The fighter contract represents making good of a bad situation
Maj. Gen. Mrinal Suman (retd)
Having proved its prowess in many operations, Dassault’s Rafale has come to be universally recognised as one of the most potent fighter aircraft in the world. No wonder that the Indian Air Force (IAF) has been coveting it for long.
It all started with the issuance of a Request for Proposals (RFP) in August 2007 for the procurement of 126 fighters — 18 to be bought in fully built-up condition while the balance quantity of 108 was to be manufactured in India by the Hindustan Aeronautics Limited (HAL) under transfer of technology. Six manufacturers submitted their proposals. After extensive trials, two platforms were found technically acceptable and, finally, Rafale emerged winner due to its lower life-cycle cost and the announcement was made on 31 January 2012.
IAF was excited at the prospect of early delivery of Rafale. For long, critical shortages had been a cause of serious concern. Ideally, IAF should have fighter strength of 45 squadrons; with the minimum inescapable requirement being 39.5 squadrons. With dwindling assets and the aging fleet, IAF had been demanding urgent acquisitions. However, even after prolonged negotiations, the deal could not be concluded. By 2014, talks had reached a total impasse with no signs of possible breakthrough. In addition to escalating cost (from USD 10-12 billion to USD 25-30 billion), two other critical issues proved highly cantankerous. One, Dassault declined to stand guarantee for the 108 fighters to be built by HAL. According to the media reports, Dassault felt that HAL was too mired in the quagmire of mediocrity to be able to produce ultra-modern fighters. Two, differences emerged regarding the interpretation of scope and depth of technology to be transferred. It became clear by early 2015 that the deal was dead for all purposes. The then defence minister said so publicly.
IAF was a worried force and made its disquiet known to the government in no uncertain terms. The government understood the criticality of the situation and started exploring various options for interim relief. While on a tour of France in April 2015, Prime Minister Narendra Modi disclosed India’s intent to place an order for 36 ‘ready-to-fly’ Rafale fighter jets to meet the immediate requirements. It was to be a government to government deal. The aircraft and associated systems and weapons were to be delivered on the same configuration as had been earlier tested and approved by IAF. The deliveries were to be made in a time-frame compatible with the operational requirement of the IAF. The order for 36 Rafale aircraft was a desperate measure to boost the IAF’s diminishing strength. The IAF heaved a sigh of relief. After prolonged negotiations, the deal was concluded in September 2016.
Unfortunately, the Rafale deal has got embroiled in unnecessary controversies. Aspersions are being cast on the sanctity of the process followed. Questions are being raised about the reasonableness of cost. Doubts are being expressed about the criteria adopted by Dassault to select Indian Offset Partners (IOPs). Preconceived notions, misconceptions and blinkered outlook have vitiated the environment to such an extent that the facts have got shrouded in misgivings and truth has become a casualty. Worst, the sceptics have branded the deal to be a scam, raising questions about the procedure followed, cost of acquisition and selection of offset partners.
Procedural Aspects
As the IAF was pressing hard for new fighters, the only viable course open to the government was to abort the MMRCA proposal formally and start anew with the issuance of a fresh RFP. That would have meant a delay of 10 years. Hence, MoD’s order for 36 Rafale aircraft was an emergent measure. For such acquisitions, government to government deal is by far the ideal route to follow — a certain degree of assurance is inbuilt in the process and quality-cum-performance parameters are guaranteed. Most importantly, everything is above board with no middlemen involved.
India has been buying defence equipment on government to government basis from the erstwhile Soviet Union and now Russia for decades. It has recently concluded a deal for S-400 Triumf missile system. Similarly, starting with the purchase of AN/TPQ-37 Fire Finder Radars in 2002, India has signed many major government to government deals with the United States, including USS Trenton, C-130J Hercules, C-17 Globemaster and M777 Ultra Light Howitzers.
In the case of Rafale, it has been in service in the French Air Force for long. It has participated in several military campaigns and gathered considerable operational experience. IAF can benefit from the same through interaction with the French Air Force. In addition, the French government can provide logistic, training and exploitation support with the know-how it has acquired.
The Rafale deal was concluded under the provisions of Defence Procurement Procedure — 2013 (DPP-2013), promulgated by the previous regime. Para 71 reads, “There may be occasions when procurements would have to be done from friendly foreign countries which may be necessitated due to geo-strategic advantages that are likely to accrue to our country. Such procurements would not classically follow the standard procurement procedure and the standard contract document but would be based on mutually agreed provisions by the governments of both the countries.”
Para 72 further clarifies that in cases of large value acquisitions, especially those requiring product support over a long period of time, it may be advisable to enter into a separate inter government agreement as it is expected to safeguard Indian interests and also provide for assistance of the foreign government in case the contract runs into an unforeseen problem.
Although the process of acquiring 36 Rafale fighters commenced with the Prime Minister’s announcement in April 2015, it was merely a statement of intent with no terms finalised. It is a standard methodology followed in the world of diplomacy. Heads of the governments express concurrence on select policy issues and the officials work out the details later. In the case of Rafale, the proposal went through various stages as mandated in DPP, subjecting it to normal scrutiny, checks and approvals. After prolonged negotiations, the deal was concluded in September 2016. Both the Defence Acquisition Council and the Cabinet Committee on Security duly reviewed the deal in detail and accorded their approval. Hence, the deal is fully in consonance with the provisions of the procurement procedure.
