Rafale Deal: Govt’s Reply to SC Reads More Like a Cover-up for PM Modi’s Culpability

The Narendra Modi government’s 16-page reply on Monday to the Supreme Court on a petition seeking details of the process followed to buy 36 Rafale aircraft from France, raises more questions than it answers. It certainly sheds no light on why the country is paying a massive amount from the national exchequer for this deal.

The Modi government’s reply to the petitioners -- former Union Ministers Arun Shourie and Yashwant Sinha and senior lawyer Prashant Bhushan --  seems more an attempt to cover up the role of the Prime Minister and due to his intervention, the violations to the procedures done by other Ministries as well.

What raises more doubts is the fact that the reply is undated and unsigned, and the Centre has not disclosed who the authority submitting the reply to the court is.

The controversial government-to-government procurement announcement made by PM Modi in Paris on April 10, 2015 had raised a number of questions. The details of the process followed by the government in its reply, do not answer any of those questions.

In its reply to the Supreme Court, the government has clarified that it followed the Inter Government Agreement (IGA) route mentioned in Defence Procurement Procedure, 2013 (DPP 2013) for purchase of 36 Rafale aircraft.

The acquisition process involves 11 process functions: services qualitative requirements (SQRs); acceptance of necessity (AoN);  solicitation of offers; evaluation of technical offers by the Technical Evaluation Committee (TEC); field evaluation; staff evaluation; oversight by the Technical Oversight Committee (TOC) for acquisitions above Rs 300 crore;  commercial negotiations by the Contract Negotiation Committee (CNC); .approval of the Competent Financial Authority (CFA); award of contract /supply order (SO); and contract administration and post-contract management.

Incidentally, para 8 of the reply on page 3 notes the decision-making process mentioned in para 71 of DPP 2013. Curiously, it has omitted the pre-conditions under which an IGA route is to be adopted.

When Was The SQR Re-Submitted?

In its reply, the government has said that it followed the complete procedures mentioned above because these were all done earlier in the selection process of the MMRCA (Medium Multi-Role Combat Aircraft) deal for 126 aircraft.

However, once the SQR is raised, any amendment has to be done prior to submitting it for AoN and in extreme cases (unforeseen situations), the case should be re-submitted for revalidation.

Para 17 of DPP 2013 “Waiver of SQR Parameters” elaborates this: “SQR would invariably be finalized prior to seeking AoN for the scheme. A copy of SQRs duly approved by the respective SHQ authorities would be submitted along with the ‘Statement of Case’ for seeking AoN. No amendment of SQR is permissible thereafter. In an unforeseen situation, where an amendment to SQR becomes necessary after accord of AoN, the case should be resubmitted for revalidation of AoN earlier accorded.”

This raises another interesting question. When did the Modi government re-submit the SQR for revalidation? Or, was that even done at all? The government did not mention anything about it in the submitted papers to the court.

As per norms, the Service Head Quarters (SHQ) should prepare a statement of case in a certain format to seek the AoN. The DPP elaborates the chain of approvals needed:

“The Statement of Case would be signed with date by the Head of the respective User/Plans Directorate/equivalent of the Services. Four copies of the Statement of Case would be prepared, justifying the procurement proposal. One copy each would be forwarded to DDP, DRDO, MoD (Fin) and Administrative Branch of MoD. The statement of case would include the total quantities required, the break up based on five years plans and the quantity that is required to be procured in next two years. The quantity vetting would be recommended by the Administrative Branch in consultation with MoD (Fin). The quantities duly vetted along with other comments on the proposal, would be sent back to the SHQ by DOD and MoD (Fin). DRDO and DDP will also forward their comments to Service HQ, who would then compile all the comments and give their final views. The statement of case, along with all the comments, would then be forwarded to HQ IDS which would examine aspects of interoperability and commonality of equipment for the three Services. The statement of case would then be placed for consideration of the categorisation committee” (Emphasis added).

When Did IAF Send Request For Fewer Numbers of Rafales?

The Modi government is yet to disclose when the Indian Air Force (IAF) sent the request to revise the numbers of then 95% completed negotiation with Dassault Aviation for 126 Rafales and reduced it to 36? When did the administrative branch of Ministry of Defence (MoD) decide that the number should be only 36, not 126?  

In Para 14 of the government’s reply, the timeline of the process followed by the previous Congress-led United Progressive Alliance government for the procurement of 126 MMRCA has been given. The details are mentioned right from submission of proposals from the six vendors on April 28, 2008, to the commencement of contract negotiations with Dassault in February 2012 . However, the reply has not mentioned a single word on how Modi concluded that the number of aircraft needed by IAF was only 36. And it is silent on who advised the PM on this, what was the process followed to ascertain the number of aircraft needed by IAF, and which are the committees that approved such a decision.

