Rafale scam? We now know too much to ignore

The Supreme Court on Thursday reserved orders on the preliminary objections raised by the government in the Rafale matter. The Supreme Court had in December 2018 ruled that no probe was needed into the ‘Rafale scam’. The petitioners had sought a review of that ruling based on their earlier plea. Since then, however, new documents and material have become available on the decision-making process that led to the purchase of 36 Rafale fighters for the Indian Air Force. The petitioners sought to present these new documents to the court, but the Centre objected, saying that the documents were “stolen” from the government and therefore must not be relied upon by the court. We now know that the December 2018 ruling was based on false and incomplete information provided by the government to the Supreme Court in a sealed envelope and, most unfortunately, on some colourable testimonies provided by air force officers. But this time, it is dealing with the case in open court and will hopefully not only take into account all that, but also the mass of new material and questions that have cropped up since that ruling. No matter what the SC decides, the 36-Rafale deal’s stink won’t go away.

Many of the allegations of wrongdoing are already known and quite obvious. For instance, Prime Minister Narendra Modi suddenly short-circuited the 126-fighter negotiation with Dassault and announced the 36-fighter deal without his own Defence minister knowing about it at the time, and without approval from the Defence Acquisition Council or the Cabinet Committee on Security; only 15 days before that, Dassault CEO Eric Trappier had stood with then IAF Chief Arup Raha and then HAL Chairman Suvarna Raju and said that HAL and Dassault had resolved all issues between them and he expected the final deal for 126 Rafale fighters to be signed soon; only two days before Modi’s announcement, then Foreign Secretary S Jaishankar said final negotiations were on between HAL, IAF and Dassault; the Defence minister has subsequently revealed that as far back as July 2014, HAL had written to the Defence ministry that there was only one pending unresolved issue with Dassault.

None of them knew what PM Modi had in mind. Suvarna Raju was part of the PM’s delegation to Paris, but when Modi went to meet French President Francois Hollande, Raju was left behind, it was Anil Ambani in the lead. Ambani had registered his defence company only weeks earlier, and had zero experience, people and even less money to undertake any defence business. But he had immediately upon registering his company travelled to Paris in late March 2015, just ahead of the PM’s visit, and had met French government and defence industry officials. He had, of course, bought the Pipavav shipyard from a fellow Gujarati businessman in January 2015, a few months after Modi came to power, and gotten into the naval defence business (it has since been blacklisted by the Indian Navy).

Months later, as the contours of the deal became clearer, out of India’s original plan to buy 126 fighters and obtain technology, offsets and other benefits from the mega deal, only 36 fighters and the offsets remained. According to a retired Air Vice Marshal who was at Air Headquarters and on the Rafale files during these negotiations, the IAF had, in fact, told the Modi government that four squadrons, or 72 fighters, was the minimum the IAF needed because it wanted to base two squadrons each on the Northern and Western fronts. But the Modi government decided on two squadrons of Rafale fighters and gave up the option for two more squadrons. More on that later.    

The prime minister visited Paris in April 2015 and announced the 36-aircraft deal with Hollande, saying it would be in the same configuration as approved by the IAF under the UPA-era MMRCA tender process, but on better terms. An Indian Negotiating Team (INT) was appointed to hammer out the details of the better terms. What happened next?

Consider this: the INT diligently arrived at a benchmark price (the maximum price that would be acceptable to India and from which price was to be negotiated downwards), of 5.2 billion euros for the entire Rafale plus weapons package. But the PM-headed Cabinet Committee on Security (CCS) pushed it up to 8.2 billion euros without explanation; changes were made to the draft Inter-Governmental Agreement (IGA) that was approved by the CCS on August 24, 2016, after that date and just days ahead of the final signing of the deal. These changes were, in effect, concessions made to Dassault.

Among them, the government did away with the requirement for a sovereign guarantee from the French government and instead settled for a letter from the French prime minister (not the President) saying he would ensure that payments to be made by Dassault and MBDA if they defaulted on supplies would be made “at the earliest” (there’s not even a defined time-frame for this in the so-called ‘Letter of Comfort’).

Second, Dassault, which had willingly given a bank guarantee while bidding for the UPA government’s 126-fighter deal, refused to give one to the Modi government for the 36-fighter deal, and the Modi government accepted this, knowing full well that Dassault was in a weak financial position and India ran the risk that the company may, in a worst-case scenario, not be able to supply the aircraft contracted for (In contrast, when Anil Ambani’s Reliance Naval Engineering Limited (RNEL) defaulted on a contract, the Indian Navy punitively encashed the Rs 3,000-crore bank guarantee provided by RNEL).