Pricing Conundrum
It is an accepted fact that major defence deals between two countries are an instrument of a nation’s strategic objectives. Para 73 of DPP-2013 clarifies that ‘in certain acquisition cases, imperatives of strategic partnerships or major diplomatic, political, economic, technological or military benefits deriving from a particular procurement may be the principal factor determining the choice of a specific platform or equipment’.
In other words, such deals do not take place in isolation and are invariably a part of a larger package agreed to between the two nations. Many key commitments made as quid pro quo carry serious implications and are never made public, both on account of security concerns as also to avoid international ire.
Similarly, the Rafale deal should not be viewed as a stand-alone agreement. For, 17 other pacts were also signed between India and France during the Prime Minister’s visit. They included agreement on the stalled nuclear project in Jaitapur in Maharashtra and French investment of Euro 2 billion in India. One is not aware about all the commitments included therein. Hypothetically speaking, India may have demanded that Rafale be reconfigured for delivering nuclear weapons or BrahMos cruise missiles. The package could also include transfer of some cutting-edge technology or help in nuclear/missile field for advanced weaponry. These aspects can never be made public.
India is buying Rafale as a complete fighting system and not just the platform. The real punch lies in the weaponry, avionics, electronics and radars that it carries. Operational potency of a strategic system depends on its configuration and it has to be a closely guarded secret. Surprise is the greatest force-multiplier. Hence, no country reveals such details to prevent the prospective enemies from initiating counter-measures in advance. It is strange that some knowledgeable experts want the government to release an item-wise cost table. Weapon systems do not carry MRP tags in the world market. Demand for transparency cannot be carried to such ridiculous limits.
It is quite absurd to compare the current deal with the aborted one for 126 fighters under ‘Buy and Make’ procedure. A duly negotiated deal cannot be compared with a non-deal that never fructified due to fundamental incongruities. In addition, the current deal includes large number of India specific capabilities which no other aircraft possesses. As per Dassault CEO Eric Trappier, the current deal carries many India specific augmentations and is overall nine per cent cheaper.
Offsets
Fulfilment of offset obligations entails compensating the buyer country for the outflow of its resources through designated offset programmes. India’s offset policy has been spelt out at Appendix D to Chapter I of DPP-2013. Whereas the standard offset percentage mandated under the offset policy is 30 per cent, India has managed to obtain offsets equal to 50 percent of the contract value in the Rafale deal, despite stiff opposition by the French. It is a huge gain as Dassault must incur considerable additional expenditure to fulfil extra offset obligations.
The offset policy specifies six avenues for the discharge of offset obligations and the foreign vendor is free to choose any one or a combination of them. The avenues include direct purchase of eligible products and services; FDI in joint ventures; and investment in kind/ technology. Eligible products/ services cover the complete range of defence, inland/coastal security and civil aerospace products. It is a vast choice.
Para 5.1 categorically states that the foreign vendor will be responsible for the fulfilment of offset obligations. Failure invites severe penalties (five per cent of the unfulfilled offset obligation with a cap of 20 per cent) and even debarment from future contracts. It is a huge punishment by all accounts. If a vendor is responsible for timely fulfilment of offsets, is only fair that he has independence to select IOPs in whom he has faith. The government cannot dictate IOP and yet hold the vendor responsible for timely completion.
Quite rightly, Para 4.3 of the policy empowers foreign vendors to select one or more Indian enterprises, institutions and establishments engaged in the manufacture of eligible products and/ or provision of eligible services, including DRDO as IOPs. This has been the policy since 2006. When India signed a contract for 22 Apache attack helicopters and 15 Chinook heavy-lift choppers with offsets, Boeing chose Tata Advanced Systems, Dynamatic Technologies, Rossel Techsys and many others as IOPs. Dassault has rightly exercised its prerogative in selecting IOPs of its choice. For, should the nominated IOPs fail to deliver, Dassault will be held accountable. It will be liable for penalties and even debarment as stipulated in the offset guidelines.
Finally
Unfortunately, the uninformed do not understand the difference between offset obligations and joint production. Discharge of offset obligations entails compensating the buyer country for the outflow of its resources through designated offset programmes. In joint production, a foreign manufacturer joins hands with an Indian production entity to produce the equipment in India, as was mandated in the aborted proposal for 126 fighters. The current Rafale deal does not entail manufacture/ assembly of the fighters in India. All 36 aircraft will be manufactured in France and delivered to India fully configured. Hence, the question of having an Indian production partner does not arise.
As per the reports appearing in the media, the government is considering procurement of additional Rafale fighters, especially the naval version. Apparently, efforts are being made by the affected parties to dissuade the government from going ahead. The current storm being kicked may well be a manifestation of the same. Most unfortunately, adverse coverage by the media, wittingly or unwittingly, deters decision making and delays procurements. Even the boldest and the most conscientious functionaries fear subsequent enquiries. Therefore, media should remain wary and not let itself be used by vendors to settle scores or the politicians to engage in electoral slugfest.
To criticise and fault the government is fully justified provided the facts support allegations. Acts of corruption and misdemeanours must be highlighted but it is grossly unfair to invent wild allegations, only to pretend to smell a rat. There has been no trail or even a hint of any sleaze money in the Rafale deal so far. There were no middlemen or agents. Many consider it to be a master stroke by the Indian government to make up critical deficiencies of the IAF in an expeditious, diligent and far-sighted manner.