Blaming Anthony and HAL

Para 15 of the reply says that then Defence Minister A K Antony asked the MoD for re-evaluation of the approach and methodology adopted by the CNC to determine the lowest bidder and to “ascertain that it is reasonable, appropriate and as per the laid down procedure.” 

Para 16 says: “In addition to the above the contract negotiation could not conclude mainly due to unresolved issues related to 108 aircraft to be manufactured in India. These issues pertained to lack of common understanding between HAL and Dassault Aviation on following: 1) Man-Hours that would be required to produce the aircraft  in India: HAL required 2.7 times higher Man-Hours compared to the French side for the manufacture of the Rafale aircraft in India. 2) Dassault Aviation as the seller has required to undertake necessary contractual obligation for 126 aircraft (18 direct fly-away and 108 manufactured in India) as per RFP requirements. Issues related to contractual obligation and responsibility for 108 aircraft manufactured in India could not be resolved.”

And in Para 17, the government has said that the above mentioned issues remain unresolved and that is what caused the price escalation.

Para 16's beginning of "In addition to the above" regarding the inability to conclude negotiations with Dassault Aviation makes it appear that Antony is also being blamed for not concluding the negotiations during his tenure and asking for a re-check of the process before final approval. 

The Modi government blaming public sector Hindustan Aeronautics Ltd (HAL) for not being able to conclude the agreement is specious because of the following reasons: 

(i) In March 2014,  at the time of UPA government, it was reported that the problem between HAL and Dassault on the final product manufactured by HAL had been resolved and both the companies were signing a work share agreement in which HAL was responsible for 70% of the work and the rest was to be done by Dassault.

(ii) The then HAL chief went on record saying the same and dared the current Defence Minister to put out the file that he had submitted along with the work share agreement signed between HAL and Dassault.

(iii) Eric Trappier, Chairman and CEO of Dassault Aviation, in the second week of March 2015, confirmed that they had reached a consensus with HAL on the work share and guarantee-related issues and signed an agreement to that effect.

Regarding the price escalation claim, on February 19, 2015, on the sidelines of the Aero India Show in Bengaluru – less than two months prior to Modi’s announcement from France --  Trappier told reporters that the price Dassault quoted in the RFP never changed. He reiterated the same claim in October this year in an interview to an Indian TV channel and a newspaper. In this interview, Trappier said due to a weak euro against the dollar, the price of Rafale was now actually lower than in 2012.

Hence, the government’s claims of cost escalation due to the delay in signing the agreement is an attempt to cover up its own misdeeds. Trappier also said Dassault was happy to work with HAL with whom it had a long- standing work relationship.Hence, the Modi government’s claim of Dassault’s unwillingness to work with HAL as one reason for the failure of the RFP negotiation, also falls flat.

The RFP Puzzle

In para 18, the government has said that because of the reasons mentioned in para 16 and 17, the negotiations reached a “stalemate”, which forced it to start the RFP withdrawal process in March 2015, before eventually withdrawing it in June the same year. 

This is another false claim, as on March 25, 2015, Trappier was almost certain to close the deal for 126 Rafale with India “very soon”, a claim he repeated on many occasions in March 2015. If Dassault was almost certain to close the deal without any problem, what went wrong from the Indian side? The government needs to explain this in detail.

Para 19 speaks of how India’s “adversaries” went ahead and added more than 400 aircraft, including fifth generation fighter jets. This further weakened India’s position. But the government still hasn’t explained how reducing the number of aircraft from 126 to 36 would help the country in facing this imbalance? Also, why did it cancel India’s joint venture with Russia in developing the fifth generation fighter jet programme after spending millions of dollars from the exchequer?

On June 3, 2014, Mail Online India – a Daily Mail (UK) publication – reported quoting MoD sources: “The contract negotiations were spearheaded by four sub-committees that dealt with off-set, transfer of technology, technical issues and costs.  Three sub-committees — on off-set, transfer of technology and technical issues like maintenance — have been wound up, meaning a major part of the negotiations are over. It will take at least three months from now for discussions on costs to be completed.” Compare this with Trappier’s claim of “negotiations 95% completed”, and the Modi government’s decision to withdraw from the 95% negotiated RFP becomes even more puzzling.

