Unbearable Stink From the Rafale Deal

The BJP government and its acolytes in the Indian Air Force (IAF) as well as the administration, have been singing loud paens to the cancelling of a done MMRCA (Medium Multi-Role Combat Aircraft) deal in 2012, and its replacement by a supposedly government-to-government  (G2G) agreement. In the process, Union Ministers and junior ministers, bureaucrats, and worse of all, serving IAF officers, have been demeaning and virtually blaming critics for opposing the purchase of 36 Rafale jets as well as accusing public sector defence units for their inability to clinch the MMRCA 2012 deal.They have taken to trumpeting the virtues of private companies in the military sector. So much so, they felt no shame in favouring the entry of an inexperienced private company as Dassault’s “key offset partner”, especially one belonging to a group which has run up huge debts with banks (where public money is placed) and is a leading defaulter. While the Bharatiya Janata Party ( BJP) government's attempt to dismantle the defence public sector and promote private sector entry, including of defaulters/debtors into the military sector, is one side of the sordid story behind the Rafale deal, the much praised G2G agreement is not what it is being made out to be.

 

In a G2G deal, as Rafale is said to be, the French government has a direct responsibility for performance of the contract. Indeed, negotiation takes place between the two governments too. The Narendra Modi government invented a new and much riskier path that veered away from this by negotiating directly with Dassault. No explanation has been offered for this. And the “strong” Modi-led government rather meekly waived off key conditions which are intrinsic to G2G deal.

 

The two core conditions of any G2G deal are “sovereign guarantee” and the seat of arbitration in the event of a dispute between the two governments. The French government, as per the Defence Procurement Procedure 2013, was obliged to provide sovereign guarantee in the event of any delay or dispute over delivery. This was necessary because in case of a dispute under a G2G deal, it is the vendor government which is supposed to step in and resolve the matter. In other words, in case of a dispute, the Indian government would approach its French counterpart to sort the matter and they themselves would not have to deal with the vendor company. 

 

The French government, which reportedly has never gone for the G2G route for its military exports and, therefore, lacks procedures for this, refused to provide sovereign guarantee. They also insisted that the government of India, in any instance of dispute, should first directly approach Dassault Aviation and only thereafter can the French government be roped in. One wonders if this meek surrender to French demand was an outcome of the “new formula” that PM Modi offered to the then French President Francois Hollande’? 

 

Furthermore, by accepting, in violation of DPP 2013, to designate Geneva as the seat of arbitration, whereas the rules mandated New Delhi, the Modi  government has made it clear that Dassault was being allowed to set its own terms even if these went against the laid down Indian procedures. What is particularly galling is that India, being a major global arms buyer, is in the driver’s seat and Dassault could not have arm-twisted it. Especially, when Dassault Aviation was reeling under the economic downturn as well as faced corruption scams. So, there was no pressing reason for a “nationalist” government to accept such outrageous terms set by the French side. 

 

Reportedly, when the matter came up before the Law Ministry, they raised a red flag over the absence of sovereign guarantee by the French government, forcing India to agree to take recourse to the legal route against the company without involving the French government. On May 14, 2016, the Law Ministry said they found the draft of Inter Governmental Agreement (IGA) as well as the draft supply protocols favouring France. The Defence Ministry, too, had several reservations over these key documents, and decided to let the Cabinet Committee on Security (CCS) take a final call. On August 24, 2016, the  CCS agreed to these onerous demands of the French side.  

 

Divested of these key features, the so-called G2G deal falls flat. But it gets worse because Dassault Aviation received 15% of the euro 7.8 billion, or euro 1.1 billion (Rs 90,000 crore) as advance, but there’s reportedly not even a bank guarantee, which is intrinsic to competitive bidding, and involves direct negotiations with the original equipment manufacturer (OEM). 

 

The other issue that has surfaced is how the benchmark price for the fighter jets were hiked, despite objections by senior officials of the Defence Ministry and the three service chiefs, from euro 5.2 billion (Rs 39,422 crore) to euro 8.2 billion (Rs 62,166 crore). Why would a government go out of its way to accommodate a foreign OEM and an inexperienced private Indian company? Why would a truly ‘national’ government bypass Hindustan Aeronautics Ltd. or even denounce a public sector-owned unit, one of defence ‘Navratnas’, which has performed exceedingly well for over 70 years? 

 

The sight of Dassault Aviation officials making fools of themselves in coming to the defence of the Modi government and the “key” offset partner, Anil Dhirubhai Ambani Group, is one thing. Being sellers, their hands are probably tied and one cannot expect them to be anything but be parsimonious with truth. But why are serving IAF officers coming to the government’s defence, and showing their willingness to aggressively support a private corporation which owes tens of thousands of crores to Indian banks? One really wonders why? 

 

The rot runs deeper. But, the good thing is that the Rafale scam can no longer be covered up or glossed over. There are far too many skeletons that have now started tumbling out of the cupboard.