Rafale Deal: Government Explanation is Misleading

After many months of stonewalling, hiding behind supposed confidentiality clauses, and yet putting out all manner of partial information, numbers that conceal more than they reveal, and explanation that raise more questions than providing answers, the government has filed in the Supreme Court (SC) an official document on “Details of the steps in the decision-making process leading to the award of 36 Rafale fighters order.” Copies of this document have been provided to the petitioners, namely, senior lawyer Prashant Bhushan and former BJP cabinet ministers Arun Shourie and Yashwant Sinha. This nine-page note has now found its way into the public domain, but not the cost details which the Government has provided in sealed cover to the SC.

Without getting lost in the details, this article looks at the major issues raised by critics of this deal, including these columns, and the government’s efforts to explain and defend its position through the note tabled in the SC.

Three issues are crucial in the new 36 aircraft Rafale deal, which superseded the now cancelled tender for 126 fighters.

First, the rationale for the decision, including the supposedly stalled negotiations mainly due to Hindustan Aeronautics Ltd. (HAL) and the emergency requirement of the Indian Air Force (IAF). Second, the decision-making process involved, especially in relation to the Defence Procurement Procedure (DPP). Third, questionable outcomes, particularly costs and offset contracts, especially possible cronyism in the selection of Reliance Defence, an Anil Ambani Group company.

Also Watch: In Rafale Deal, Not Dassault, Perhaps Indian Govt Had Problem With HAL: D Raghunandan

Before discussing these, a few comments on the proceedings in the SC, as reported in the media, are in order. The Attorney General (AG)reportedly questioned whether at all the SC should be intervening, since the defence acquisition involves questions that can only be dealt with by experts. In fact, the SC is, unexceptionably and in the public interest, only going into the decision-making process involved, and not any technical questions about the choice of aircraft etc. The SC has discussed many such contractual issues as in the allocation of telecom bandwidth, and has also delved into technically complex issues, such as pharmaceutical and other patents.

The AG was clearly only seeking to discourage the SC at the very outset of the hearing, or even perhaps discredit it. It is also not clear what the SC bench sought to achieve by calling serving IAF officers, who can only repeat the official government and IAF position, to depose before it on the IAF’s requirements. If the SC wanted expert opinion, it should have called select retired officers or defence analysts. Anyway, now to the main issues.

The Rationale

 The government note to the SC states that the main rationale for the decision to scrap the earlier tender for 126 fighters and go in for a new Inter-Government Agreement (IGA) for outright purchase of 36 Rafale fighters was the urgent need of the IAF, given the depleting fleet strength and rapid pace of induction of fighters by potential adversaries in the neighbourhood, and the fact that negotiations with Dassault had stalled, chiefly due to “lack of agreement between HAL and Dassault,” clearly blaming India’s premier defence public sector undertaking, HAL,  which was to manufacture 108 aircraft under license in the earlier tender, for the problems. The government claims that HAL demanded 2.7 times the man-hours Dassault required to manufacture the aircraft, and could not or did not help resolve the issue of who was to stand guarantee for the India-made aircraft.

It was precisely to deal with the IAF fleet depletion in the context of the regional threat scenario that the IAF had prepared a carefully thought-through requirement for 126 medium multi-role combat aircraft (MMRCA). After a decade-long process, including extensive field trials, the 4+ generation Rafale was selected.

How does scrapping this tender and buying only 36 fighters resolve the security issue? If there were serious problems with the negotiations, then the first effort should have been to resolve the impasse, especially if the hurdles were due to HAL, which functions under the Defence Ministry itself. Surely, the ‘decisive’ government could have solved this issue instead of just ‘decisively’ scrapping the whole tender.   Other alternatives could also have been explored, such as raising the number of fighters bought outright to 36 and reducing the numbers to be made indigenously.

The government has also nowhere mentioned the fresh tender process initiated for 114 fighter aircraft, evading the obvious question of why a tender for 126 aircraft is replaced by purchase of 36, only for another tender for 114 issued soon after, which will take several years more to come to fruition, further exacerbating the depletion of IAF fleet strength that prompted the ‘emergency” situation to begin with. The SC would do well to look into this aspect also, and ask the government why it did not explain this anomalous decision in the context of the Rafale deal.

The rationale for entering into an IGA is also quite murky. Dassault’s Rafale had already been selected, they would gladly have supplied 36 instead of 18 earlier, and as clarified by Dassault CEO, Eric Trappier, its maximum profits lay in such outright sales. France has no procedure for IGA, unlike the US or Russia. It has also not provided a sovereign guarantee, only a “comfort letter” which is worth little if any complications arise, unlike the rosy picture of solid assurance painted in the government’s note to the SC. The seat of arbitration is in Geneva, not within India, as required in the DPP. India has even advanced more than euros 1 billion to Dassault without a bank guarantee, unprecedented in Indian government practice, despite not being backed by a French government guarantee. Clearly, Dassault has gained. But has India?  

The government’s explanation of the decision actually taken does not pass muster. As late as March 2015, less than a month before Prime Minister Narendra Modi’s announcement in Paris of the new deal,  Trappier had stated in many interviews that the agreement with HAL was 95% done, and that a work-share agreement had been reached, presumably including the man-hours question. It needs to be understood that facilities and machinery at HAL are not as advanced as those at Dassault, and time as well as cost overruns compared with Western or even Russian manufacturers, is a known issue.

