The five obfuscations of the Rafale deal – and four simple questions the Modi government must answer

Putting together the Rafale story as it stands seems to involve sifting through a good deal of innuendo, misdirection, and some apparently unrelated facts.

A short primer of business history is necessary before we even start. Indian industrialist Dhirubhai Ambani died in July 2002, leaving behind a huge commercial empire with multiple businesses. His sons Mukesh and Anil Ambani eventually chose to go their separate ways. In 2005, their mother Kokilaben Ambani mediated a deal where the brothers split ownership and control of the family’s many businesses. Both continued to use the Reliance brand name. Mukesh Ambani retained control of the flagship Reliance Industries Limited, while Anil consolidated his businesses under the banner of the Reliance Anil Dhirubhai Ambani Group.

Meanwhile, the Indian Air Force had been plaintively asking for a new multirole fighter aircraft for years. Negotiations for French aerospace company Dassault Aviation’s Rafale twin-jet combat aircraft started in 2007, during the Congress-led United Progressive Alliance regime. India has a history of buying military aircraft followed by making or upgrading these planes under licences that allow technology transfers. This has always been done through Hindustan Aeronautics Limited – a company 100% owned by the Government of India.

This process of buying followed by licensed technology transfers has happened with multiple Soviet and Russian aircraft such as the MiG and Sukhoi range, and also with many British and French jets, from the Folland Gnat to the Anglo-French Jaguar, and the French Mirage 2000. Hindustan Aeronautics Limited and Dassault Aviation have worked together on the Mirage 2000 platform for over 30 years. The Indian Air Force tested out several aircraft before it decided to buy 126 Rafales from Dassault.

India has a defence offset policy. In plain language, this means that when the government buys arms from abroad, it sets a condition that the arms seller should purchase some components or avail of some services in India, spending rupees to generate profits and employment to offset the deal. The offset valuation for the Rafale deal is set at 50%.

The Rafale was shortlisted in 2012 from amongst six fighters vying for the Indian Air Force’s medium multirole combat aircraft tender for 126 aircraft, issued in 2007. Some of the negotiations involved Hindustan Aeronautics Limited with talk that there would be 108 planes manufactured in India under license. There was also talk of a partnership with Reliance Industries Limited – the group owned by Mukesh Ambani. The possibility of an agreement between the older Ambani sibling’s group firm, Reliance Aerospace Technologies, and Dassault ended in 2014,when Reliance Industries Limited decided not to enter the defence sector.

The 2015 Rafale deal

In April 2015, Prime Minister Narendra Modi went to Paris. After meeting Francois Hollande, who was then President of France, he announced that India would buy 36 Rafales, not 126. It was also learnt that Dassault was going to partner with Reliance Defence Fixed Wing Aircraft, a company owned by Anil Ambani’s Reliance Group. That company had been set up in March 2015, less than 12 days before Modi’s visit to Paris. The deal to buy 36 Rafales was finally signed in 2016.

After Modi’s announcement of the Rafale deal on April 10, 2015, Reliance Defence gave a presentation to the Maharashtra government in June 2015 and asked for 289 acres of land in the Multi-modal International Cargo Hub and Airport SEZ area in Nagpur. The land was formally handed over on August 28, 2015.

In October 2017, the foundation stone for the Dassault Reliance Aerospace Limited joint venture plant was laid in Nagpur in the presence of French Defence Minister Florence Parly, Union Minister Nitin Gadkari, Dassault CEO Eric Trappier and Anil Ambani. Oddly, Defence Minister Nirmala Sitharaman says she did not know Reliance would be the Dassault key offset partner despite the presence of Cabinet minister Gadkari at the inauguration ceremony and her own meeting with Parly during that October 2017 visit.

Everything stated above is undisputed fact. It has been reported multiple times by different organisations in official press releases.

Questions have been raised about several aspects of the deal.

The first is that Manohar Parrikar, India’s defence minister at the time of the Modi-Hollande Rafale deal was not in France with the prime minister when the deal was announced. Parrikar appeared to be unaware of its details when he made a statement in Parliament in June 2016. Had Modi gone ahead with this deal without consulting his Cabinet colleagues? That would be extremely unusual as such decisions are always discussed and rubber-stamped by the Cabinet given the fact that they are related to national security, and involve a large amount of money. It is not clear if this was a unilateral decision taken by Modi although Sitharaman said in December that it was cleared by the Cabinet Committee on Security.

A second question was that the price of the jets appeared to have changed considerably compared to the United Progressive Alliance deal. When asked about this, Sitharaman, who was appointed defence minister in September 2017, obfuscated by telling the Rajya Sabha in February that India had a secrecy pact with France that prevented her from revealing the price.

This is utterly ridiculous on many levels. Since Government of India funds are involved, there has to be an accounting, and those accounts have to be presented to Parliament. Second, the French government clarified that the price was not a secret – only the exact detailed specifications of those 36 jets is a secret. Also, Dassault Aviation is a publicly listed company that publishes a balance sheet, which lists the sales it makes. Its balance sheet for 2016 lists an “order intake” of Euro 9.558 billion, consisting of “36 Rafale [for] India”, along with “33 Falcon” (a civilian jet manufactured by Dassault) and “12 Falcon 5X cancelled”. It further clarifies that the “defence order intake” for 2016 was for 36 Rafales to India for the value of €8.139 billion.

