The manner in which the order for the Rafale fighter was suddenly changed. The gross violation of mandatory procedures. The dogged effort of the government to conceal facts. The contradictory and ever-shifting statements of the ministers of defence. The gross misuse of friendly media to purvey falsehood, and to drown vital facts and questions in an avalanche of abuse. Invoking secrecy clauses in the contract that are just not there. The inexplicable dropping from the project of the one national organisation that has decades of experience in building aircraft – the public sector organisation, Hindustan Aeronautics Ltd, commonly known as HAL – and the incomprehensible induction of a private company that has absolutely no experience in the field of aerospace manufacture, but does have a record of failing in large projects, and is mired deeply in debt.
Each of these features has convinced us that there is a major scandal here, gross misuse of office, and monumental criminal misconduct. Nor is this an ordinary scandal or ordinary misconduct: it is one that imperils the security of the country, and puts serious pressure on the already fragile defence capital budget. Moreover, it is by far larger than ones that the country has had to contend with in the past.
- The government to disclose the facts relating to the deal – especially those relating to the cost that the exchequer has paid.
- The Opposition parties to press the government relentlessly on this matter as, financial considerations apart, the government has wilfully by-passed institutions and violated procedures that have been evolved to safeguard national security
- The media to do its duty by excavating the facts that the government is trying so hard to conceal
Facts and questions
- In accordance with requirements specified by the Indian Air Force, the United Progressive Alliance government issued a Request for Proposal – or RFP – on August 28, 2007 for 126 Medium Multi-Role Combat Aircrafts or MMRCAs. The Request for Proposal made clear that the bids were to be inclusive of cost of initial purchase, transfer of technology, licensed production, etc. Please glance at the italicised portion once again as it gives the lie to the government’s repeated assertion that a higher price is being paid to Dassault now because of “add-ons”.
- Six vendors, that is Dassault Aviation, Lockheed Martin, Boeing, Saab, Eurofighter GmbH, and Russian Aircraft Corporation submitted bids. After flight trials and technical assessment, the Indian Air Force announced in 2011 that Dassault’s Rafale and Eurofighter GmbH’s Typhoon fighters met the air force’s requirements. In 2012, it was found that Dassault’s bid was the lowest and therefore negotiations began between Dassault and the Indian government.
- Intensive negotiations took place. They reached the penultimate state. Addressing the press on March 25, 2015 in France Eric Trappier, the chief executive officer of Dassault stated:
“You can imagine my satisfaction to hear … from the HAL Chairman, that we are in agreement for the responsibilities sharing, considering as well our conformity with the RFP [Request for Proposal] in order to be in line with the rules of this competition. I strongly believe that contract finalisation and signature would come soon”.
The United Progressive Alliance government steered the negotiations to fulfil three inter-related objectives. First, the Air Force should get some aircraft at the earliest possible, since the MiG-21 and MiG-27 fleet had completed their service lives and were being retired from service. Second, India’s aerospace industry has to be rejuvenated: for this to happen, the country must acquire access to advanced technologies; an order of such a large magnitude – buying 126 fighters – ought to be leveraged to obtain advanced technologies from the foreign vendor. Third, the one Indian company that had decades of experience in building aircraft – HAL – should build the fighter in India so that it would be in a position to maintain, service and overhaul the Rafale through its service life of 30-40 years. In the process, HAL would also acquire advanced manufacturing capabilities to become self-reliant in producing state-of-the art fighter aircraft.
Accordingly, the 126-aircraft deal envisaged that the first eighteen aircraft would be procured in a “fly-away condition”: that is, these would be fully built by the vendor. The remaining 108 fighters would be manufactured in India by HAL under a Transfer of Technology agreement. At the time the Request for Proposal was floated in 2007, the total cost for 126 Medium Multi-Role Combat Aircrafts was estimated by government to be Rs 42,000 crores. The final price that was being negotiated under the deal is not in the public domain.
