Explainer: Questions Congress Wants Modi Government to Answer on Rafale Deal

Breaking down the details of the defence contract and key political debates around it.

New Delhi: “Listen, all of you keep asking me so many questions and I happily answer them. I want to ask why don’t you question the prime minister over the Rafale deal.” Congress vice-president Rahul Gandhi interrupted journalists to raise this point while answering their queries at the Congress headquarters on November 16.

For the last two days, at almost every political platform, Congress leaders have alleged that the Narendra Modi government’s 2015 deal to purchase 36 new Rafale fighter aircrafts from the French company, Dassault Aviation, has caused a great loss to the public exchequer. It has also indicated that the deal has benefitted a private company, Anil Ambani-owned Reliance Defence Limited (RDL),  at the cost of India’s own public sector aerospace and defence unit, Hindustan Aeronautics Ltd (HAL).

The matter had become a huge point of discussion when Prime Minister Modi had announced his decision to purchase the aircrafts in April 2015. The grand old party has decided to flag the issue once again, more than two years after the announcement, with new worries to point out.

In the coming few days, the party plans to take the issue in public debates and its political campaigns. According to sources in the Congress, the party intends to convert the issue into one of its election agendas as 2019 general polls near through a pointed, concerted attack on the BJP. The matter will also be a part of a larger campaign against what it has called rampant crony capitalistic practices under the Modi government.

What actually happened during the purchase of Rafale aircrafts? Did it actually benefit the RDL as claimed by the Congress? What is the BJP’s response to the allegations? Finally, are India’s losses more than its gains in the said deal? The Wire breaks it down.

The initial agreement

The negotiations with Dassault Aviation go back to 2007, when the Congress-led UPA was in power. To fulfil the increasing demand for fighter planes, the UPA government floated a tender for the purchase of 126 twin-engine “Medium Multi Role Combat Aircrafts” for the Indian Air Force (IAF) in August 2007. After months of hectic bidding by various foreign companies – Lockheed Martin’s F-16, Dasssault’s Rafale, Boeing’s F/A-18s, Russia’s MIG-35, Sweden’s Saab’s Gripen, Eurofighter Typhoon – Rafale won the contract.

The agreement between Dassault and the Indian government was finalised in late 2012 after multiple rounds of talks. The company settled to sell its aircrafts at a base price of $10.2 billion (approximately Rs 54,000 crore as per the 2012 conversion rate). It was decided that out of 126, 18 planes will be imported in a finished state, or what the government called “in a fly-away condition”, and the rest of them (108) would be manufactured by HAL, to which the French company was obliged to transfer its technology. Dassault was also required to invest half of the total transaction amount in India, according to the agreement.

The deal was seen as fair and one in which both parties got into a long-term mutually beneficial association. The workshare agreement between HAL and Dassault Aviation was signed on March 13, 2014.

Modi government and the alleged U-turn

A year after the NDA government came to power, Modi, in his first visit to France, suddenly announced that India would buy 36 Rafale aircrafts, all in a fly-away condition. The announcement came in the absence of the then defence minister Manohar Parrikar. That the RDL’s owner Anil Ambani accompanied Modi during his visit and attended meetings with Dassault raised a few eyebrows.

Were corporate interests the moving force behind the prime minister’s sudden announcement? Was the new government trying to annul the previous agreement? Is the government increasing the quantum of the previous deal? Does it plan to drop the idea of buying 126 aircrafts completely by purchasing a greater number of fly-away jets? These were some of the questions raised at that moment, but there were no clear answers; the government maintained a silence around these issues.

Amidst multiple speculations, defence expert Ajai Shukla wrote that Parrikar was informed about the announcement only a few days before Modi’s visit to France and was left alone to do the firefighting in India.

After the announcement, Parrikar defended Modi’s decision. He later declared that 126 aircrafts were “economically unviable” and not required. However, Shukla says that India needs anywhere between 200 and 300 fighters to replace the MiG-21 and MiG-27 fleet that is being phased out of service.

However, Parrikar assured people that the fighter planes will now be bought at better prices and terms than what the UPA government had finalised. He said then that the new fleet would be included in the Indian Air Force within two years. He further said that after adding all costs, the cost per jet would be around Rs 715 crore. This, in itself, was more than what the UPA government had negotiated (UPA had claimed that each jet would cost around Rs 530 crore).

Prime Minister Narendra Modi with former defence minister Manohar Parrikar. Credit: Reuters/Prakash Singh/Pool/Files

Changed terms and conditions 

However, as time passed, details that did not measure up to the defence minister’s words emerged.

The previous deal with Dassault Aviation was cancelled in July 2015 and the Modi government signed a new deal with the company on September 23, 2016 for the purchase of 36 Rafale fighter jets at a price of $8.7 billion. Effectively, this means that 36 jets would now be obtained at Rs 58,000 crore whereas the previous agreement would have entailed the procurement of 126 Rafale jets at a lesser price – around Rs 54,000 crore.

Transferring technology was no more an obligation for Dassault Aviation. Instead of HAL getting to manufacture and maintain the Rafales, RDL undertook the offset obligations of Rs 30,000 crore with the French company for the newly-purchased fighter planes. The government also decided that apart from the 36 jets in fly-away condition, no more jets would be purchased.

