With allegations flying thick and fast, the Rafale deal has suddenly livened up the political scene. While the Opposition hopes that they have an antidote to Prime Minister Narendra Modi's popularity, the NDA camp is left wondering if the defence deal would queer the pitch in the run-up to the 2019 elections.
So, what are the facts of the deal, from a purely technical and financial perspective?
Was the award of offset contract to Dassault Reliance Aviation Limited (DRAL) a means to help Anil Ambani whose business has run up a huge debt? The Opposition alleges that Modi-led NDA has been blatantly partial in letting Anil Ambani's debt-ridden Reliance Group get a lion's share of the Dassault offset obligation contract. Was Reliance given any undue advantage?
Let's look at the chequered history of the deal. After technical inspection in 2011, the then UPA govt. inked a deal with French co. Dassault for the supply of Rafale fighter aircraft. The agreement was to supply 126 aircraft to the Indian Air Force (IAF) – 18 to be completely made by the company in France and the remaining 108 to be made at Hindustan Aeronautics Limited (HAL), Bengaluru.
The agreement was not formalised as both the sides could not arrive at common grounds vis-à-vis conditions and criteria to be applied to the contract.
Price point divergence
The main bone of contention between government and the Opposition, apart from the price point divergence, is the role of HAL - or rather the disappearance of HAL from the scene once the contract was inked.
Did the Modi government deliberately keep HAL out of the deal? Did they give Reliance any undue advantage?
First of all, Dassault had refused to provide guarantee for the aircraft to be manufactured at HAL. Further, manufacturing Rafale aircraft in India would have cost considerably more as it involved an increase of over 3 crore man hours compared to French process. It should also be noted that HAL does not accredit itself well considering the high attrition rate of various MiG models made by it as well as the delay the in LCA project.
How about the pricing? Did India end up paying more for the aircraft under the Modi government deal? Let's take a look at the pricing part under both the deals.
Reports state that the price offered by Dassault in 2011 was Rs. 740 crore for the basic aircraft. Congress claims that the UPA government negotiated at Rs. 526 crore per aircraft, but there is no evidence of Dassault having agreed to it.
However, in this context, the NDA could have cleared the air in a better way. Though the defence minister first sought to take refuge behind the secrecy code of the government-to-government agreement, she later on spelled out some cost details of the Rafale deal. If some details could be published, why not reveal the basic prices and final prices negotiated by both UPA and NDA governments?
More than what meets the eye
At what point did Reliance make an entry and how did this twist the deal? If Dassault chief would confirm HAL to be in the reckoning until 17 days before PM Modi announced the purchase of 36 units in Paris in 2015, what happened during the intervening period which saw Anil Ambani's firm emerging as the favourite?
This is where the government has given rise to allegations that it gave Reliance undue preference. But there could be more than what meets the eye.
It was in 2015 April that PM Modi visited France and announced the Rafale deal there. The agreement with the French government was only signed in 2016.
Dassault reveals that it was in negotiations with Mukash Ambani-led Reliance arm since 2012. When the elder Ambani sibling exited the business and it was taken up by his younger brother Anil, negotiations were initiated on the sidelines of Bangalore Air Show in 2015, according to NDTV.
What are the key elements of the modified deal?
In 2016 September, the NDA government modified the total number of aircraft from 126 to 36 and signed a government-to-government deal with its French counterpart. With an all inclusive contract value at Euro 7.87 billion, NDA claims a benefit of Euro 1.6 billion in the total price.
However, neither the UPA, nor the NDA, has divulged the full details of pricing. The UPA claims that the basic price of each aircraft was pegged at Rs. 526 crore but no information on additional expense for weapons suite, avionics, other India-specific additions, service costs and infrastructure, spare parts expenses etc has been furnished. The NDA claims that its final price of Rs. 1060 crore per aircraft is all inclusive, but we do not know whether there is a cap for service contract and for how long.
The NDA also claims that no Transfer of Technology (ToT) was included in the deal mooted by the UPA. It also mentions that 50 percent of the amount to be paid to Dassault would be ploughed back to India to develop spares supply chain and manufacture them here. It is understood that the French have already started helping with refining the Kaveri engine of the long delayed LCA Tejas of HAL.
Besides, the India-specific Rafale will come with provision for Israeli helmet mounted display, Meteor air-to-air missile and SCALP cruise missile with range of over 560 km. Also, the Rafale can be configured to carry Brahmos NG, the supersonic missile, the First Post had reported.
The ToT comprises complete transfer including Thales RBE2-AA radar tech, its s/w source code, spare parts, maintenance training and a guarantee of 75 percent operational availability for first five years.
If others can, why can't DRAL?
The opposition accused the Modi government of giving Reliance a back-door entry into the multi-billion dollar deal. However, If the role of an offset service contract is to provide only infrastructure back-up, why cannot DRAL be considered? Only a handful of companies exist in India which have the capability to do so – Tata, Birla, Adani, Essar, L&T, M&M etc.
If you look at how India's other private sector defence equipment suppliers fared it's clear that they have also been benefitted by being part of private sector supply chain to the Indian military.
Under a partnership announced in 2015 Apache helicopters are to be manufactured by Tata Boeing Aerospace Ltd. in Hyderabad. The first order worth Rs. 4,100 crore has been given. On June 1, 2018 the company delivered first AH-64 fuselage ahead of schedule. This is the sole global production facility for AH-64 fuselage besides vertical spar boxes and secondary structures.
L&T announced partnership with Korean defence manufacturer Hanwha Techwin to produce 100 K9 Vajra T howitzers for Indian Army, an order worth Rs. 4,500 crore.
In Rs. 4,800 crore deal M&M bagged the contract to assemble of BAE's ultra light howitzer guns. Tata Gr. has been suppliers to Indian armed forces ever since Independence. In October 2016, Tata announced a partnership with Airbus for the production of 56 C-295 transport aircraft for the IAF. The Tata Group is said to have orders worth more than Rs. 10,000 crore for defence and aerospace sectors.
L&T is on course to deliver Rs. 10,000 crore worth of equipment to Indian defence forces every year by 2021. They have also set up a JV with MBDA Missile Systems of France.
Well known Indian industrial houses are established partners of Indian defence forces' supply chain. While they may not have had access to such a single high-value contract as the Dassault offset terms now bagged by DRAL, all of them vie for as large a share as each could get of the pie.
The NDA government would find its hands full if it becomes evident that DRAL was awarded the deal thanks to interference from its part. Does Rafale have the potential to be another Bofors? At the moment, the government looks confident and we hope that no undue advantage was made available to any in the process.
(The author is a management professional who closely follows defence setor. Opinions are personal)
