics are accusing the government of favouring an industrialist friend.

During election time, allegations take the form of mud-slinging, in the hope that some mud would definitely stick and, if nothing else, seeds of doubt would get sown in the minds of the gullible public. For that reason, a concerted vilification campaign has been launched through media and public statements to corner the government. Although no detractor has been able to question the deal for its honesty and no one has been accused of taking bribes, attempts are being made to fault it for alleged irregularities.

Urgency and the Impasse

Ideally, the IAF should have a fighter strength of 45 squadrons; with the minimum inescapable requirement being 39.5 squadrons. With dwindling assets (all MiG-21s and MiG-27s are due for phasing out), the IAF projected a requirement for 126 Medium Multi-Role Combat Aircraft (MMRCA) in 2001. Consequent to the issuance of a request for proposals (RFP) in August 2007, six manufacturers submitted their proposals. While 18 aircraft were to be purchased in fully-built-up condition, the balance quantity was to be manufactured in India by Hindustan Aeronautics Limited (HAL) under transfer of technology. After extensive trials, two platforms (Rafale and Eurofighter Typhoon) were found technically acceptable. Finally, Rafale emerged the winner due to its lower life-cycle cost. The announcement was made on 31 January 2012 and contract negotiations commenced.

By 2014, negotiations had reached a total impasse with no signs of a possible breakthrough. In addition to overly escalating cost (from $10-12 billion to $25-30 billion), two critical issues proved highly problematic. One, Rafale’s manufacturer Dassault declined to stand guarantee for the 108 fighters to be built by HAL. According to the media reports, Dassault felt that HAL was too mired in mediocrity to be able to produce ultra-modern fighters.

Two, differences emerged regarding the interpretation of scope and depth of technology transfer. India wanted complete and unrestricted access to the latest technologies as it was paying for it. Reportedly, Dassault was ready to part with limited technology for licence manufacture only and not the design technology.
As the IAF was pressing hard for new fighters, the only viable course open to the government was to abort the MMRCA proposal formally and start anew with the issuance of a fresh RFP. That would have meant a delay of 10 years. Hence, Modi’s order for 36 Rafale aircraft was a desperate measure to boost the IAF’s diminishing strength. A number of India-specific improvements, avionics and weaponry have been sought in the new deal.

Analysis of the Criticism

As per articles appearing in the media and statements made by some political leaders, the Rafale deal suffers from several major infirmities. Let us look at what these allegations are.

Allegation 1: The deal for MMRCA was prematurely closed by the Modi government.

By 2014, it had become evident that the deal was beyond redemption. Without total technology transfer and Dassault’s guarantee for the aircraft built in India, the deal had become meaningless and hollow as these two aspects were the keystones of the proposal. With no solution in sight, the then defence minister A K Antony rightly considered it prudent to let the deal stay in deep freeze. By the time the Modi government came to power, both sides appeared reconciled to the impasse. The deal was dead to all intents and purposes, except for an official announcement to that effect.

Allegation 2: The new deal is far more expensive compared with the previous bid.

It is quite ridiculous to compare the two deals. Further, it is an accepted fact that major defence deals are an instrument of a nation’s foreign policy goals. They do not take place in isolation and are not negotiated purely in terms of commercial activities.
Therefore, the Rafale deal should not be viewed as a standalone agreement. In addition to this Rafale deal, a total of 17 pacts were signed between India and France during Modi’s visit. They included agreements on the stalled nuclear project in Jaitapur in Maharashtra and French investment of 2 billion euros in India. One is not aware as to what other assurances the French government has given India. Needless to say, a great deal of quid pro quo is inherent in such packages; it is always a win-win situation for both sides. The operational capability of a strategic platform depends on its configuration and it has to be a closely guarded secret. No country reveals such details. It is strange that some experts want the government to release an item-wise comparative cost table. Demand for transparency cannot be carried to such ridiculous limits.

Allegation 3: Modi violated the laid-down procedure.

Every Indian government has been resorting to an inter-government agreement (IGA) with foreign countries. No questions have ever been raised. Even the first version of the defence procurement procedure (DPP) of 2002 extols the benefits of IGA and reads: “In cases of large value acquisition and especially those requiring product support over a long period of time, it may be advisable to enter into a separate IGA... Such an IGA is expected to safeguard the interests of the Government of India and should also provide for assistance of the foreign government in case the contract runs into an unforeseen problem.”

