#Rafale ‘scam’: Addressing 6 misconceptions and 1 flawed argument

Zooming out to the bigger picture, it's evident that the deal has only re-inforced bad practices.

ByMihir Shah
#Rafale ‘scam’: Addressing 6 misconceptions and 1 flawed argument
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The Rafale “scam” has become a subject of repeated discussion in the popular media, but are the allegations really true? This piece argues that they are not: they’re premised on misleading information, omit important details, and demand a degree of transparency that is practically unheard of in the national security domain. This piece attempts to deconstruct some misunderstandings and spurious reasoning behind these arguments.

Six common misconceptions

1) The Rafale deal signed by the Modi government represents the conclusion of the Medium Multi-Role Combat Aircraft (MMRCA) contract negotiations.

The two are entirely separate, although one is an outcome of the failure of the other. The MMRCA tender was scrapped in 2015 for two reasons. One, a change in circumstances had made the Eurofighter Consortium the lowest bidder in place of Dassault. Two, talks with Dassault had reached a deadlock. Any continuation of negotiations would have been in violation of the Defence Procurement Procedure (DPP), and there was no time for another round of lengthy discussions with a different manufacturer.

Also, unlike the MMRCA tender, wherein India dealt with individual aircraft manufacturers (Boeing, Lockheed, Dassault, etc), the current agreement has been executed directly with the French government.

2) The UPA government had negotiated a price of Rs 54,000 crore for 126 Rafale aircraft, including transfer of technology (ToT), whereas the current dispensation agreed to Rs 58,000 crore for just 36 airframes, that too without ToT.

The UPA government did not negotiate a final agreement for the Rafale. A sum of Rs 54,000 crore was an estimate of the value of the contract in 2011, when the bids were opened. This estimated price (as well as Dassault’s bid) excluded a range of items that were to be negotiated after the bid was opened.

After the ministry of defence (MoD) declared Dassault the lowest cost bidder, the two parties commenced protracted negotiations for ToT, offsets, liability clauses, maintenance obligations, and so on. Owing to defence minister AK Antony’s over-cautiousness and overarching desire to avoid even the smallest appearance of impropriety, these negotiations reached a stalemateby early 2014. In the meantime, the price had shot up from the initially estimated Rs 42,000 crore (10.4 billion in then US dollars) to approximately Rs 1,80,000 crore (about $30 billion).

Regardless, there was no money in the 2014 defence budget to conclude the contract. Antony specifically stated in February 2014 that “negotiations on life-cycle costs are continuing” and that the government would have “to wait for the next financial year (i.e. April 2015)” to finalise it.

And finally, Dassault’s initial bid only included the price of the initial 18 aircraft, licensing fees, and the supply of parts required to assemble the remaining 108 in India. It excluded weapons, maintenance, and the costs Hindustan Aeronautics Limited (HAL) would incur for local assembly.

The price that the NDA government negotiated is far more comprehensive: it includes 36 fully-assembled Rafale aircraft, as well as personnel training, munitions, India-specific subsystems, supporting infrastructure, and a five-year service agreement. So it appears more expensive on a “per plane” basis.

3) In 2014, the government rejected an offer from Eurofighter that was 59 million euro (Rs 453 crore) cheaper per plane!

One has to look at the details of each bid to see that the comparison is not apples-to-apples. The price that Eurofighter quoted was for a total of 126 aircraft under the terms of the original MMRCA tender, with all of its ambiguities and exclusions. Of these, just 18 would be sold off-the-shelf in flyaway condition and the remaining be assembled in India. On the other hand, the Rafale agreement covers a wider scope of products and services.

Further, Eurofighter offered its unsolicited quote while the MMRCA tender was still active, with the MoD in the middle of negotiations with Dassault. The Defence Procurement Procedurecontained no provision for entertaining what was effectively a revised bid in the midst of an active tender. It also prohibited the MoD from negotiating with two different suppliers simultaneously. Had South Block decided to take Eurofighter up on its offer, it would have done so in violation of the DPP. That would’ve invited a lawsuit from Dassault, miring the whole tender in years of frustrating court battles.

4) Local manufacture at HAL would have significantly reduced programme costs.

Local manufacturing isn’t always less expensive, although there may be benefits in terms of technology acquisition. Because HAL is not as productive as Dassault, it would have required a greater number of man-hours to assemble one Rafale than Dassault would have. Owing to the higher labour input, a made-in-India Rafale would have cost Rs 68 crore more than one built in France; in much the same way that an Indian-made Su-30MKI costs more than one purchased directly from Russia. The effort would also have required additional funding for machinery imports and personnel training. That would have increased acquisition costs further.

5) The government bypassed HAL – an experienced aerospace manufacturer – and “gave the deal” to Reliance Defence Limited (RDL) instead.