Instead, the Modi government agreed to make huge advance payments to Dassault for aircraft that would be delivered only starting three years later. Curiously, the government even did away with the need to make payments to the private suppliers through an escrow account against verified milestones in delivery, despite the Defence ministry’s head of finance at the time, Sudhanshu Mohanty, insisting on it.

And if all these were not enough, the government also removed the anti-corruption clause (that Dassault could not bribe Indian officials for any purpose at any time during the contract) and even gave up the right to look into Dassault’s account books (which would be required to see if the company indeed made inappropriate payments to anybody in India if such allegations arose. Remember, the Modi government also brought in the super-opaque Electoral Bonds scheme at around the same time as the Rafale deal. Theoretically, Dassault could pay possible kickbacks to the BJP through Electoral Bonds, but none of us would ever get to know about it)

Why did Narendra Modi, the man who proclaimed, “I’m a Gujarati, business is in my blood” (much like Donald Trump claims to be the ultimate ‘deal-maker’) agree to make all these concessions to Dassault and the French government?

The one possible innocent explanation might be that the government was under tremendous pressure to immediately procure at least some Rafale fighters for the IAF. The only problem with that is, Dassault will begin deliveries only in September 2019, three years after the contract was signed. In contrast, Egypt ordered 24 Rafale fighters (and MBDA missiles and a frigate, all for $5 billion!) in February 2015, and began taking deliveries of the fighters in July that year – in less than six months. Of course, the government has said, “oh, that’s because Egypt bought the fighters off the shelf whereas we asked for India-Specific Enhancements, and thus the three-year timeframe to deliver”. But we know now that most of the enhancements are to be made only after the delivery of all the aircraft to India, as per an IAF document. In any case, if the IAF had an emergency requirement, shouldn’t the government have bought whatever aircraft was available off the shelf, like Indira Gandhi did with the Mirage 2000? After all, the French Air Force’s Rafale variant is not a bad one by any measure!   

 


A French Rafale fighter jet is seen aboard the French aircraft carrier Charles de Gaulle in the Mediterranean sea, March 5, 2019. Picture taken March 5, 2019. REUTERS/Jean-Paul Pelissier

 

All this in a buyer’s market!

What did we lose in the bargain? The most important loss that the nation has suffered due to Modi’s decision to buy 36 Rafale fighters in fly-away condition from France is technology transfer, and therefore the loss of an opportunity to build up India’s strategic industrial capability. As a former Air Marshal who was part of the team that set out the air staff requirements for the MMRCA deal told me recently, “The loss of local production and transfer of technology is a huge loss. Imagine, if we had built more than 100 of these sophisticated aircraft over several years, a full ecosystem would have developed in the country. The strategic loss is huge”.   

There were important reasons why the IAF and the UPA government (and the Vajpayee government before that) wanted and worked towards buying 126 fighters. The IAF wanted those many fighters to replace 350 MiG aircraft. The MiGs are single-role fighters – they were great for air-to-air combat. But the world has changed in terms of defence budgets and technology. In the 1960s and 70s, air forces could afford fleets of specialised aircraft for different warfighting roles – air-to-air combat, ground attack, bombers. The late 1970s and 1980s saw the rise of the first multi-role aircraft such as the F-16, F/A-18, Mirage-2000 – ones that were capable of both air combat and ground attack. Air Forces could field fewer of these aircraft for the same capability as earlier larger fleets (or better since the avionics, sensors, weapons got better and better). As the Cold War wound down and Western defence budgets shrunk, this trend accelerated and the next generation of aircraft became more genuinely multi-role capable. The Rafale and the Eurofighter Typhoon belong to this class.

So, around the turn of the century, the IAF, too, decided that it could replace 350 single-role aircraft with 126 multi-role ones. That was the genesis of the Multi-Role Combat Aircraft (MRCA) requirement in 1999. Subsequently, around 2001-2, as India’s economy, trade and stature as a regional power had grown since the late 1990s, the IAF decided that it wanted not only multi-role aircraft but also more capable fighters than the likes of the Mirage-2000 (which was the initial choice for replacing the MiGs, following its performance during the Kargil War) that could help India police the Indian Ocean region from the Straits of Hormuz to the Straits of Malacca. So, it needed heavier, twin-engine aircraft of the 15-ton class that could fly longer and carry more weapons. The MRCA requirement now became the Medium Multi-Role Combat Aircraft (MMRCA), to include the F/A-18, the Eurofighter Typhoon, the MiG-35 and the Rafale in the competition.

