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Controversy over Purchase of Rafale Jets

The controversy over the NDA Government’s decision to purchase 36 Rafale combat aircraft from the French company Dassault Aviation has been dominating India’s political discourse for the last several months. The ruling BJP and the main opposition party Congress are at loggerheads over the deal. According to the Congress, the government has violated procedure and bought aircraft at a price which is three times higher than what the UPA government had negotiated. The Congress has also accused the Modi government of ‘gifting’ offsets to the tune of 30,000 crore to Reliance Defence, a company that has no experience of making jets or defence equipment and in the process inflicted massive losses on Hindustan Aeronautics Limited (HAL).

Issue: 01-2019By Air Marshal B.K. Pandey (Retd)Photo(s): By Dassault Aviation

The exercise to acquire modern fourth-generation combat jets to replace the obsolescent fleet of MiG-21 aircraft, was initiated by the Indian Air Force (IAF) in the year 2000 during the tenure of the BJP-led government. However, the tender for 126 medium multi-role combat aircraft (MMRCA) was issued only in August 2007 seven years later when the UPA Government was in power. Of the six contenders in the race for the contract, after an exhaustive evaluation, the IAF identified the Rafale from Dassault and the Eurofighter Typhoon from EADS as platforms meeting the operational requirements. Thereafter, based on the commercial bids, the Rafale was declared as the winner. As per the tender, the original equipment manufacturer (OEM) was required to supply 18 aircraft in fly-away condition and manufacture the remaining 108 in India in collaboration with HAL.

Unfortunately, the contract negotiations under the UPA regime encountered an insurmountable roadblock as Dassault was not prepared to partner with HAL to manufacture 108 aircraft in India and insisted on selecting an Indian partner of its own choice. As this would have been in violation of the terms of the tender, the Ministry of Defence (MoD) did not relent. As the NDA Government that came to power in 2014 was in no position to break the deadlock, it had no option but to cancel the tender. However, in view of the request by the IAF for emergency acquisition of at least 36 Rafale jets to equip two squadrons, during his visit to Paris in April 2015, Prime Minister Modi broached the subject with Francois Hollande, the then President of France, who agreed to oblige. A fresh Government-to-Government deal was thus later finalised and a formal contract was signed in September 2016 for 36 Rafale jets in fly-away condition. This came as a partial relief for the IAF.

Here it needs to be understood that the requirement for 126 MMRCA has not been diluted to 36 aircraft as is being alleged. In early 2018, the process of acquisition of additional combat aircraft required by the IAF was initiated with a Request for Information for 114 MMRCA to which seven global OEMs have responded. The Request for Proposal or the tender for 114 MMRCA is expected to be floated by mid 2019. With the two acquisitions, the total number of MMRCA the IAF will get will thus increase from 126 to 150.

As for the allegation that the NDA Government is paying three times the price for the Rafale that the UPA Government had negotiated, the method of pricing needs to be understood. The final price would have five major cost components namely the bare aircraft, avionics including radar, weapon systems, logistics and maintenance support through its life cycle and training. The fact of the matter is that the UPA Government had not been able to finalise the price of the Rafale with all the cost components including capability enhancements. As such, comparison of the price of a fully loaded Rafale finalised by the NDA Government with that of a bare aircraft quoted by the OEM under the tender for 126 aircraft during the UPA regime, would not be in order as it would present a radically distorted picture that would be misleading to those not well informed.

On the issue of the NDA Government ‘gifting’ Offsets to the tune of 30,000 crore to Reliance Defence, a company that has no experience of making jets or defence equipment and in the process inflicted massive losses on HAL, what needs to be understood is that as four companies namely Dassault, Thales, Safran, all French and MBDA an European consortium manufacturing weapon systems, are involved in the Rafale contract and given the total value of the contract at 59,000 crore, the Offset Obligation would be 29,500 crore and not 30,000 crore. This sum of 29,500 crore will be shared by the four companies with each bearing an investment liability of an average of 7,345 crore. Each of the four companies involved in the production of the Rafale will have to select a partner or partners under Offset Obligation and the NDA Government has no authority to issue any diktat in this matter.

It is indeed unfortunate that despite the judgement by the Supreme Court on the PIL filed against the deal for 36 Rafale jets, the political slugfest continues unabated. Hopefully, the national elections in 2019 will end this controversy that is not only inelegant, but militates against national security interests.