As Rafale agreement is inked, many concerns remain

By Ajai Shukla

Business Standard, 23rd Sept 16

On a warm Delhi evening on April 3, 2015, Defence Minister Manohar Parrikar had left his South Block office and was driving to catch his flight to Goa, when his mobile phone received an incoming call from the prime minister’s office (PMO). Could he come in urgently, an official asked, the PM would like to talk briefly.

When Parrikar reached the PMO, Prime Minister Narendra Modi sprang a bombshell. Parrikar was told that, on Modi’s forthcoming trip to Paris, he and French President Francois Hollande would announce an agreement for India to buy 36 Rafale fighters. During Modi’s nine-day tour of France, Germany and Canada, Parrikar would have to manage the media and field the inevitable questions.

Taken aback, Parrikar still caught his flight to Goa. Over the next week, he batted loyally on behalf of his PM, publicly defending a decision he neither understood nor agreed with, that was taken over his head, and that senior ministry of defence (MoD) officials warned him would be difficult to defend.

Today, 17 months later, most pledges that Parrikar issued in defence of Modi’s Rafale agreement have proven incorrect. He told PTI in Goa that all 36 Rafale fighters would join IAF service within two years; in fact more than six years will elapse before the final delivery is made. He repeated the Modi-Hollande undertaking that the price would be “on terms that would be better than” Dassault’s bid in the now cancelled tender for 126 medium multi-role combat aircraft (MMRCA). It now turns out that India will pay a vastly higher price.

But Parrikar, through 17 months of defending a deal that was not his, has become the face of the Rafale. And after Friday, when he and his visiting French counterpart, Jean-Yves Le Drian, sign an inter-governmental agreement (IGA) for 36 Rafales, Parrikar and not Modi will answer for the purchase.

There is disquiet within the MoD about the acquisition, with officials concerned about subsequent scrutiny by constitutional authorities like the Comptroller and Auditor General. Their key worries are as follows.

Exorbitant cost

A key element in price negotiations is “benchmarking”, or comparing Dassault’s price with other contracts involving the same fighter. With India, Dassault had already established a benchmark in the MMRCA acquisition, where it had quoted a price for 18 fully built Rafales, just like the 36 fighters that India is now buying.

Speaking to Doordarshan on April 13, 2015, Parrikar had revealed Rafale’s bid for 126 fighters, stating: “When you talk of 126 [Rafale] aircraft, it becomes a purchase of about Rs 90,000 crore”, i.e. Rs 715 crore per fighter after adding all costs.

Now Parrikar would be buying 36 Rafale fighters for Euro 7.8 billion (Rs 58,000 crore), which is over Rs 1,600 crore per aircraft --- more than double the earlier price.

True, the current contract includes elements that were not there in the 126-fighter MMRCA tender --- including a superior weapons package with Meteor missiles; and performance-based logistics (PBL), which bind Dassault to ensure that a stipulated percentage of the Rafale fleet remains combat-ready at all times. The percentage is guessed to be about 75-80 per cent, an unchallenging target for western fighter types.

Even deducting Euro 2.8 billion for the weapons and PBL from the anticipated Euro 7.8 billion contract amount, a Euro 5 billion price tag for 36 Rafales puts the ticker price of each at over Rs 1,000 crore. For that the IAF can buy two-and-a-half Sukhoi-30 MKI fighters --- a heavy fighter as capable as the Rafale.

Variation in fighter types

IAF logisticians, who already struggle to maintain, repair and support six different types of fighters --- the Sukhoi-30MKI, Mirage 2000, Jaguar, MiG-29, MiG-27, MiG-21 and the Tejas Light Combat Aircraft (LCA) --- are hardly welcoming the prospect of a seventh fighter type, which would require expensive, tailor-made base infrastructure, repair depots and spare parts chains.

Air power experts say more Sukhoi-30MKIs would eliminate this need, besides being cheaper. Alternatively, fast-tracking the Fifth Generation Fighter Aircraft (FGFA), which Russia and India intend to co-develop, would eliminate the need for Rafales.

Even if the IAF exercises an option clause for 18 more Rafales, there would be just three operational squadrons, like with the Mirage 2000. Besides the options clause, nine more Rafales would be needed, since an IAF squadron has 21 fighters.

Sovereign guarantees

While New Delhi is negotiating the Rafale purchase directly with private vendor, Dassault, the MoD wants sovereign guarantees from the French government, of the kind that come with American equipment bought through the Foreign Military Sales (FMS) route. In a FMS procurement, e.g. India’s C-130J Super Hercules purchase, the US Department of Defense (the Pentagon) sets up a dedicated “project management team” that negotiates on the buyer’s behalf, beating down the price, establishing training and logistics support, and providing assurance that the buyer gets everything needed to operate and maintain the product.

Alongside FMS support, corruption is deterred by the stringent US Foreign Corrupt Practices Act, which vendors seldom dare to violate. This provides comfort to Indian MoD officials against subsequent allegations raised against a deal.

Paris, in contrast, is only willing to give a lukewarm written assurance of support with the Rafale --- something that the MoD refers to disparagingly as a “comfort letter”.

Piecemeal contracting

India needs some 200-300 fighters to replace the MiG-21 and MiG-27 fleet that is being phased out of service. Just 36 Rafales provides little cover, so the IAF hopes to buy not just 18 more under the options clause, but perhaps another tranche later.

MoD officials complain that piecemeal contracting provides little leverage for beating down prices. The same problem will afflict the procurement of Gripen NG, or F-16s, which the MoD is weighing as possible options to replace retiring fighters.

With an IGA in the offing, and a formal contract yet to be negotiated, New Delhi would still have the opportunity to address these issues, say MoD officials. Yet, the IGA on Friday will be celebrated in the IAF as a giant step towards a fighter they have pursued tenaciously for 15 years.