The other big reason for buying 126 aircraft of a kind in one go was to reduce the number of types of aircraft the IAF had in its inventory. For a long time, India had made ad hoc purchases of fighter aircraft from Russia, Britain and France and all of it had added up to 7-8 types of fighter aircraft. To maintain and service and to train with so many types was inefficient and expensive. The idea behind the large 126 aircraft deal was to bring down the number of types to 3-4 at most -- the Tejas at the lower end; the MMRCA aircraft at the medium range and the Sukhoi-30 MKI at the top end.

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If that was the case for the MMRCA from the IAF and technology standpoints, from the government and industrial viewpoints, the defence market had changed in favour of buyers. With the end of the Cold War, Western defence budgets had shrunk drastically, especially in Europe but also in America, and their defence industries needed export markets more than ever.

In this new situation, the potential big markets were China, India and Saudi Arabia. Of these, the US and Europe couldn’t sell their wares to China, which was a rising strategic competitor. India was seen by the global defence manufacturers as the big prize over the long run. But India was keen to build its own defence industry and develop self-reliance.

Western countries began to offer offsets to countries like India in this context – as deal sweeteners. Realising that the defence market had changed from a seller’s market to a buyer’s market, India began to demand technology transfer, too. The 126-MMRCA deal was, as the Western defence media called it, “the mother of all fighter aircraft deals” -- $10 billion had already been laid out for it in 2007, and the vendors were salivating at the prospect of this shooting up by the time India made the decision; what’s more, there was also the option of a further buy of 63 aircraft and, of course, business to be had offering maintenance, spares and service for the next 40-50 years.

The 126-fighter deal was the bait offered to draw Western companies to transfer substantial technology and to enable production of a majority of the aircraft in India. It was to be the last time India bought a fighter aircraft from abroad. After the experience of developing and building the Tejas fighters and HAL having learnt progressively to build Sukhoi 30-MKIs from the raw-material stage upwards, technology transfer, industrial offsets and assembly and integration of the Rafale aircraft in India was to enable the country to move on to designing and producing its own fifth-generation aircraft. The Rafale was to be the last foreign purchase. That was the big strategic picture behind buying 126 state-of-the-art fighters.

Moreover, by this time, aircraft purchase costing had changed. The world was moving to life-cycle costing – how much will the maintenance, spares, fuel, upgrades for the aircraft cost over its entire lifetime. The Indian MoD got into this complex calculation – along with calculating the cost of technology transfer and how much to get back in terms of offsets – and by all accounts tied itself up in knots doing it.

The six contending aircraft were put through gruelling tests over three years in their countries as well as in the plains, desert and mountains of India – to check for nearly 650 parameters. The RFP was issued in 2007, the six aircraft were field-tested by 2010, the technical evaluations by the IAF and complex costing calculations by the MoD were done by 2011, the technology transfer and offsets plan were drawn up, the L1 and L2 (the two lowest bidders) were declared and negotiations on the final cost, configuration and industrial production arrangements were all made to the point where, in July 2014, HAL wrote to the MoD that only one more issue needed to be resolved between it and Dassault.

Yet, with the change of government, this whole process – the bath water – was thrown out along with the baby – 90 aircraft and technology transfer. And yet, we were told we would spend nearly the same $10 billion that had been earmarked for 126 fighters to buy just 36 aircraft and their $1 billion weapons package now. It is easy to shout that the UPA had delayed the purchase and had sacrificed national security and to indulge in chest-thumping about one’s own decisive leadership. Until you know and understand the facts and the background.

The 36-Rafale Deal

The Modi government says it got a 9% discount on the barebones aircraft and has gone to town about how wonderful a deal it had struck (Modi’s top ministers have claimed that Modi ji single-handedly brought down the price by various figures – 20%, 40% and so on; the CAG, whose report is strangely not available to you the citizen, says the overall cost advantage is 2.8% compared to the UPA deal. Mind you, that is minus the technology transfer, and sovereign and bank guarantees).

