Rafale and the Reliance Conundrum
Major General Mrinal Suman
The debate on the recent no-confidence motion
in the Lok Sabha will long be remembered for two notables. One, reprehensible hug-and-wink
antics of an immature leader. Two, serious allegations were levelled against
the government as regards the probity of the Rafale deal. The first aspect
concerns the dignity and decorum of the house; and the posterity will remember
it with due repugnance. It is the second aspect that is of much graver concern.
For, the Rafale deal, if embroiled in political slugfest, has the potential of
harming India’s security and derailing the modernisation programme.
Broadly, the government has been accused of (i)
declining to reveal details of the deal under the allegedly sham clause of
secrecy; (ii) negotiating a costlier deal; and (iii) ignoring the public sector
to favour a private Indian company. All are serious charges and merit scrutiny.
To recall, on the urgent demand of IAF, tenders
were issued for 126 Medium Multi-Role
Combat Aircraft (MMRCA) in August 2007.
While 18 aircraft were to be purchased in fully built up condition, the balance
quantity was to be manufactured in India by Hindustan
Aeronautics Limited (HAL) under transfer of technology. After extensive
trials, two platforms (Dassault’s Rafale
and Eurofighter Typhoon) were
found technically acceptable. Finally, Rafale emerged winner due to its lower
life-cycle cost. The announcement was made on 31 January 2012 and contract
negotiations commenced thereafter.
By 2014, negotiations had reached a total
impasse with no signs of possible
breakthrough. In addition to overly escalating cost (from USD 10-12
billion to USD 25-30 billion), two other critical issues proved highly
cantankerous. One, Dassault declined to
stand guarantee for the 108 fighters to be built by HAL as it had found HAL to
be totally incapable of producing ultra-modern fighters. Two, differences
emerged regarding the interpretation of scope and depth of technology transfer.
Reportedly, Dassault was ready to part with limited technology for licence
manufacture only and not the design technology. With no solution in sight, the
then Defence Minister Antony had decided to let the proposal die by default.
Secrecy Clause
It is an accepted fact that major
defence deals between the two countries are an instrument of a nation’s foreign
policy objectives. They do not take place in isolation and are invariably a part
of a larger package agreed to between the two nations. Hence, it is incorrect
to view them as standalone commercial contract. Needless to say, many commitments made as quid pro quo carry
serious security implications and are never made public.
India is buying Rafale as a complete
fighting system and not just the platform. The real punch lies in the weaponry,
avionics, electronics and radars that it carries. Operational capability of a strategic
system depends on its configuration and it has to be closely guarded secret.
No country reveals such
details as the surprise element gets negated and
the prospective enemies can initiate counter-measures in advance. It is strange that some knowledgeable
experts are wanting the government to release an item-wise comparative cost
table. Demand for transparency cannot be carried to such ridiculous limits.
As regards the seller, France has
already confirmed that it does not want to reveal the commercial terms of the
deal as it has to market the product to other nations as well. Commercial
confidentiality is inherent in all government to government deals. There is no
MRP for the defence systems.
The Negotiated Deal is much Costlier
It
is being alleged that the deal negotiated by Modi is at a much higher cost than
the one under the UPA regime. It is quite a childish prank. How can one compare
a non-deal with a deal. As stated earlier, the earlier negotiations never
fructified due to fundamental disagreements. A non-starter aborted arrangement
cannot be used as a datum for price comparison?
In
addition, the earlier quote was for the platform as such and the negotiations
for the add-ons never reached conclusiveness. The current deal includes large number of India specific capabilities
which no other aircraft possesses. To quote an example, the base model of a
sedan may cost only 11 lacs while the price of the fully loaded top-end model
with all features could well exceed 16 lacs. Can the two costs be compared?
About Favouring the Private Sector Company
The
government has been accused of favouring Anil Ambani’s Reliance group by
ousting HAL. This is by far the most ridiculous allegation. One does not know
whether it is sheer ignorance on the part of the critics or a deliberate plan
with malicious motives.
The current Rafale deal does not entail
manufacture/assembly of the fighters in India. All 36 aircraft will be
manufactured in France and delivered to India fully configured. Hence, the
question of having an Indian production partner does not arise. Reliance is not
going to manufacture any aircraft. Dassault has selected a number of Indian
Offset Partners (IOP) to fulfil its offset obligations and Reliance is one of
them, albeit a major one.
Fulfilment
of offset obligations entails compensating the buyer country for the outflow of
its resources through designated offset programmes. India’s offset policy has
been spelt out at Appendix D to Chapter II of the defence procurement
procedure. Provisions related to the current discussion are as follows:-
- Quantum of Offsets. As per Para 2.2, all ‘Buy Global’ cases of estimated value of more than Rs 2,000 crores have to carry offset obligations equal to 30 percent of the contract value. Interestingly, India has managed to obtain offsets equal to 50 percent of the contract value, despite stiff opposition by the French. It is a huge gain as Dassault has to incur considerable additional expenditure to fulfil extra offset obligations.
· Selection of IOP. Para 4.3
unambiguously states that the foreign vendor is free to select IOP and the
government has no role to play at all.
· Responsibility for Fulfilling Offsets. Para 5.1 categorically states that
the foreign vendor will be responsible for the fulfilment of offset
obligations. Failure invites huge penalty (five percent of the unfulfilled
offset obligation with a cap of twenty percent) and even debarment from future
contracts. It is a huge punishment by all accounts.
· Avenues for Discharge of Offset Obligations (Para 3). The policy specifies six avenues
for the discharge of offset obligations and the foreign vendor is free to
choose any one or a combination of them. The avenues include direct purchase of
eligible products and services; FDI in joint ventures; and investment in kind/technology.
Eligible products/services cover the
complete range of defence, inland/coastal security and civil aerospace
products. It is a vast choice.
The above provisions make eminent sense.
If the vendor is responsible for offsets, he must have independence to select
IOP in whom he has faith. The government cannot dictate IOP and yet hold the
vendor responsible for timely completion. Dassault has chosen Reliance as a
major IOP. No one can question it.
It needs to be recalled here that India
signed a contract for 22 Apache attack helicopters and 15 Chinook heavy-lift
choppers from the US with offset obligations. Boeing chose Tata Advanced Systems, Dynamatic
Technologies, Rossel Techsys and many others as IOP. Hence, accusing the
government of favouring Reliance in the Rafale deal defies logic.
Finally
In
the case of large value deals, government to government route is by far the most
cost effective with sovereign guarantees. In addition, the seller government
provides logistic, training and exploitation support. Most importantly, there
are no middlemen and no slush money. The Rafale deal is no exception. However,
every attempt at acquiring
game-changing defence capability is deliberately embroiled in controversies by
disparate inimical forces.
As has been seen in the past,
controversies are deliberately generated by the losing competitors by planting negative stories through
paid sources to coerce the decision makers into aborting the deal. In the case
of Rafale deal, media reports suggest that the government is considering
procurement of additional Rafale fighters, especially the naval version. Apparently,
efforts are being made to deter the government from going ahead. The
current storm being kicked may well be a manifestation of the same. It is also
alleged that some corporate entities are purposely targeted by the politicians to
extort election funds.