- But in an interview to Doordarshan, broadcast on April 13, 2015, soon after Prime Minister Modi signed the deal, the then Defence Minister Manohar Parrikar disclosed that the price for 126 aircrafts would have been about Rs 90,000 crores. He stated, “We must remember that Rafale is a top-end multi-role fighter . . . but it is quite expensive. When you talk of 126 aircrafts, it becomes a purchase of about 90,000 crores.”. That would place the price per aircraft at Rs. 715 crore (Rs 90,000 crore divided by 126 planes). According to Parrikar this cost was inclusive of everything.
- The cost per aircraft that is to be compared is: the cost at which the first 18 aircraft of the aborted medium multi-role combat aircrafts deal would have been obtained in the “fly-away” condition and the cost at which the 36 are going to be obtained in the “fly-away” condition under the new Agreement, to which we shall come in a moment.
- Manifestly, the cost of manufacturing the aircraft by HAL in India would have been substantially higher than the cost of Rafale fighters procured in the “fly-away condition”. That is because, to manufacture in India, additional costs would have had to be incurred for setting up the requisite infrastructure and the plant, establishing the supply chain, developing vendors, etc. The supplier would also have charged a heavy fee for transfer of technology. Therefore, the price of the Rafale fighter in “fly-away condition,” built in an already running plant in France, would have been substantially less than Rs 715 crore.
- On the 8th of April, 2015, India’s Foreign Secretary, S Jaishankar briefed journalists regarding the forthcoming visit of the Prime Minister to France. During this briefing he stated,
In terms of Rafale, my understanding is that there are discussions under way between the French company, our Ministry of Defence, the HAL which is involved in this. These are ongoing discussions. These are very technical, detailed discussions. We do not mix up leadership level visits with deep details of ongoing defence contracts. That is on a different track. A leadership visit usually looks at big picture issues even in the security field.
Four facts are evident from what the Foreign Secretary said just two days before the Prime Minister’s announcement:
- Negotiations were still going on regarding the Rafale aircraft;
- Manifestly these were going on under the original Request for Proposal
- HAL was very much to be a part of the project as it was of the negotiations;
- The Prime Minister of India and the President of France were to focus on the “big picture issues even in the security field”.
This is what the foreign secretary told journalists on April 8, 2015. Yet, just two days later, the prime minister on his own announced that a completely new deal was going to be struck. Under this, India would purchase 36 aircraft in a “fly-away” condition.
The India-France Joint Statement issued on April 10, 2015 stated:
“The two leaders agreed to conclude an Inter-Governmental Agreement for supply of the aircraft on terms that would be better than conveyed by Dassault Aviation as part of a separate process underway; the delivery would be in time-frame that would be compatible with the operational requirement of IAF; and that the aircraft and associated systems and weapons would be delivered on the same configuration as had been tested and approved by Indian Air Force, and with a longer maintenance responsibility by France.”
Two implications of the Joint Statement were manifest:
- The price of the 36 Rafales would be cheaper than what was already being negotiated. Since they were being supplied in “fly-away condition”, they had to be cheaper than the 18 Rafales that Dassault had bid to supply in the Medium Multi-Role Combat Aircrafts tender. Moreover,
- The aircraft and systems were to be “on the same configuration as had been tested and approved by the IAF in the MMRCA evaluation.” That clear and emphatic affirmation in the Joint Statement nails the falsehood that has been spread since then – namely, that the price per aircraft is so much higher because of some novel “India specific enhancements” in the 36 Rafales now contracted.
The sorts of statements that the then Defence Minister, Manohar Parrikar, made in the wake of the announcement left no doubt that he had not been consulted in regard to this drastic change in the project. He moved swiftly to distance himself from the decision after the Modi-Hollande announcement. “Modi-ji took the decision; I back it up,” he told Doordarshan on April 13, 2015. Elaborating to NDTV, he described the decision as “the outcome of discussions between the Prime Minister [of India] and the President of France.”
There were further startling facts about the decision:
- There was no explanation for how the number of 36 aircraft had been arrived at;
- There was no mention of any planes that were to be manufactured in India;
- There was no mention of the requirement that the supplier must transfer technology;
- From securing 126 fighters, the Indian Air Force was now to get only 36 fighters – there was nothing about the rest.