Every single review of DPP, including the latest version, contains the above mentioned provisions, albeit in greater detail. According to paragraph 104 of DPP-2016, “there may be occasions when procurements would have to be done from friendly foreign countries which may be necessitated due to geo-strategic advantages that are likely to accrue to our country. Such procurements would not classically follow the standard procurement procedure and the standard contract document but would be based on mutually agreed provisions by the governments of both the countries.”

It is also alleged that Modi announced the deal without consulting the Union Cabinet. Two points need to be flagged here. One, Modi only announced his intent to pursue this route. Neither had the terms been finalised nor the contract concluded. This is standard methodology followed in the world of diplomacy. Heads of the governments express concurrence on broad policy issues and the officials work out the details later on. Two, it is naive to assume that Modi could have announced such a decision without prior consultations with his colleagues and advisers. Considerable spade work would have been done in advance between India and France. In any case, it is quite a bizarre point. Whether Modi takes prior or post concurrence of his Cabinet can hardly be an issue of public debate. It is an internal matter of the government’s functioning.

Allegation 4: HAL was unfairly kept out of the contract to help a private firm.

Unfortunately, the uninformed do not understand the difference between joint production and fulfilment of offset obligations. In joint production, a foreign manufacturer joins hands with an Indian production entity to produce the equipment in India, as was mandated in the aborted MMRCA proposal. On the other hand, fulfilment of offset obligation entails compensating the buyer country for the outflow of its resources through designated offset programmes.

The current Rafale deal does not entail manufacture/assembly of the fighters in India. All 36 aircraft will be manufactured in France and delivered to India fully configured. Hence, the question of having an Indian production partner does not arise. Thus, HAL has not been replaced by any other entity.

On the other hand, the Rafale contract carries offset obligation equal to 50 per cent of the deal value. As the onus for the fulfilment of offset obligation is entirely on the vendor, he is at liberty to select his Indian offset partner (IOP). This has been the policy since 2006, when offsets were formally introduced in defence purchases. Paragraph 4.4 of DPP-2016 reiterates that the overall responsibility and liability for the full discharge of offset obligations shall continue to remain with the main vendor; and for any shortfall, he shall be liable for penalty and debarment as stipulated in the offset guidelines. It needs to be recalled here that India signed a contract for 22 Apache attack helicopters and 15 Chinook heavy-lift choppers from the US with offset obligations. Boeing chose Tata Advanced Systems, Dynamatic Technologies, Rossel Techsys and many others as IOPs. Similarly, in the Rafale deal, it was entirely Dassault’s prerogative to choose IOPs.

Allegation 5: The Anil Ambani Group is ill-equipped for the aero-defence sector as it possesses no experience.

It was in early 2015 that Anil Ambani’s Reliance Infrastructure made its foray into the defence sector by purchasing a controlling stake in Pipavav shipyard, which was struggling under a debt of Rs 7,000 crore. In a short period of two years, it has established itself as a serious player in the defence sector with 11 subsidiaries. It has already won contracts for five naval craft and 14 fast patrol vessels and training ships through competitive bidding. It has also been approved for the manufacture of hull and turret of Arjun tanks.

Reliance Infrastructure and Russian arms maker Almaz-Antey (manufacturer of S-400 air defense missile systems) are negotiating to have a manufacturing and maintenance partnership. Reliance and Abu Dhabi Ship Building plan to build frigates at Pipavav. Reliance is also trying to manufacture, maintain and refit Russian submarines and frigates in collaboration with Rosoboronexport of Russia. It has also signed strategic partnership agreements with state-owned Ukroboronprom of Ukraine, Spetstechno Export and Antonov.

It must be remembered that it is not the first case in which a private sector company has been able to bag a major contract. Last year, India signed a deal with the US for 145 M777 ultra-light howitzers for Rs 5,000 crore. Whereas 25 guns would be delivered in a fully manufactured state, the balance will be assembled in India by Mahindra Defence.

Modi's France Visit

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