Modi sarkar fights losing battle on Rafale scam

The Modi government has spent a better part of the last year fighting a losing battle on the controversial Rafale deal. Every time it thinks it has it under control, a new skeleton tumbles out of the closet. It has tried hard but as Elvis Presley said, truth is like the sun, you can shut it out for a time, but it ain’t goin’ away.

The report of the Comptroller and Auditor General (CAG) or as Congress President Rahul Gandhi called it, the ‘Chaukidar Auditor General’, has come out with its report. It has given the Modi government a clean chit, but their problems are not going away. It has now been established beyond doubt that the Prime Minister himself intervened to benefit his friends.

The CAG had gone to town with its ‘notional loss’ theory in the 2G and coal block allocation cases but did not show the courage to evaluate the financial loss caused by the Prime Minister in the Rafale scam? Will the CAG be able to ‘evaluate’ the damage the Prime Minister has done to the defence preparedness of the Indian Air Force (IAF)? The reputation of the CBI has already been razed to the ground and the BJP’s ‘management’ skills may have also pushed the CAG down the slippery slope. It would take years for the CAG’s reputation to completely recover from this.

The questions raised by a section of the media and the Congress have remained largely unanswered and as we head into the elections, it is important to ask these questions again. We hoped the CAG would answer these questions in detail and with clarity but it has not.

The biggest question has been about the pricing of the aircraft as the price of Rafale as per international bid opened on 12.12.2012, during UPA-Congress Govt, comes to ₹526.10 crore per aircraft i.e. ₹18,940 crore for 36 aircraft. The Modi government purchased 36 Rafale aircraft for Euro 7.5 Billion (₹1670.70 crore per aircraft) i.e. ₹60,145 crore for 36 aircraft. The question is: Has it not caused a loss of ₹41,205 crore to the exchequer via this extra payment?

The CAG report says the 2015 deal was 2.86% cheaper than the 2007 deal while rejecting the Ministry of Defence’s assertion of it being 9% less cheaper than the one in 2007. But one needs to factor in that the 2015 deal does not include transfer of technology, bank guarantee, no licence production or sovereign guarantee. The CAG has noted that in the previous offer of 2007, Dassault Aviation had provided performance and financial guarantees which was about 25% of the total value of the contract. It further said that the vendor had embedded the cost in its bid price. But in the 2016 contract there are no such guarantees or warranty. This led to savings of 25% of the total contract price for Dassault Aviation which was not passed on to India.

The government has tried to fend off attacks about the increased pricing by saying the UPA had purchased barebones aircraft while the NDA has bought a fully-loaded version. The CAG report dismisses that. Taking refuge in national security, the government has not specified the India specific enhancements made.

The Hindu, on February 13, reported that “Three senior Defence Ministry officials who were the domain experts on the seven-member Indian Negotiating Team (INT) came to a well-substantiated and clear conclusion that the Narendra Modi government’s new Rafale deal for 36 flyaway aircraft was not on “better terms” than the offer made by Dassault Aviation during the procurement process for 126 aircraft under the United Progressive Alliance government. They also concluded that the delivery schedule of even the first 18 of the 36 flyaway Rafale aircraft in the new deal was slower than the one offered for the 18 flyaway aircraft in the original procurement process.”

The state-owned Hindustan Aeronautics Ltd (HAL) has been hit hard by the BJP government. It has been denied the ₹30,000 crore offset contract in favour of Anil Ambani’s Reliance Defence. A Workshare Agreement was signed between HAL and Rafale-Dassault Aviation in March 2014 and Dassault CEO went to the HAL Factory in Bangalore and spoke about HAL-Dassault relationships in presence of the IAF Chief. Even the Foreign Secretary had admitted the existence of the HAL-Rafale Agreement in April 2015.

Giving offset contracts to Reliance forms the core of the allegations in the Rafale case as Reliance Defence Ltd and Reliance Aerostructure Ltd had no prior experience of manufacturing fighter aircraft as against 40 years of experience of HAL. Reliance Company’s website ‘R. Infra’ even reflects that they are undertaking offset obligations worth ₹30,000 crore with Dassault Aviation. In addition, they claim have to secured ‘Life Cycle Cost Contract’ worth ₹1,00,000 crore.

While Reliance has got a fresh lease of life, HAL has had to pay the bills. The company, one of the premier aircraft manufacturing facilities in the country, was not only denied the offset contract, it faces a fight for survival as its cash reserves were emptied out in the name of disinvestment. It has to borrow money to pay salaries.

The question that the CAG needed to answer is why PM Modi decided to promote the interests of a private corporate entity over a public sector undertaking, not only denying HAL a ₹30,000 crore contract, but more than that, access to the latest technology. It has not done that.

The deal was not only ‘ill-intentioned,’ it also did not follow the process of law, bypassing “Defence Procurement Procedure”, “Cabinet Committee on Security” and “Defence Acquisition Council.” While these may be technical in nature and may not interest the average reader, it seems like the Prime Minister behaved like a reckless shopper with a credit card. Only that what he was buying fighter aircraft and not a new brand of candies for children.