All that was said by government sources in justification was that the Air Force needed the planes urgently, and that these 36 planes would reach India within two years. Three years later, the aircraft are nowhere in sight. It has in fact been announced in Parliament that the first Rafale fighters will come only by September 2019 (four-and-a-half years after the prime minister’s announcement). The full-pack of 36 aircraft will not be available to India till mid-2022.
If the government had adhered to the original Request for Proposal, the 18 aircraft would have come within two and half years, and, as Dassault would have been bound to commence production within three years, the additional aircraft would also have been available to the Air Force by mid-2022. The planes thus would have been available at the pace which the government now claims it has ensured as a matter of urgency, and, in addition, the country would have gained from the technology that would have been transferred.
Several questions arise:
- Did the Air Force urge that the original deal with its all-important multiple objectives be scrapped and a new one confined to 36 aircraft be concluded? How was the Air Force’s studied estimate that it is in dire need of 126 aircraft summarily jettisoned?
- Did the new deal have the approval of the Cabinet Committee on Security at the time that the prime minister announced it in April 2015 and included it in the India-France Joint Statement?
- As this was entirely a new deal, why were fresh tenders not invited? In particular, why was this not done in view of the fact that the suppliers Eurofighter GmbH had formally written to the then Defence Minister Arun Jaitley on July 4, 2014, offering to reduce the cost of the Eurofighter Typhoon by a full 20%?
Enter Anil Ambani group, exit HAL
- In March 2014, it was widely reported that a Work Share Agreement was entered into between Dassault Aviation and HAL according to which HAL would do 70% of the work on 108 planes that were to be manufactured in India while Dassault would undertake the rest of the work. Just days before the new deal was signed, two companies were incorporated: Adani Defence Systems and Technologies Limited on March 25, 2015 [Annexure 5], and Reliance Defence Ltd. on March 28, 2015 [Annexure 6].
- Within days of these companies getting incorporated, on April 10, 2015, the prime minister announced that India would be going in for 36 Rafales in “fly-away” condition. This announcement had four startling features:
- No one could make out what had happened to the original Request for Proposal, and the protracted and detailed negotiations that had been going on in pursuance of that;
- HAL was manifestly kicked out, and with it the much vaunted “Make in India”;
- All the talk of Make in India notwithstanding, there was no mention now of transfer of technology;
- And in little time, it became clear that Anil Ambani (who had accompanied the prime minister to Paris in April 2015) and his newly minted Reliance Defence Ltd. were going to be brought in to benefit from the billions of dollars of Offsets that would arise from the Rafale purchase.
- After the formal contract, a new Joint Venture was struck between Reliance Defence Ltd. and Dassault Aviation with Anil Ambani as the chief executive officer. Reliance is to hold 51% of the equity and Dassault 49%. This brand new company is the one that has been assigned 70% of the Offset benefits – that is, orders worth Rs 21,000 crore out of a total offset liability of Rs 30,000 crore.
