Rafale will fly, but the excuses won’t

By Ajai Shukla

Business Standard, 12th Feb 19

The controversy around Prime Minister Narendra Modi’s unilateral decision to buy 36 Rafale fighters from France, which picked up steam in late-2017, initially seemed a quixotic political attack by Rahul Gandhi, centred on allegations of over-payment and crony capitalism to favour the Reliance Group, headed by Anil Ambani, who is allegedly close to Mr Modi. However, over the last one-and-a-half years, a seemingly endless dribble of analyses and exposes have added credibility to a “Rafale scam” narrative, raising questions of impropriety, bypassing of procedures, modifying (no pun intended) standard contractual terms to suit foreign vendors and riding roughshod over the defence ministry’s concerns. The Congress Party president, initially alone in attacking the Rafale procurement, now has the entire Opposition chorusing his allegations.

During this period, the Bharatiya Janata Party (BJP) and the government have won pretty much all the big Rafale battles. The Supreme Court tossed out a group of writ petitions, notably one filed by Yashwant Sinha, Arun Shourie and Prashant Bhushan. The apex court order relied on government arguments submitted on an unsigned piece of paper. The Central Bureau of Investigation has not initiated any investigation, despite urging by citizen groups. On Tuesday, the Comptroller & Auditor General (CAG) is expected to submit an audit report, which is already somewhat discredited after the Supreme Court mistakenly cited it, before it was made public, to clear the government of wrongdoing (this has been justified as a grammatical error, where future tense was confused for past tense). And on television news debates, as in Parliament, government and BJP spokespersons successfully confuse the issue with technical and procedural jargon.

Notwithstanding all these victorious Rafale battles, the Rafale war continues causing attrition on Mr Modi. That is because of continuing revelations about procedural violations that are clearly emerging from deep within the government, apparently leaked by officials who resent having been pressured to toe the line laid out by powerful decision-makers in the prime minister’s office (PMO). This discontent is widespread. Even before three ministry of defence (MoD) officials in the Indian Negotiating Team (INT) on the Rafale deal in 2015-16 dissented in writing about how “the basic requirement of financial prudence” was being thrown to the winds, this writer had reported how Mr Modi’s unilateral decision to replace the acquisition of 126 Rafales under the Medium Multi-Role Combat Aircraft (MMRCA) tender with the procurement of 36 Rafale fighters, had taken the Indian Air Force (IAF) and then-defence minister Manohar Parrikar by surprise. Both the IAF and Mr Parrikar are today defending the deal for different reasons. The IAF, desperately short of fighter aircraft, fears that, if the Rafale allegations stick, they might end up without even 36 Rafales. Meanwhile Mr Parrikar walks a fine line, messaging that this was Mr Modi’s idea, not his own, but he would grit his teeth and defend it as a loyal minister. 

With much water having flown under the bridge, let us summarise the arguments since then. The first is the charge that the French vendors, Dassault (aircraft) and MBDA (weapons) were allowed to get away with charging the IAF significantly more per Rafale than what the 126-MMRCA deal would have charged. This writer revealed that Dassault had bid Euro 19.5 billion for 126 Rafales in 2007, some 40 per cent cheaper per fighter than what the IAF is paying in the Euro 7.87 billion contract for 36 Rafales, signed in 2016. The government has argued that the Rafales are now coming with “India-specific enhancements” that make them far more capable, but it then emerged that those added capabilities were also a part of the earlier procurement. Further, the MMRCA contract included the extra benefits of technology transfer to build 108 Rafales in India, which would have galvanised India’s aerospace industry.

The government has privately sought to discredit such reports, but has declined to divulge official figures. Defence Minister Nirmala Sitharaman had promised to make them public, but then backtracked citing a secrecy agreement with France. Meanwhile, party spokespersons have argued that the price being paid for 36 Rafales cannot be compared with the 126-MMRCA tender, since that never resulted in a contract. In fact, the two are directly linked through the Modi-Hollande joint statement, which explicitly stipulated that the price for 36 Rafales would be less than what Dassault had quoted in the MMRCA tender. This linkage is even more direct in the cost negotiations, where Indian officials used Dassault’s price bid in the MMRCA tender to establish a “benchmark price” for negotiating the cost of 36 Rafales.

Another point of controversy, also first reported by this writer, was over the selection of Reliance Group as Dassault’s primary partner for offsets – which requires vendors to invest 50 per cent of their contract value in India’s defence industry. Offset rules required vendors to submit their offset plan for advance scrutiny by the MoD. However, after negotiations with Dassault began, an amendment on August 5, 2015 absolved the MoD from its responsibility to pre-vet and sanction offset proposals. The government says the changes were made earlier and notified only now, though it is difficult to verify that. This has allowed Ms Sitharaman to argue that Reliance Group was Dassault’s choice, notwithstanding its weak financial standing and inexperience in aerospace manufacture. Mr Hollande, now retired, has publicly stated that New Delhi had stipulated that offsets must be routed through Reliance Group. However, Dassault – its contract in the balance – gamely took responsibility for the decision.

The current revelations, which are being spearheaded by The Hindu, centre on the apprehensions recorded on file by several MoD officials about PMO interference undermining India’s negotiations with the French, especially on the issue of sovereign guarantees. Eventually, Paris got away with handing India a legally dubious “Letter of Comfort” instead of a cast-iron sovereign guarantee, which would have bound the French government to intercede on India’s behalf in the event of any glitch in contract implementation. Such apprehensions were endorsed even by the defence secretary of the time – the senior-most MoD official – and even Mr Parrikar did not dismiss the officials’ concerns.

Monday’s revelations were even more worrying. Documents indicated that, well after the Cabinet had approved the 36-Rafale contract document, the government diluted several contractual clauses, doing away with mandatory penalties for the use of “undue influence”, use of “agents/agency commission” and other mandatory clauses stipulated in the Defence Procurement Procedure, the rulebook for defence capital procurements. This raises troubling questions: why would the PMO intervene to remove an anti-corruption clause from a contract the Cabinet had already cleared? Did the French negotiators ask for the “integrity clause” to be removed, or was it an Indian initiative? Why did the PMO intervene to strike out the “integrity clauses”?

Even with further revelations, only a money trail would establish criminal culpability in the Rafale affair. Without that, judgment can only be pronounced in the court of public opinion. Yet, great damage has been done. Procedures and institutional mechanisms have been severely undermined and the already fraught process of defence procurement complicated further. We may never know whether there has been corruption in the Rafale deal. But the evidence of unforgivable incompetence is everywhere.