Around the same time, the Anil Ambani-owned company, RDL, also started its negotiations with Dassault.  It tied up with the French company for a joint defence production venture on October 3, 2016, which was only a week after the new deal was signed. The partnership between the two companies took a concrete form in an agreement, which was signed on February 16, 2017.

While this happened, contrary to the claims made by Parrikar, not one Rafale has landed in India as of today. In fact, as Shukla wrote, it may take around six years before the final delivery is made.

Why is the Congress raking up the issue now?

Defence experts have already agreed to the fact that India will now buy the fighter planes at a much higher price without additional benefits like the transfer of technology and capacitation of HAL.

Keeping in mind the inflationary pressures, the Rafales would now be purchased at around Rs 1,600 crore per plane – almost double the price that Parrikar had told the media after Modi’s announcement in France. Defence experts like Shukla aver that although there are some new elements in the new contract like a superior weapons package with meteor missiles and performance-based logistics (PBL), those are not enough to warrant the current price.

As the 2019 general election draws closer, the Congress has taken up the issue now to highlight some of these aspects of the deal that it says reeks of crony capitalism. It is planning a national campaign to apparently raise awareness on the ‘nepotistic practices’ in the Modi government. It has termed the Rafale deal as a “scam in brewing” and is talking beyond the inflated prices of the jets and resultant loss to the exchequer.

The Congress has highlighted three aspects of the deal. One, it is of the opinion that the new deal is a violation of the Defense Procurement Procedure, because the prime minister unilaterally announced the purchase of 36 jets in the absence of India’s defence minister and an inter-governmental agreement.

Two, since Dassault is no longer obliged to share its technology with HAL, and will now work with RDL for maintenance of jets and future defense production, the Congress has said that Modi government’s deal was probably intended to “promote the interests of one industrial group” at the cost of a public sector unit.

“Why was this (new deal) done by the prime minister bypassing the interests of a reputed public sector undertaking like HAL?” the Congress asked in a statement. It also alleged that the joint venture between Dassault and RDL was the biggest-ever Indian defence deal but it has not “gone through the proper procedure of approval by the Union cabinet, cabinet committee on security and foreign investment promotion board”. Moreover, the party says that HAL has a much longer history of manufacturing defence products than RDL, which is only a few years old.

Three, given the current nature of the agreement, it has asked, “Is it correct that UPA government negotiated 126 Rafale aircrafts at a base price of US$ 10.2 billion with transfer of technology? Is it also correct that Modi government is buying 36 Rafale aircrafts without transfer of technology for $8.7 billion? Does it not mean that 126 Rafale aircrafts would have cost US$ 30.45 billion (without transfer of technology) at the price arrive at by Modi government?”

“Who is responsible for the loss to exchequer,” it further asked, stating that the aircraft would now be bought for Rs 1570.8 crore each against UPA’s negotiated price of Rs 526.1 crore.

A Rafale fighter jet performs during the Aero India air show at Yelahanka air base in Bengaluru, India, February 18, 2015. REUTERS/Abhishek N. Chinnappa/File Photo

BJPs response

The saffron party has rubbished the allegation but did not put out a factual rejoinder. Instead, it said that the Congress was trying to “divert attention” from the murky AgustaWestland VVIP helicopter scandal which had rocked the UPA-II government in 2013. Party spokesperson G.V.L. Narasimha Rao claimed that the Congress is unnecessarily raking up an old issue because the top leadership of the party faces the prospect of being questioned in the chopper scam.

He claimed that the Congress was raising the issue as one of the chopper scam’s middlemen, Carlos Gerosa, was arrested in Italy last month and the government has been trying to extradite him. Since the development raises the possibility of further investigation, Rao said that “the Congress has made baseless allegations over Rafale deal to divert public attention and to cry political vendetta.”

“None of these stunts will work and the Congress must be ready to answer who took bribes in the AgustaWestland VVIP chopper deal as the money trail is going to become known after the extradition of Carlos Gerosa,” he said, adding that the Modi goverment was known for its integrity.

RDLs justification

Anil Ambani’s RDL also asserted that it had done nothing wrong and that Congress’s allegations were “baseless and unfounded”. In a statement, RDL said that its subsidiary Reliance Aerostructure and Dassault Aviation entered into a joint venture – Dassault Reliance Aerospace – through a bilateral agreement. It further said that no approvals from the Union cabinet or cabinet committee on security were needed as the government policy as of June 24, 2016 allowed for 49% foreign direct investment in the defence sector under the automatic route without any prior approval. The joint venture was formed in October 2016 according to the new policy.

Yet many questions remain for the BJP to answer. Why was HAL’s manufacturing and maintenance role not considered by the Modi government? Would the now-eliminated transfer of technology clause, as mandated by the old agreement, not have proved an asset for India’s ‘Make In India’ dream? And finally, what prompted the Modi government to cancel the old agreement and sign a new, more costly deal with less-favourable clauses?

Precisely for these reasons, and BJP’s reluctance to come clean on the matter, Congress is sticking to its accusations of opacity against the Modi government and hopes to use it politically. It remains to be seen whether Rafales would bring the same fate to the BJP as Bofors howitzer guns did to the Congress around three decades ago.