- Clause 8.6 of the Defence Offset Guidelines brought into force by this government on 1st of April, 2016, mandatorily require that, “all Offset proposals will be processed by the Acquisition Manager and approved by Raksha Mantri, regardless of their value.” [Annexure 7]
Thus, approval of the Defence Minister was mandatorily required to process Offset proposals. In an inexplicable abdication of its mandatory duty, the government has now claimed that it has nothing to do with the matter – that it is the prerogative of Dassault to choose its Offset partner. Surely, the government must be able to list the grounds on which its own company, HAL, was removed? And what experience and infrastructure and financial wherewithal did the new partner, Reliance Defence Ltd. have for doing the Offset work? Could an experienced manufacturer like Dassault have picked a company that had no experience whatsoever of manufacturing aircraft, one which had just been incorporated, without the approval from the government, which was necessary under its own offset policy? All the more so, because at the time, Reliance Defence, a year old company, had a debt of Rs 8,000 crore, and had an accumulated loss of Rs 1,300 crore. In fact, almost all of the companies of the Anil Ambani group were heavily in debt and were experiencing extreme difficulties in meeting their obligations and completing the projects that they had already undertaken. [Annexure 8]
- Neither Reliance Defence nor any of its allied companies have any experience of manufacturing aerospace and defence equipment. Its Pipavav Shipyard is facing serious difficulties in building Offshore Patrol Vessels for the Navy – a long-delayed order that is impacting the Navy’s operational effectiveness. In contrast, HAL has over 60 years of experience in aircraft manufacturing. As recently as 2014, HAL had entered into a Work Share Agreement with Dassault for manufacture of Rafale. During his Press Conference on March 25, 2015, Eric Trappier had stated:
“the choice of Rafale in 2012 was made after a demanding competition. Rafale is the next logical step. After outstanding amount of work and some discussion you can imagine my satisfaction to hear; on one hand from IAF Chief that he wants a combat proven aircraft which could be the Rafale and we would have signed which should be the next logical step; and on the other hand from the HAL chairman, that we are in agreement for the responsibilities sharing, considering as well our conformity with the RFP [Request for Proposal] in order to be in line with the rules of this competition. I strongly believe that contract finalisation and signature would come very soon” .
Secrecy clause: ‘As much of a lie as it is baseless’
Government of India has been insisting that it cannot disclose the price of the aircraft because of an Agreement of Secrecy with the government of France. This claim is as much of a lie as it is baseless.
In fact, on November 18, 2016, in response to a question asked in the Lok Sabha on the acquisition of fighter aircrafts, the Minister of State for Defence stated that:
“Inter-Governmental Agreement with the Government of French Republic has been signed on 23.09.2016 for purchase of 36 Rafale aircraft along with requisite equipments, services and weapons. Cost of each Rafale aircraft is approximately Rs. 670 crore and all the aircraft will be delivered by April 2022.” [Annexure 9].
As will be evident:
- The price was disclosed by the government itself;
- The price was put at Rs. 670 crore per aircraft;
- In the government’s own telling, in addition to the cost of the aircraft per se, this price included the “requisite equipments, services and weapons.”
Nor was this disclosure a sudden leap in transparency. On earlier occasions also, the cost of defence and aerospace equipment have been disclosed to Parliament and the people. For instance, in the Press Release that it issued on March 26, 2012, regarding the “Upgradation of Mirage Aircraft,” the Ministry of Defence stated:
“Contracts have been signed with M/s Thales, France and M/s Dassault Aviation, France, along with M/s Hindustan Aeronautics Limited (HAL) for upgrade of the Mirage 2000 aircraft of the Indian Air Force (IAF). A contract has also been signed with M/s MBDA, France, for procurement of air-to-air missiles for the Mirage 2000 aircraft.
“The cost of the contract for upgrade of the Mirage 2000 with M/s Thales and M/s Dassault Aviation is Euro 1470 Million, while the cost of the contract with M/s HAL is Rs.2020 crore. The cost of the contract for procurement of the missiles from M/s MBDA, France, is Euro 958,980,822.44.
“The entire upgradation of the Mirage aircraft is scheduled to be completed by 2021. Delivery of MICA missiles is scheduled between 2015 and 2019.
“This information was given by Minister of Defence Shri A.K. Antony in written reply to Dr. Padmasinha Bajirao Patil and Shri Rajaiah Siricilla in Lok Sabha today.”
Even more conclusive is the fact that the secrecy clause in the Agreement binds India not to disclose the technical specifications and operational capabilities of the aircraft. It does not bind India to keep the price secret. In fact, the French President, Emmanuel Macron himself stated explicitly in March in an interview to India Today that how much is to be disclosed in this regard is entirely up to the Indian government.
- It is also the case that anyone and everyone can get information about every aircraft, every component of every aircraft, every missile, every component of every missile that has been imported from data published officially by the Government of India itself.