Couldn’t the Modi government have driven an even harder bargain if it had bought all 126 fighters? We could have perhaps got a 20% discount, with technology transfer and a higher amount of offsets that could have been spread across a larger number of industrial players and kept the manufacturing industry humming in these difficult times. Even with a 9% discount, why didn’t the government buy 126 aircraft, since it would have been such a good bargain? Why didn’t the government use the leverage of the July 2014 Eurofighter Typhoon offer of a 20% discount and faster deliveries to drive a harder bargain with Dassault? Why did the Cabinet Committee on Security instead push up the benchmark price and give Dassault and the French all those concessions?

The prime minister recently rued that had India had Rafale fighters, we could have given Pakistan a bloodier nose than we did recently. Maybe true, so why didn’t he sign the 126-Rafale deal in 2014 or even in 2015. We would have had the first Rafale jets with the IAF by 2017 then, and not September 2019 as the government is promising now. Was not the strategic objective of building industrial capability in India lost with the 36-fighter deal? Does not the IAF face the prospect of once again having to service, maintain, train and evolve tactics with multiple types of complex aircraft now that the government has bought only 36 Rafale fighters and the rest are likely to be of another type?  

Given up in the 36-Rafale deal was also an option to buy more of them at the same price and thus guard against price increase, which the French are notorious for, if we were to decide to buy more of them. Why? Is this how one made a deal if one cared about strengthening the Indian Air Force, growing India’s strategic industrial capability and obtaining the maximum advantage for the country in terms of price and technology and early deliveries?

Or was the 36-Rafale deal really meant to benefit the decision-makers, ruling party and crony capitalists as has been alleged?

Even in the 36-Rafale deal, the hands-on involvement of the PMO at every stage and on every issue is surprising. It would have been understandable if the deal had come to an impasse between the negotiating teams of the two countries and then the PM entered the scene and resolved the impasse in a statesmanly manner and ensured that the IAF got its fighters and both the Indian and French sides were satisfied with whatever compromise it was. Documents show that in the Rafale deal, that was not the case. The PMO was involved from the stage of making the top-level decision to talking the nitty-gritty of the deal, at times behind the INT’s back. Does this not constitute undue interest?

The Offset Deal

Offsets are meant to ensure that some of the industrial benefits -- investments, technology, jobs, etc -- of a big purchase come back to us. When strictly applied, offsets bring investments into facilities to build components and sub-systems for the very weapon system India is buying, and pushes our industry along the learning curve. If ‘Make in India’ was a serious effort, it was particularly important that the government, having given up on technology transfer, had at least insisted on offsets connected to the production of the Rafale jets themselves. Had it done so, the natural choice for Dassault to tie up with would have been HAL.

Instead, the offsets were diluted to allow Dassault to make parts for its Falcon business jets. The Dassault-Reliance Aerospace Limited (DRAL) joint venture is an entity into which Dassault pours all the money and technology (Anil Ambani is in no position to bring either to the JV) and takes out the parts made back to France for integration into the Falcon jets. When it has implemented its share of the offsets in this fashion, Dassault is free to dissolve the JV and walk out of the country. What would India have gained from it? What therefore is the role of the Indian partner in such circumstances – that of a mere facilitator for the foreign company, thanks to his/her close connections with the government of the day? Or, is it as a channel for potential kickbacks from a hiked-up price, money that can today be sent without trace through Electoral Bonds?

The government and the defenders of the offset have repeatedly said the government did not know at all that Anil Ambani’s Reliance had been selected by Dassault as its offset partner. Wasn’t Anil Ambani present with PM Modi in Paris when the 36-Rafale deal was announced in April 2015? Are we expected to believe that Modi had no knowledge of Anil Ambani’s interest in landing the offset deal for himself? That Anil Ambani never broached the subject with Modi and that he never told the prime minister that he had put money into a film that Hollande’s actor-partner Julie Gayet was involved with?

Perhaps to claim such deniability, the government rewrote the offset rules in the Defence Procurement Procedure in 2016. Earlier, the OEM vendor – in this case, Dassault – had to tell the government who it wanted to pick as offset partner. But ahead of the final signing of the Rafale deal in 2016, the rule itself was changed so that Dassault did not have to formally inform the government that it had picked Anil Ambani’s Reliance as its partner.

In the 2G case, Manmohan Singh was alleged to have followed an “arms-length policy”, telling the then Telecom minister A Raja that the prime minister did not want to know what he was up to in the 2G allocations, and thus looking away while the alleged 2G scam occurred. Would it not be fair to assume that the Modi government followed the same “arms-length policy” in the Dassault-Reliance case? Worse, did the government not merely violate a laid down rule but change the rule itself to suit all sides involved?    

