Congress' role in Rafale controversy
The Indian republic is seven months away from its 17th General Election that will decide which party or alliance gets to form the Government. Thus, it is hardly surprising to see parties busy spending time proving which one is less corrupt. The two parties at the centre of it are – Indian National Congress (INC), the opposition, and the Bharatiya Janata Party (BJP), the incumbent.
The 2014 General Election presented an enormous power shift, with the United Progressive Alliance (UPA) being removed from power by the people after 10 years. For some it came as a surprise, however, the popularity of Narendra Modi, the ambassador and face of BJP at that time, proved to be quite a triumph despite his alleged involvement in communal riots of Gujarat.
The Congress under the new and young leadership of Rahul Gandhi has made sure that in the final years of BJP’s reign, Modi and co. had to appear multiple times in front of the headline-hungry media to prove its innocence in a certain defence deal — which may have been India’s biggest procurement for Air Force in the last decade — the Rafale fighters.
History of Rafale’s procurement
In 2001, during former Prime Minister Atal Behari Vajpayee’s regime, the Indian Air Force promulgated adding more Mirage 2000s to its inventory. However, the manufacturer, French company Dassault Systems, informed the then government that they had upgraded their Mirages from the Hindustan Aeronautics Limited’s (HAL) license production model.
At this juncture, Ministry of Defence (MoD) announced that it would need to release a tender for newer aircraft to be inducted.
Thus in 2001, RFI were issued globally for the acquisition of 126 fighter aircraft. It took almost six-seven years for the MoD to release the RFP, which was handed over to six companies in 2007. The six companies had time till March 2008 to submit their proposals.
After testing and evaluations of extreme rigorous nature that extended from 2009 to 2011, the MoD announced that the Rafale had met with its Air Staff Requirements, post negotiations in 2012.
A deal was chalked out for Dassault to partner with HAL, wherein the French company would deliver the initial 18 in flying condition and the Indian company would license produce 70 percent of the aircraft with the transfer of technology.
However, there was an issue of accountability — Who will be responsible for the quality of the product manufactured by HAL.
HAL and MoD declared that it would not take responsibility for the project under management. Dassault also flatly refused to take any responsibility for HAL production series of aircraft.
As India’s fleet strength reduced, with MiGs being grounded and phased out, Mirage 2000s stressed, the need for adding fighter aircraft became an operational imperative.
Thus, after months of further talks and negotiations with the new government at helm post-2014 General Election, the CEO of Dassault, Eric Trappier said that he hopes a new contract would be signed by March 2015.
Although it took another year for the two parties to come to agreement, the BJP government announced the decision to buy 36 Rafale with a full suite of electronic warfare equipment including AESA radar in September 2016.
A whole lot of narrative had changed from 2012 to 2018. The removal of HAL as an offset partner and rise in costs — the Modi government has been plundered with malfeasance in acquisition after acquisitions by the Congress.
First issue: Cost of 36 Rafale Aircraft
The price quoted for 36 aircraft vis a vis the 2012 selection, which will start being delivered in 2019, is a fly away condition with all system integration being done — waiting to be inducted directly into the squadron.
In 2007, the initial quoted cost of 126 aircraft — just the barebone — was 12 billion USD. In 2012, the cost had ballooned to 18 billion USD.
Finally, in 2016 end, the cost for 36 aircraft with missiles, spares and other electronic suite was 7.8 billion euros which would be roughly around 9.2 billion USD.
This would mean the cost of one aircraft in 2012 was 80.95 million and in 2018, the cost of the aircraft, with weaponry, is roughly around 242 million.
What would have the reason?
It is essential to understand that these 36 aircraft, which will start being delivered from next year, will be ready for induction into the squadron post-delivery.
These aircraft will come with missiles and weaponry which were not part of the 2012 negotiation. The 2012 cost was just of the barebone aircraft.
During the earlier negotiations and talks, 70 percent of the aircraft fleet would have been produced in India.
In comparison, these aircraft are being produced in France where labour is significantly costly. If France’s employment salary rate is compared to India, it stands at 1:7 ratio.
Not only that, it is important to understand the economies of scale. The cost for producing components and parts for 36 aircraft significantly gets increased as compared to 126. There would have been a proportionate saving in costs if there was an increase in level of production. However, that is not the case here. As the number decreased from 126 to 36, the cost had increased as such.
Second issue: Reliance Defence
In 2012-13, Dassault was presented a three-way contract by the Indian government. The contract stated that Dassault would sign one contract with the Indian government for delivery of 18 aircraft and another contract with HAL for transfer of technology and production of 108 aircraft with the responsibilities of both the parties being stated in it.
However, Dassault was concerned with the arrangement, especially stating that the French company would be held responsible for delays by HAL in the contract. Dassault went to the MoD’s Contract Negotiation Committee (CNC) and requested that they be allowed to manufacture through its joint venture with Reliance.
“Rafale would ideally like to build its entire fighter in the Dassault-Reliance JV, with HAL’s role being reduced to a token screwdriver turn. But the MoD cannot accept that, since the Request for Proposals (RFP) mandates that the Rafale will be assembled in HAL. Negotiations are now about the maximum role permissible for the Dassault-Reliance JV,” an official was quoted by a Business Standard report from 2013.
When the then Defence Minister, A. K. Antony was asked about the same, his reply was that the government will follow terms and conditions of the RFP which was “non-negotiable”.