- The actual price of 36 aircrafts was also revealed in a Press Release by Dassault and Reliance Defence [Annexure 11: Media Release of February 16, 2017] and Financial Press Release statement of Dassault for 2016 [Annexure 12]. Both the documents show the total price of the deal to be about Rs. 60,000 crores (about 8.139 Billion Euros) for 36 aircrafts. This is what is embarrassing for the government for it works out to Rs 1,660 crores per plane. This is more than double the price of the aircraft under the earlier 126 Medium Multi-Role Combat Aircrafts deal. And almost Rupees One thousand crore higher per plane than the price that was furnished by the government itself to Parliament on November 18, 2016.
- Note in particular that the original Request for Proposal had clearly stated that in addition to the costs of direct acquisition, the cost of the aircraft would include cost of weapons and missiles, warranty for the first two years, license royalty for manufacture in India, of technology transfer as well as the cost of initial training. [Annexure 13]. The “India-specific add-ons” excuse that is now being peddled to justify this enormous increase in the price – the missile, the helmet – are just a cock-and-bull afterthought. They are given the lie by the India-France Joint Statement of April 2015 which states explicitly that “the aircraft and associated systems and weapons would be delivered on the same configuration as had been tested and approved by Indian Air Force” in the 126 Medium Multi-Role Combat Aircrafts tender.
- And there is further confirmation. On February 19, 2015, PTI quoted Eric Trappier as saying that:
“The pricing issue is very clear. Our pricing remains the same from day one of L1 (Lowest bidder). So there has been no change on that front.” He added that, “We are exactly in line with our answer to RFP [Request for Proposal]. This answer led the Government of India to select L1 which was Rafale. And we have stuck to the same commitment which is totally in line and compliant with the RFP.” [Annexure 14]
- Finally, the government’s refusal to disclose the price and terms of Rafale contract on the ground of a confidentiality agreement is literally a replay of what the then government invoked for not giving details of the Bofors contract – no one had denounced that government for hiding the facts behind the veil of confidentiality as leaders of the BJP itself. Thus, as was the case then so is the case now: in effect the government is claiming that they can spend any amount of public money for anything and refuse to disclose it to Parliament and to the people by signing a confidentiality agreement with a foreign government. Such a contention violates the basic principles of transparency and accountability in a democracy.
- Can any agreement with a foreign government override the authority of Parliament, and through it of the people to facts that bear directly on national security?
- Can any agreement with a foreign government override the laws of our country, such as the Right to Information Act, the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act?
- If these details are confidential, how is it that some media outlets are claiming access to this confidential price data and other information of India-specific upgrades, access from none other government sources?
National security implications
The net result of the gross misuse of office by which the original project for the acquisition of 126 fighter aircraft has been sabotaged is:
- National security has been jeopardised
- An enormous additional burden has been placed on the national exchequer
- The one organisation in the country which has had decades-long experience in manufacturing aircraft – HAL – has been kicked out of the project
- A private party which has had absolutely no experience in manufacturing aerospace and defence equipment has been handed an enormous financial benefit
The entire transaction is thus a textbook case of criminal misconduct, of misuse of public office, and of enriching parties at the expense of the national interest and national security.
Parliament and other agencies charged with the responsibility of overseeing the defence of our country, of preventing corruption, and of ensuring that government remains accountable as well as media must exhume every fact about how the original project was jettisoned, and one without rationale has been put in its place.
Arun Shourie and Yashwant Sinha are former union ministers. Prashant Bhushan, a Supreme Court lawyer and activist, is president of Swaraj Abhiyan.
Annexure 5: Date of Incorporation of Adani Defence Systems and Technologies Limited
Annexure 6: Date of Incorporation of Reliance Defence Ltd.
Annexure 7: Defence Offset Guidelines, April 1, 2016
Annexure 8: Reliance Defence and Engineering Limited financial results for the year ended March 31, 2017
Annexure 9: Lok Sabha question, November 18, 2016
Annexure 10: Press release by Ministry of Defence, March 26, 2012
Annexure 11: Media Release of February 16, 2017
Annexure 12: Financial Press Release statement of Dassault for 2016
Annexure 13: Request for Proposal
Annexure 14: Rafale deal: Dassault says no change in pricing