In para 26, the government has admitted that the decision to procure 36 Rafale, which in normal circumstances would have been taken after the approval from Defence Acquisition Committee (DAC), was put up in front of DAC on August 28, 2015 --  four-and-a-half months after Modi’s announcement of the government-to-government arrangement. And it further admits that the government started the negotiations with France three months prior to the submission of the case to DAC. This makes violation of the rule book even more serious.

In the same para, the Modi government has claimed that in August 2016, the negotiations were completed with better terms on pricing, maintenance and delivery compared with the aborted RFP negotiations. But, Business Standard, which accessed the original RFP submitted by Dassault, pointed out that Modi’s 36 Rafale deal was actually 40% costlier in comparison, without any change in the maintenance, weaponry, training, availability of spare parts and serviceability, performance enhancements and India-specific changes wanted by IAF. So, when the Modi government says they got a better deal in terms of pricing, it must asked – better pricing for whom? Certainly, not for the country!

Who Authorised Modi to Take a Decision?

In para 27, the reply has admitted that the government put up the case for the Cabinet Committee on Security’s (CCS) approval only on August 24,  2016 – which was 16 months after Modi’s announcement from France. The deal was put up to the Ministry of Finance for the first time only then.

These claims make it more obvious that the PM took a unilateral call by announcing a deal in which spending of tens of thousands of crores of rupees from the exchequer is involved. The government is yet to answer who authorised Modi to take such a decision?

A report published in The Indian Express, based on a note accessed from the Law Ministry on March 14, 2016, deepens the mystery behind Modi’s decision. It pointed out that, unlike the set norms, the Modi government agreed to pay huge amounts of public money as advance without getting any actual delivery. And, in violation of the guidelines, it agreed on France submitting a comfort letter signed by the French PM against the advance instead of a sovereign guarantee by France. The report quoted a senior Law Ministry official on this: “...liability of Paris in case of any shortfall in implementation of the deal, being heavily loaded in favour of the French. While many senior government functionaries, including those in the Ministry of Defence, have favoured out-of-box thinking to take the deal forward, when we examined the draft Inter-Governmental Agreement (IGA) and the draft Supply Protocols, we were left wondering as to how India could 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.”

Even though it is an Inter Government Agreement (IGA), the report pointed out, “in case of material breach by French companies of their obligations under the Supply Protocols, the Indian side would first take recourse to legal route against the companies without involving the French government.”

Another clause is the seat of arbitration, which is Geneva in the IGA. This again is in violation of the DPP 2013, Appendix H to schedule 1, para 2.5, which states: “The Arbitration Tribunal shall have its seat in New Delhi or such other place in India as may be decided by the arbitrator”. Further, para 2.6 says “The Arbitration Proceedings shall be conducted in India under the Indian Arbitration and Conciliation Act, 1996 and the award of such Arbitration Tribunal shall be enforceable in Indian Courts only.”

Another report updated by The Economic Times as late as July 14 this year, confirms that the government overlooked serious red-flags from the Law Ministry. Why did a government, led by a party which evokes nationalism and love for the Armed Forces on a daily basis, violate such norms? This needs to be explained.

In para 29, the government has said that it did not violate any protocol on offset. That falsehood was exposed by Newsclick in a two part series last month. (Part 1 & Part 2). A more detailed version of the policy violations done by government can be read here.

While detailing the procedures followed by the government on the Offset Obligations, para 6 of the reply has said: “However as per the extent provisions of the DPP, if the vendor is unable to provide the details of IOP (Indian Offset Partner) at the time of submission of offset proposal prior to offset contract he is permitted to provide the details of their IOPs either at the time of seeking offset credits, or one year prior to discharge of offset obligation.”

Interestingly, this clause was not there in DPP 2013 and was added only on August 5, 2015 – four months after Modi’s announcement of the deal from France. Further, it is childish to state that Dassault was not able to identify its IOP by that time. A Dassault press release said they formed a JV with Reliance Aerostructure Ltd – an Anil Ambani group company – in April 2015 itself. And The Caravan magazine published that a RTI reply from government said that the JV agreement between Dassault and Reliance Aerostructure Limited was signed on the same day of the signing of the IGA between India and France!

Hiding Behind the ‘Secrecy Clause’

The government’s argument for non-disclosure of commercial details citing the secrecy agreement signed between India and France in 2008 sounds similarly childish. A copy of the agreement accessed by Newsclick clearly says that secrecy must be kept only on issues which have implications for national security. Revealing the commercial aspect of a defence deal won’t affect national security in any way.

In a nutshell, the Modi government’s reply to the petitioners looks more like an amateurish attempt to cover up the PM’s role in violations of procedures for defence procurement.

At the end of the day, it is public money and India is still a democracy. The government is, therefore,  answerable to the people.