Government ministers have also repeatedly told the country, including Parliament and Supreme Court, that the offset value that Anil Ambani got from the Rafale deal was only a miniscule amount and not the Rs 30,000 crore that Congress chief Rahul Gandhi has imputed. The government’s ministers have said that Dassault had only one part of the total offset contracts to hand out and that it had 72 partners for it and Reliance was only one of them.

Truth is, Dassault has the biggest chunk of the offset contract, about Rs 15,000 crore of the Rs 30,000 crore. What’s more, Anil Ambani is also the offset partner for Thales and MBDA, the other two companies in ‘Team Rafale’ with substantial offset contracts to give out. That means Anil Ambani has a finger in about Rs 21,000 crore of the Rs 30,000 crore offset pie. The only ‘Team Rafale’ OEM that did not tie up with Anil Ambani was Safran, which owns the Rafale’s engine-maker Snecma. In fact, Safran dropped plans to collaborate with HAL to make engine parts for the Rafale fighter, citing the lower order number. Safran India CEO Stephane Lauret told Bloomberg, “As per the plan, we were supposed to do it in Bangalore. We won’t do it for this 36 aircraft deal. But we’ll continue to have other business with them. We have other projects with HAL”. Again, India’s loss.

After Rafale?

The Rafale story is only half the story. We will understand it only when we get to the other half — the stuff that was to come next. But to get there, we have to go back a little — to two months before Modi first announced the 36-Rafale deal — to February 2015. That was when a retired Air Marshal, who was with the Modi government’s brains-trust, told me that the 126-MMRCA deal (the tender) was dead, and the government would only buy two squadrons of the Rafale in a separate deal, or none at all. He said it would be the Gripen that would be bought in large numbers. It was shortly before 4 pm on February 16, 2015, that the retired Air Marshal told me this – nearly two months before it became fact. Unfortunately, I didn’t write this at the time because I did not believe him. After all, the man was at the time working with the Swedes and was at that very moment standing with a group of SAAB executives and Swedish Air Force pilots in a seminar room as part of Aero India 2015. I concluded that he was just boasting in front of them and perhaps trying to convey to the Swedes that he had swung or would swing the deal for them. I was wrong about him.

Now, recall that there is no option to buy more Rafale fighters in the future for the same price. Why was this clause not part of the deal? Didn’t the govt think the IAF would need more Rafale fighters in the future and it would be good to lock in the price at current levels for a future buy?

Secondly, why did the ‘Make in India’ champion Narendra Modi not want technology transfer for such a superb fighter as the Rafale, unless he did not want any more of these fighters to be built in India? And why wouldn’t he want more Rafale fighters unless he had decided that his government would buy a different fighter to satisfy the IAF’s requirement of 126 multi-role combat aircraft?

Well, the process for that last was put in motion almost immediately. Months after the Rafale deal was signed and sealed, the government sent out an RFI (Request for Information) for 110 more aircraft. And this time, then Defence Minister Manohar Parrikar made it clear that the preference was for single-engine fighters (although the same set of aircraft as in the MMRCA contest have since come into the arena once again). Who are the potential vendors of single-engine fighters? SAAB (Gripen) and Lockheed Martin (F-16, now changed to F-21). And guess who SAAB tied up with as its Indian partner to execute offsets if it won the bid? The Adani Group of Gautam Adani. Now, now, Modi ji did not say anything to SAAB on who it should partner with. After the Rafale deal, SAAB just got the message.

In all this, as many have observed, there’s no money trail, at least not as yet. There are clever ways to send and receive money around the globe today without anybody knowing – such as Electoral Bonds, for instance. But the ‘Rafale scam’ is right in front of our eyes and obvious in the arbitrary actions involved, if only we choose to see. Still, the prime minister of the country must be given the benefit of doubt and asked to explain his actions to the nation. Since the Modi government during its term failed to appoint a Lokpal, who could have investigated the prime minister, this is a fit case for a Joint Parliamentary Committee inquiry, if not a court-monitored CBI investigation. At the very least, the Supreme Court may be well served by an amicus curiae in the matter to collect and study all the documents, from the RFP onwards, to take a view on the various issues that have come into doubt.

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Rafale scam? We now know too much to ignore

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