The then Air Chief Marshal N. A. K. Browne had said, “The OEM has been given the full right to select any production partner that he wishes to have in India or abroad. We have no issues; if he has to supply certain kits, he can get it manufactured in Bangalore… or from Reliance or from anybody else. We have no issues, or we have no say in that matter. That’s a business relationship between Dassault and Reliance.”
“(But) the licenced manufacture part, it is very clear in the RFP that it has to be done by HAL. Whatever else he (Dassault) gets manufactured here, there, wherever… the Indian government and the IAF have no issues there. As long as those kits and everything else are supplied and given to HAL at the instance of the OEM, for the licenced manufacture.”
In July 2013, Dassault CEO, Trappier, had expressed to The Hindu about the uncertainty of the Rafale deal. It was also during this time that Trappier had announced that Dassault Aviation would sign a joint venture with Mukesh Ambani’s Reliance Industries Limited (RIL) in India.
The Hindu report quotes Trappier, “Right from the beginning we have had a partner called Reliance that will be engaged in producing a certain number of components for the Rafale — this will be in the private sector. Secondly, our only partner for the manufacture of the Rafale in India is HAL. There has never been any doubt on this subject and we are working actively with HAL on the one hand and Reliance in a joint venture on the other. As far as responsibility goes, we will be responsible for the Rafale just as Thales will be for the radars. But at this stage I would not like to comment further on this issue.”
Every organisation starts somewhere. The question, however, is whether they can deliver or not.
In the case of HAL, heads don’t roll and there is no accountability. Whereas in Reliance, program and project management will be closely monitored by the MoD and IAF personnel.
In a case of a private entity, under contract negotiation, the group can be sued or taken to court by the government. Whereas, HAL cannot be sued as it is run by the government.
The only thing that has changed about Dassault’s joint venture relationship with Reliance from 2012 to 2017 is the shift from one Ambani brother’s company to other. What was earlier to happen with Mukesh Ambani, it is now taking shape with Anil Ambani’s company. Whether or not the Indian government at any point had any role in the decision making of Reliance as an offset partner should be looked back with Dassault’s interest in Reliance since 2012.
One of the reasons why Mukesh Ambani had backed out of the joint venture is because he wasn't ready to go through the hectic process of procurement and approvals that an aerospace and defence company has to go through.
Moreover, it is not unnatural for companies to form few days or weeks or a month before a joint venture comes to play. Many times, a company or a special purpose vehicle is formed specifically for a certain joint venture deal.
If the question of joint venture has to take place, India has already seen joint ventures mature between private partners — Tata and Lockheed Martin, Adani and SAAB, Mahindra Defence and Boeing. Reliance’s partnership with Dassault is just another in the long list of joint ventures with Indian private entities by foreign companies as part of their offset policies.
Moreover, the role of Reliance Defence is completely different to what HAL’s role was earlier mentioned. Reliance would not be manufacturing the aircraft. Its role mainly involves support for the 36 aircraft.
Question of HAL’s capability
HAL’s production rate has been abysmal for indigenously designed and developed product, namely the LCA. Vendor and supplier development has not matched with the product delivery rate desired by IAF and MoD.
HAL’s biggest achievement is licensed production. When it comes to ownership of a program and delivering on time, HAL has always faltered.
Moreover, the Indian government had to invest a large amount in the operational and capital expenses had HAL come into play. One has to also realise that the jigs and fixtures required for Rafale cannot be used for other aircraft.
Antagonising an ally
Having spent more than a decade of a country and a company’s effort, causing collateral damage to the Indian Air Force, India were at a risk of losing a staunch ally in France. The decades of trust where India depends on France not just in air force but in navy and commercial aviation, the deal not seeing the light of the day would have be jeopardised Indo-French relations.
BJP government killing MMRCA tender
Probably what the Congress should be focusing their debate and argument on is the fact that the initial requirement was for 126 aircraft.
India has an effective strength of 31 combat squadrons. India’s authorised required squadron strength is 42 which the country has never achieved.
The induction of 36 Rafale will counter the shortfalls faced by the Indian Air Force, however, the country will be still short from the authorised figure of 42.
Killing the MMRCA tender in April 2015, the process of acquiring more combat aircraft has got delayed by at least two-three years.
Even though the BJP government issued a tender for 110 fighter aircraft around April 2018 and six companies — which had earlier bid for the MMRCA — have shown interest.
A sign of concern by major aerospace companies over India’s fickle mindset is a proof when the Defence Secretary had to assure global companies during DefExpo 2018 that the process for procurement of 110 fighter jets would not meet the same fate as the failed MMRCA initiative.
Was it really necessary for the government to scrap the tender at that point and delay the IAF’s requirement by years more?
Congress and A. Antony's failure
Where Congress has failed, Modi and BJP has achieved. IAF's strength is at the weakest in the current scenario and when the talks started back in 2012, the then government should have been able to find a middle path and finalise on the deal. However, a "non-negotiable" attitude did not help either the air force or the Congress — which were already under the radar for 2G scam.
The Rahul Gandhi-led party has minimal chances of coming on the winning side during the 2019 General Election if it continues to drag on a debate which is a failure of its own government of UPA II. It is UPA’s hubris that led to the inability of their government to close the Rafale deal.
If the Congress wants the BJP’s personal share of seats to decrease from that of 2014, the party’s strategy and focus have to shift from the current Rafale controversy to issues such as our lacklusture GDP growth, demonetisation, increase in dollar rate and fuel prices, violence in the name of religion and caste and the centres inability to support states during natural calamities — Tamil Nadu, Kerala, Assam, Arunachal Pradesh, etc.
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