Trappier also unambiguously stated that Dassault could not, of course, stand guarantee for aircraft made by another company, but that HAL had agreed to stand guarantee for planes made by it. He further said that this was not a problem between HAL and Dassault, and that if there was such a problem, it was between the Indian government and its own defence PSU. Recently, retired Chairman & Managing Director of HAL, Suvarna Raju, has also openly stated that all issues between Dassault and HAL had been resolved, and called upon the government to release the relevant files. The SC should now requisition these files and bring clarity to this issue.

It is a real tragedy that the government is blaming HAL and heaping criticism upon it, rather than helping it to modernise its facilities and increase its productivity. It has also been goading serving IAF brass to also vent their dislike of HAL, adding to the age-old preference of a section of the military for Western military hardware believing it to be always superior to Indian-made platforms. Instead of working to persuade these sections of the IAF to give up their prejudice, while also striving to help HAL to improve its performance and reduce its costs, the so-called “nationalist” government is working overtime to undermine HAL, demoralise its personnel, and is publicly conveying to foreign OEMs (original equipment manufacturers) that it would prefer them to pursue partnerships with private sector entities, even though the latter do not have the requisite capabilities or even the potential to do so in the short to medium term.       

The Due Process

The government note to the SC claims repeatedly that DPP 2013 “has been completely followed.” It enumerates the various steps required, which were indeed followed in the earlier tender for 126 fighters, and also enumerates the various similar steps taken for the new 36 Rafales tender, which it claims were “as stipulated in the DPP.” But it deliberately does not mention that it took the first step, namely approval of the Defence Acquisition Council (DAC) for outright purchase of 36 Rafales through IGA on May 13, 2015, was after the PM’s announcement of the new deal at the joint press appearance with then French President Francois Hollande on April 13, 2015! All other steps, including final clearance by the Cabinet Committee on Security, were also post facto!

The government’s note also tries to build a case for such deviations, and deviations they undoubtedly were, by earlier quoting phrases from the DPP pertaining to “flexibility” and procurements under IGA “would not classically follow the standard procurement procedure,” while nevertheless claiming complete adherence to DPP 2013!

It needs to be underlined that this post facto ratification of an earlier decision announced by the PM is not just a technicality. The government is strenuously trying to paint it as such by treating the DPP stipulations in a cavalier manner, and by claiming, as Defence Minister Nirmala Sitharaman has repeatedly done, that the PM’s Paris announcement was not a decision but only an “intent.”

In the first place, a decision to scrap the earlier tender and go for an outright purchase had obviously been decided earlier, as evidenced by the government’s claim that steps to cancel the tender had been initiated on March 25, 2015, even before the PM’s trip to Paris. How this had been initiated, by whom, who all knew about this, the file notings relating to this etc, are not at all clear. Further, the PM’s public announcement, after a summit with the French President, and made public through official press releases, are clearly a formal decision with immediate consequences. This announcement by the PM also means that no serious consideration could be taken of any alternative courses of action at the DAC.

It should be remembered that the DPP was formulated precisely to ensure transparency as well, as collective and considered decision-making by all stakeholders in the political, military and civilian bureaucratic leadership. This intention of the DPP has clearly been violated in the case of the 36 Rafale order in both letter and spirit by the post facto ratification of a decision taken by one or a few persons. Does the DPP have any sanctity after this? Will the DPP be taken seriously by any of the stakeholders if political leaders of government can take any decision and then push it through by ratification?

Even the “emergency” nature of the situation did not warrant such whimsical and arbitrary decision-making. An urgent meeting of the DAC or even the CCS could have been called and all opinions solicited so as to formulate the best decision going forward. The fact that this route was not taken only exposes the character of decision-making in this government, in keeping with so many other decisions it has taken, even outside the defence sphere.

Offsets and Self-Reliance

Finally, on the question of offsets.

The apparent cronyism involved in the selection of Reliance Defence as an offset partner has already been discussed ad nauseam. Nobody knows what this deeply indebted, inexperienced and low worth company brings to the table except proximity to the powers that be. The only saving grace is that, possibly rattled by the adverse publicity, Dassault looks like it may now invest less in the JV with Reliance Defence than it was earlier contemplating.

The government repeats to the SC that the foreign OEM is free to select its offset partners and that the government has nothing to do with this. This is again a total violation of the very purpose of offsets which, as the government’s note itself says, is “to promote indigenisation.” Offsets were never just about bringing money back into the country instead of all flowing out to other countries from where military hardware was being bought. Its primary aim is to acquire advanced know-how and build indigenous manufacturing and design-development capability. It is one thing to state that OEMs should have an important say in selecting offset partners, since they best know their product and can evaluate capabilities of potential vendors or sub-contractors. But to say that the Indian government should have no say in the matter is utter nonsense.

The government knows, or should know, best what technology or capability gaps it would like to see filled, and should guide the selection of offset partners and projects so as to maximise technology absorption and capacity enhancement in Indian industry. The government should not make a virtue of leaving selection of offset partners and projects to foreign OEMs, but should actively pursue the basic objectives. If the DPP needs further amendment to emphasise this aspect, then it should be done urgently, so that the present meaningless drift in the offsets policy is checked.