The biggest problem, however, was the Prime Minister ended up compromising National Security by reducing the number of aircrafts from 126 to 36 and sacrificing “Transfer of Technology,” which would have guarded us in times when India and France may not share a great relationship.

The IAF needed 126 fighter aircraft and this formed basis of the ‘Request for Proposal’ (RFP) issued by Congress-UPA in which included the manufacture of 108 aircraft by HAL with transfer of technology and would have included ‘cost of initial purchase, transfer of technology, licensed production,’ meaning that these aircraft were to be made in India, maintained by HAL and the profits from this would have remained with the people of India.

The question is why did PM Modi unilaterally reduce the number of fighter aircraft to be purchased for the IAF from 126 to 36 without seeking any advice from the Air Force? Why did the PM reject the “transfer of technology”? This is going to cost India in the long term as we are essentially buying a fancy foreign car which does not have much of a base in India.

We also need to ask how it impacts the defense preparedness of the country. The first Rafale aircraft will be delivered in September 2019 and the entire delivery would be completed by 2022, almost 9 years after the order by PM Modi on in April, 2015. This is not exactly express delivery that the government would have its citizen believe.

There are a series of other issues like ‘Benchmark Price’ and ‘Bank Guarantee’/ ‘Sovereign Guarantee,’ these are going to be more technical in nature, there are some other question that have come up over the last few weeks. If The Hindu could have access to these documents, the CAG surely could do too.

The CAG should have also looked into the “Money Trail” of Rafale Scam by which Dassault Aviation purchased a ₹10 share of a shell company-Reliance Airport Developers Ltd. at a premium of 11,000% by investing Euro 40 Million (around ₹284 crore). The timeline of this deal raises serious questions as PM Modi announced purchase of 36 Rafale jets in Paris, France on April 19, 2015 and media reports suggested that 15% of the ₹62,000 crore was paid in advance by the Modi government to Dassault Aviation in December 2016 .

In 2017, Dassault Aviation bought 24,84,000 shares (face value of ₹10 each) of a defunct company with assets worth merely ₹8 lakh at a 11,000% premium, at a price of ₹1154 per share, by paying Euro 40 Million. Since the deal involved public money, Dassault investments in India should have been in the purview of CAG’s investigations as this could well be part of a larger quid-pro-quo.

A series of articles in The Hindu have raised some important questions in the Rafale case, which included waiving anti-corruption clauses in the deal. “The most significant among these eight changes, recorded in a note signed by Vice Admiral Ajit Kumar, DCIDS (PP&FD) who was the member-secretary of the DAC, is a sub-para (c). This states: “Non-inclusion of the Standard DPP Clauses related to ‘Penalty for Undue Influence,’ ‘Agents/Agency Commission’ and ‘Access to Company Accounts’ in the Supply Protocols,” The Hindu had reported.

It also reported that the Prime Minister’s office had carried out parallel negotiations with the French side, weakening the position of the official negotiating team. “We may advise PMO that any Officers who are not part of Indian Negotiating Team may refrain from having parallel parlays [parleys] with the officers of French Government,” it suggested that “in case the PMO is not confident about the outcome of negotiations being carried out by the MoD, a revised modality of negotiations to be led by PMO at appropriate level may be adopted in the case,” The Hindu quoted a Defence Ministry on November 24, 2015 as saying.

Congress president Rahul Gandhi has been actively campaigning for a Joint Parliamentary Committee (JPC) probe on the issue and launched a fresh attack on the government, indicating that while the Defence Minister was unaware of the deal, private players were carrying out track 3 negotiations.

“(The then) Defence Minister Parrikar had said after the deal was signed that he did not know about this new deal. HAL was negotiating with Rafale, but was unaware that they have been kicked out of negotiation. Anil Ambani is sitting in the French Defence Minister’s office telling the Defence Minister that in a couple of days, Indian Prime Minister Narendra Modi is going to sign an MoU with him,” the Congress president was quoted as saying.

With the announcement of the next Lok Sabha election due in less than a month, the government knew that its prospects would be destroyed if it did not manage a clean chit from the CAG.

But the fact remains that considering the changed circumstances of purchase, which means no transfer of technology, no licence production, no bank or sovereign guarantee, the CAG report has not been able to hide the truth. The truth is that the Modi government bought the Rafale at a higher price, compromised national security by reducing the number of aircrafts, hit India’s long term interests by dropping transfer of technology and violated all procedures laid down by the law. And all this was done to benefit a friend who had pushed himself into deep financial mess. The interest of one seems to have outweighed the interests of the 130 crore who believed that Modi would stand up for national interest. He hasn’t.

The real test, however, was for the CAG. Their ‘notional loss’ theory was clearly a case of ‘auditorial adventurism’ but here it has not displayed enough courage to call a spade a spade.

(This article first appeared in the National Herald on Sunday)