The Rafale deal has been the subject of much debate and controversy in India over the last few months. The Congress, citing patchy and questionable 'details’ about the deal, had been alleging that the government favoured Anil Ambani’s Reliance Defence at the cost of state-owned Hindustan Aeronautics Limited (HAL). Party president Rahul Gandhi has said that the government has helped Ambani, who is debt ridden, with the deal.
It has also alleged that the Narendra Modi government compromised with national security by reducing the number of aircraft being procured to 36. The Congress-led United Progressive Alliance (UPA) government, when in power, was negotiating with Dassault Aviation for 126 Rafale aircraft. Of these, 18 jets were to be supplied in a fly-away condition and 108 were to be manufactured in India by HAL. Among other things, it claims to have negotiated a lower price for the fighters. However, the UPA government did not sign a deal with Dassault.
These allegations form the crux of the Congress’ charge against the government as it goes into a series of assembly elections starting next month.
A recent report by French journalist Antton Rouget, which appeared in a portal named Mediapart, added fuel to the controversy and gave the Congress fresh ammunition to attack the government on the deal. It claimed that the deputy chief executive officer (CEO) of Rafale-maker Dassault Aviation had in May 2017 said that the Indian government made it mandatory for the firm to tie-up with Reliance. The portal said it had access to an internal document, which proves its claim.
So what really is the truth? Was there any quid pro quo between Anil Ambani and Narendra Modi in the deal?
Here are five questions, the answers to which can give us the true picture.
1) Why did the Modi government buy 36 Rafale jets instead of 126?
By the time Modi came to power, the negotiations with Dassault for the procurement of Rafale had stalled due to disagreements between the company and HAL over the production of the aircraft in India. The Indian Air Force (IAF), on the other hand, had only around 33 squadrons against the sanctioned strength of 42, which it needs to deal with a two-front threat. The number is now down to 31. Therefore, the IAF needed fighters urgently to plug the gaps developing in its capability due to depleting numbers. Negotiating a deal which involved transfer of technology and production of the aircraft in India would have taken considerably long time.
Moreover, if such a deal was negotiated, the HAL would have been required to develop the infrastructure needed for producing the aircraft in India. This too would have taken some time, delaying the procurement further.
Hence, the government decided to go ahead with 36.
The fact that the IAF has already kick-started the process to procure additional aircraft, most of which will be built in India, gives credence to the government’s claim that buying 36 Rafales was an emergency measure.
2) Why is HAL not part of the Rafale deal?
One, as the deal had no ‘Make In India’ clause, the HAL was not made part of the deal. The government decided to buy the fighters off the shelf because manufacturing small number of fighters would not have been economical.
Two, while HAL is not part of the deal, it remains Dassault’s partner for execution of the offset clause along with Reliance and other private and state-owned firms.
Three, as Livefist has reported, the IAF officer who was leading negotiations with Dassault during the UPA rule has said that the deal got stuck due to ‘irresolvable’ differences between HAL and Dassault.
3) Did government impose Ambani’s Reliance on Dassault? If not, did French outlet Mediapart lie about the deputy CEO’s statement?
While experts had cast doubts about the accuracy of the outlet’s report soon after it was published, the allegations against Mediapart of misreporting and misquoting the documents have gained ground with the emergence of another ‘internal document’ in a report by Yves Pagot in Portail Aviation. The document put out by Portail Aviation talks about "Make in India" being "the inevitable consequence" of the deal and says the "Joint Venture with Reliance was created to attain this objective".
It should be noted that under the offset policy, put in place by the Congress-led UPA government, foreign equipment manufacturers are required to invest a part of the contract value in India. As part of the Rafale deal, Dassault has agreed to execute offsets worth 50 per cent of the total value of the deal. It is under the offset clause of the deal that Dassault has chosen Reliance, along with multiple other private and state-owned firms, to be its partners in India.
4) Is Ambani’s Reliance the biggest beneficiary of the offsets?
The offsets under the Rafale deal are divided between four firms: Dassault, which will build the air frame and integrate the aircraft with equipment from various other firms; Thales which will build the radars and avionics; Safran which will manufacture the engines and electronics; and MBDA, responsible for the weapons.
As the deal was worth nearly Rs 60,000 crore, offsets work out to be around 30,000 crore (50 per cent). Of this, Dassault is responsible for the execution of offsets worth 6,500 crore, according to Air Marshal R Nambiar, who was heading the negotiations with Dassault for the Rafale fighters during the UPA era.
CEO of Dassault, in an interview with Agence France-Presse had clarified, soon after the Mediapart report added to the confusion, that the joint venture with Reliance will meet only about 10 per cent of the offset obligation. He had added that the company is in talks with 100 other firms for the execution of the offset obligation.
A report in the Economic Times estimates that Reliance would get around 3 per cent of the offsets worth Rs 30,000 crore. Dassault Reliance joint venture will see an investment of about Rs 845 crore (€100 million). The venture will reportedly manufacture parts of the Dassault’s Falcon jet. A small amount would also be invested by Thales, which will set up an assembly line to manufacture avionics and radar.
Therefore, Reliance is getting a small part of the pie.
State-owned firms like the Defence Research and Development Organisation (DRDO) and HAL will also get investments. Reports say that engine and electronics maker Safran will invest in both the firms. While DRDO may get funding to revive the Kaveri jet engine programme, HAL is likely to enter into a joint venture with the company to manufacture helicopter engines. Another state-owned firm, Bharat Electronics Limited, is likely to get a part of the pie from Thales.
These facts undermine the Congress president Rahul Gandhi’s claims that the Rafale deal was negotiated to benefit Ambani’s Reliance.
5) Is the Rafale’s high cost unjustified?
As security expert and commentator Abhijit Iyer-Mitra has pointed, Qatar bought its Rafales at $292 million per unit, Egypt bought the same fighter for $246 million per unit and India paid $243 million. Therefore, the cost was in line with what other countries have paid for the same fighter.
Moreover, the deal India has signed includes not only maintenance support, weapons and training, but also India-specific enhancements to the fighters. These modifications, which the IAF demanded, add to the cost of the fighter. And even though the Rafales sold to Qatar and Egypt do not have most of these modifications, they cost as much as the modified ones for India.
The deal also has a clause for 50 per cent offset. This means, 50 per cent of what Dassault earns (50 per cent of the Rs 59,000 crore) from the deal will be invested back in India, giving a boost to local defence manufacturing.
Congress’ claim of the government buying Rafales at an unjustified price also falls flat because the party continues to quote the price of the bare aircraft offered in late 2000s and refuses to take into account the inflation and the in-built cost escalation, which Finance Minister Arun Jaitley has explained.
Prakhar Gupta is a senior editor at Swarajya. He tweets @prakharkgupta.
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