Note the word “obfuscation”. It will appear again.

A third question that arises is that the Anil Ambani’s Reliance Group has zero aviation sector experience. It had very little manufacturing experience actually. The only Reliance Group company that operates in the defence sphere is Reliance Naval, the erstwhile Pipapav Shipyard. In 2011, Pipavav won an order to deliver five naval offshore patrol vessels to the Indian Navy. It was to deliver the first such vessel in November 2014 and all five before November 2016. As of September 2018, only two vessels had been delivered. However, a July 2017 report in The Hindu announcing their delivery said that the two ships still required finishing touches before being commissioned by the Indian Navy.

In addition, the Reliance Group has been skating on the brink of bankruptcy. Reliance Communications, its telecom services arm, owes its lenders over Rs 45,000 crore, and has defaulted repeatedly on its debt servicing. It has been shut down, and it has been trying to negotiate settlements with creditors, and sell off its assets to Reliance India Limited’s subsidiary, Reliance Jio Infocomm. The Anil Ambani group has also sold power assets to the Adani group, which has paid over Rs 18,000 crore to take over assets from Reliance Infrastructure. Again these facts are part of the public record.

Obfuscations and evasions

One question is whether Anil Ambani’s Reliance Group is capable of sustaining itself in the aerospace and defence business, given its precarious financial condition and complete lack of technical experience? Also, why was Hindustan Aeronautics Limited with its specialised experience sidelined?

On September 21, the erstwhile French President Hollande added to the questions when he asserted that Anil Ambani had been inserted into the Rafale deal as part of a “new formula” presented to the French government by India. This is a statement he has now repeated on record several times to multiple organisations. He has also stated he does not know if Dassault was asked to take on Anil Ambani’s Reliance Group as a partner.

There have been a series of obfuscations and evasions on the subject.

The second obfuscation, from Sitharaman, was that Hindustan Aeronautics Limited “did not have the required capability to produce Rafale”. TS Raju, the former chief of the state-owned aerospace company, fiercely contested this. Sitharaman’s comment sounds absurd, given that Hindustan Aeronautics Limited has a multi-decade aerospace track record, while the Reliance Group has zero.

Obfuscation three occurred when sundry people close to the government apparently confused Mukesh Ambani’s Reliance Industries with Anil Ambani’s Reliance Group, stating that the Reliance-Dassault partnership occurred during the United Progressive Alliance government.

It got really interesting when one looked at some of the so-called “confused” people.

S Gurumurthy, chartered accountant and RBI board member, as well as editor of Tamil political weekly Thuglak, has been writing incisively about Reliance Industries since the 1980s. On September 22, he tweeted:

It is hard to believe that Gurumurthy does not know about the split in the group, since he has written devastating commentary on its financial structure.

Another person who apparently confused Reliance Industries with the Reliance Group is BJP minister of state and former journalist MJ Akbar.

Again, it is hard to believe that Akbar is unaware that Mukesh Ambani and Anil Ambani are two different people owning different companies.

A third confused person is Rajya Sabha MP Rajeev Chandrasekhar, an infotech, telecom and media billionaire.

Chandrasekhar was a major player in the telecom space and now has interests in the media. The Ambani brothers have exposure in both these sectors. It is odd that he too could mix up the Ambani siblings.

Obfuscation four occurred when Hollande’s statements were selectively reported in the Indian media to create the impression that he did not know if there was pressure. He actually said there was pressure on the French government and reiterated that statement, while disclaiming knowledge of possible pressure on Dassault Aviation. The French government and the current French President Emmanuel Macron have since issued careful statements that do not contradict anything Hollande has said. In addition, a release issued by the Indian Ministry of Defence on September 22 pointed to Hollande’s “conflict of interest involving persons close to the former president”. This is a reference to reports that Anil Ambani’s Reliance Entertainment helped produce a film for Hollande’s partner Julie Gayet.

Obfuscation five occurred when Union ministers who have nothing to do with the defence portfolio defended the BJP over the Rafale deal in the aftermath of Hollande’s statements. Finance Minister Arun Jaitley spoke on the subject as did Minister of State for Agriculture Gajendra Shekhawat. Modi has, however, maintained a studied silence on the subject while claiming to be targeted by an international conspiracy.

As it stands, only Modi and Hollande seem to know what happened during their 2015 meeting. (I am sure there were translators and other officials present but none have spoken up). As things stand, a few simple questions seem to require complicated answers.

1. Why did all the terms (36 planes vs 126 planes, prices, choice of offset partners, manufacturing in France or India and so on) change so dramatically?
2. Was the deal cleared by the Union Cabinet, and were defence procurement procedures followed? There should be minutes of such discussions.
3. What inspired the choice of a near-bankrupt group with no aviation or defence experience?
4. Why has there been endless obfuscation instead of answering the above questions?

The suspicions of crony capitalism may stick for two reasons. One is that the Make in India defence initiative inducts private parties into a lucrative area, which was hitherto reserved for public sector companies. The second is that India’s electoral bonds scheme – which Jaitley announced in his Budget speech in 2017 – coupled to retrospective changes in the laws for overseas funding of political parties allows any entity to donate large sums to political parties in India secretly. A public sector unit like Hindustan Aeronautics Limited cannot make political donations. A private company that is a defence contractor can do so secretly.