The only company the government “gave the deal” to was Dassault. HAL had to be “bypassed” because the idea of local manufacturing was dropped entirely.

RDL’s involvement in this story is only tangential. People often assume that just because Anil Ambani signed a joint venture with Dassault, his company is going to build Rafale aircraft in India. The reality is that there was an offset clause in the Rafale contract, and Dassault decided to tie up with Reliance to execute a small part of it.

majority of the offsets shall go to the Defence Research and Development Organisation (DRDO). RDL has no plans of building anything related to the Rafale. It will manufacture parts for a civilian aircraft and become a part of Dassault’s global supply chain. In the process, it is expected to build its aerospace manufacturing chops that might be leveraged towards future projects.

6) The government is using a “secrecy pact” signed with Dassault to avoid disclosing the price to the Indian public.

There is no bar to revealing the full contract price to the public: multiple reports from September 2016, when the Inter-Governmental Agreement (IGA) was signed, declare that the price was 7.8 billion euros. What the government (and Dassault for that matter) cannot officially reveal is the price of each specific line item in the contract.

This is done to prevent dissemination of any information on classified subsystems as well as to protect the commercial interests of the aircraft manufacturer. Confidentiality clauses covering the latter aspect are practically boilerplate in the arms industry. They were present in the agreements that India signed for the purchase of the C-17 heavy lifter, the C-130J tactical airlifter, T-90 main battle tank the Hawk advanced trainer, and the Su-30MKI multi-role fighter. Their presence in the Rafale contract is neither new nor improper.

Additionally, if media reports of the Rafale’s purported nuclear delivery role are true, the need for secrecy would be even greater. After all, the details of other nuclear weapons platforms like the Arihant submarine and the Agni missile are kept closely guarded; even production numbers aren’t revealed.

Having said that, the contract is still subject to parliamentary oversight. The cabinet committee on security and the standing committee on defence both have access to the disaggregated costs.

… And the one flawed argument

The quick resolution of this episode stands out as an example of speedy and efficient decision-making by the Modi government. This is a major shot in the arm for the Air Force in general and national security in particular.

The absence of corruption/impropriety alone is no indicator of a favourable outcome. My arguments against the deal centre around three separate concerns.

One, the unsaid assumption that merely increasing fleet size increases combat strength. The Indian Air Force (IAF) is right in wanting to retain/enhance its combat power. But it does not seem to think beyond fighter numbers for doing so. It has a sanctioned strength of 42 fighter squadrons, and is pursuing that figure without a thought to how capabilities have evolved over the last few decades. With the advent of long-range integrated air defences, hard-to-intercept cruise missiles, precision-guided missiles/bombs, pilotless aircraft, and improved networking technologies, does the IAF still need 42 fighter squadrons in order to tackle our adversaries?

If boosting fleet size is indeed the answer, then 36 is clearly too small a number to have a pronounced effect on the force’s combat power. This leads one to question whether the money would have been better spent on other alternatives. Alternatives such as purchasing more Su-30MKIs, or increasing the serviceability of the existing fleet (it had reached a low of just 48 per cent), or perhaps investing in the local manufacture of less expensive single-engine fighters?

Two, this acquisition is only going to exacerbate the IAF’s logistical nightmare. It already fields six different fighter types – MiG-21, MiG-29, Jaguar, Mirage-2000, Su-30MKI, and Tejas – from four different countries: Russia, Britain, France, and India. By adding one more type to the mix, in addition to committing funds to three other fighter programmes (Single-Engine FighterAMCA, and FGFA) it is squandering its meagre defence budget on piecemeal initiatives rather than pursing a more rationalised force structure.

Three, the focus on Rafale is going to draw the IAF and MoD’s attention and budget away from the less sexy, yet equally important components of India’s air power. For instance, the acquisition of force multipliers like aerial refuellers and Airborne Early Warning and Control (AEW&C) platforms isn’t being pursued as aggressively as it should be.

Base infrastructure in some sectors is not up to the task of housing advanced equipment. Just this year, an audit report revealed that the Akash batteries protecting IAF airfields were suffering high failure rates because of improper storage. The rounds require air temperature and humidity-controlled warehouses, but were kept in unconditioned sheds. The stock of precision-guided munitions is pretty low. For years, the Su-30MKI – our premier air dominance fighter – flew without a capable beyond-visual-range air-to-air missile. It is only now, with the induction of the Astra, that this shortcoming is being addressed.

The bottomline is, there are glaring gaps in the IAF’s capability, and unless it re-prioritises its acquisition plans to get the best bang for its buck, these gaps will continue to persist. Looking from the narrow perspective of the Rafale purchase alone, the government appears to have done well in reaching a speedy conclusion; but when you zoom out to the bigger picture, it’s evident that it only re-inforced bad practices. In the final analysis, this act will go down as an example of hasty decision-making that created more problems than it solved.

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