THE PRESENT CONTROVERSY PERTAINS TO THE DIRECT PURCHASE OF 36 RAFALE AIRCRAFT IN A G TO G ROUTE. ARGUMENTS PUT FORWARD AGAINST THE DEAL PERTAIN TO COST, COMPETITION AND CRONYISM. WHY, FOR INSTANCE WAS AN EQUAL OPPORTUNITY NOT GIVEN TO TYPHOON, TO QUOTE ITS BEST RATES, WHICH COULD HAVE FORCED DA TO QUOTE MORE COMPETITIVE TERMS.
THE ACQUISITION by India of 36 Rafale fighter aircraft has unfortunately been put through an unnecessary controversy, where innuendo and mud throwing have taken the place of reasoned debate. India needed a Medium Multi Role Combat Aircraft (MMRCA) and the process for its acquisition started as early as 2001, when the Ministry of Defence (MoD) put in a request for information (RFI). Subsequently, a request for proposal (RFP) for 126 MMRCA was issued six years down the line in August 2007 to meet the urgent requirements of the IAF. Of these, 18 aircraft were to be purchased in a fly away condition and the remaining 108 were to be manufactured by Hindustan Aeronautics Limited (HAL) under transfer of technology.
Four years later, there were six contenders for supplying the MMRCA to India: Boeing’s F/A-18E/F Super Hornet, Lockheed’s F-16 Fighting Falcon, Mikoyan’s MiG-35, Saab’s JAS 39 Gripen, Eurofighter Typhoon, andDassault Aviation’s Rafale. After extensive trials, two aircraft that passed all technical specifications were short listed in 2011; the Eurofighter Typhoon and Dassault’s Rafale. On 31 January 2012, it was announced that Dassault Aviation (DA) had won the contest on account of lower life-cycle costs and contract negotiations commenced thereafter. By 2014, these negotiations had reached a total impasse. While Dassault was willing to give a guarantee for the products it supplied in a fly away condition, it was not willing to give a similar guarantee for the products manufactured in India by HAL, making the then Defence Minister, Mr Manohar Parrikar remark that the ‘deal was as good as dead’. But that did not take away from the fact that India still needed a MMRCA.
To address the acute shortage of fighter aircraft, as seen in the dwindling fighter squadron strength of the IAF, the BJP led NDA government scrapped the 126-jet MMRCA contract and decided to purchase 36 new Rafale fighter jets from Dassault Aviation through an inter-governmental (G to G) agreement. From a projected strength of 44 fighter squadrons, the IAF is down to 32 and this number too is going down with the retirement of MiG 21 and Sukhoi fighters which are nearing the end of their life expectancy. The delay in the Tejas programme too has contributed to this unhealthy state of affairs.
The present controversy pertains to the direct purchase of 36 Rafale aircraft in a G to G route. Arguments put forward against the deal pertain to cost, competition and cronyism. Why, for instance was an equal opportunity not given to Typhoon, to quote its best rates, which could have forced DA to quote more competitive terms. The answer to that is however simple. The DPP of 2016, in para 104, clearly states that in a G-to G route, ‘geo-strategic advantages that are likely to accrue take precedence over competition, transparency and accountability’. Now the opposition is seeking to know the specificities of these advantages, but the very nature of such deals means that they have value only if cloaked in secrecy. We would do well to remember that major defence deals between two countries are also an instrument of a nation’s foreign policy objectives and are invariably a part of a larger package, wherein both sides have certain obligations with serious security implications. Such agreements between two nations are never made public. G to G deals come with sovereign guarantees, and the seller government provides logistic, training and exploitation support. Also, such deals are clean and do not involve payment of slush money. It is sad to note that every time India tries to acquire game-changing defence capability, a controversy is deliberately created by inimical forces. Such forces need to be exposed.
On transfer of technology, the situation is more complicated. Writing in the Quint, Abhijit Iyer-Mitra postulates that viable transfer of technologies which were possible upto four decades ago, are no longer so as the ground situation has now dramatically changed. Given the extraordinary division of labour that has happened since the 1980s, many of the aircraft components are outsourced to small and micro industries, which means that transfer of technology of those parts are not available for the aircraft manufacturer to give away. In addition, the complex nature of a plane, the limitations of technology transfer and the fluid nature of technology with fast obsolescence rates means that, ‘even if technology is given, forget setting up manufacture, even before the technology is mentally absorbed by domestic engineers, it is obsolete’.
The cost factor needs elaboration. Allegations are flying thick and fast that the deal negotiated by the present government is far higher than the one negotiated by the earlier UPA regime. This flies against the face of facts. There was no deal done by the earlier establishment as the deal did not fructify. As there was no deal, there could not have been an agreed price. In any case, a non-deal cannot be compared with a deal and a non-starter aborted arrangement cannot be used as a datum for price comparison. More importantly, the earlier quotes were for the platform as such and the add ons, which gave the aircraft punch, were not concluded. What has been procured now brings to the fore certain India specific capabilities, and the price paid is commensurate with those capabilities.
The next charge is of capital cronyism, where it is alleged that the government has favoured the Anil Ambani Reliance group by ousting HAL. This charge has more to do with ignorance or malicious intent than with anything else. For starters, DA is providing 36 Rafales to India, all of which are being manufactured in France. There is no question of a partner here, be it HAL or anyone else. Reliance hence is not making any aircraft. To quote from an article written by Maj Gen. Mrinal Suman: 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 crore 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. 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/ servicescover the complete range of defence, inland/coastal security and civilaerospace 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.
Instead of running down each and every government purchase, which in turn leads to time delays and overrun costs, the focus should be on further streamlining our procurement systems. Why for instance is India dealing with seven different types of combat jet fighters? On a long term basis, the focus should be on getting HAL to perform and produce the Tejas Mark I and Mark IA and in future, the Mark II, all as per requirement and as per schedule. We should also focus on getting the indigenous AMCA (Advanced Medium Combat Aircraft) as per schedule.
Besides further refining of procurement procedures, we need to see that those in charge of such procurements are well versed in the procedures. We need to have officers who have been trained in the subject and who then need to be posted for long tenures with the establishment. Unless a holistic view is taken of our procurement needs, we will continue to flounder. Let us also remember that in the very competitive environment of defence deals, the loser invariably cries foul, which is then exploited by vested interests. The Rafale deal is a good one for the country and the matter should rest here.