Shot Down

Information accessed by The Caravan shows that the seven-member Indian team that negotiated with French officials for the purchase of 36 Rafale jets was internally divided over multiple aspects of the deal, and that several of the team’s members believed the deal contained provisions contrary to Indian interests. The government, while defending the procedure behind the Rafale deal before the Supreme Court, concealed these internal disagreements from its submissions, which stated that the negotiating team followed “a collegiate process.”

As The Caravan reported earlier, one of the points of disagreement was the deal’s pricing. The initial benchmark price for the 36 jets was set at €5.2 billion—more than €2.5 billion below the value of the final deal signed in 2016. The initial price was calculated by MP Singh, the official in the team tasked with advising it on cost. Two other members of the team supported Singh’s calculation: Rajeev Verma, the joint secretary and acquisition manager (air), and Anil Sule, the finance manager (air). Of the team’s seven members, Singh, Verma and Sule had the most expertise in issues related to pricing. The team’s four other members opposed the initial price, saying it was unviable. These four members included the head of the team—the deputy chief of air staff, Rakesh Kumar Singh Bhadauria. The pricing issue was referred to the Defence Acquisition Council—a body headed by the defence minister, and the appropriate authority for addressing technical concerns related to defence interests. The DAC, then led by Manohar Parrikar, proposed an alternative calculation, resulting in a higher benchmark price, that used methods in conflict with the Defence Procurement Procedure-2013, the procurement rules that govern the Rafale deal. The DAC passed the revised figure on to the Cabinet Committee on Security, headed by the prime minister, for a final decision. The CCS, under Narendra Modi, authorised the higher benchmark price, even though it does not have the expertise to settle technical issues such as pricing.

The negotiating team’s other internal disagreements followed a similar trajectory. The trio of Singh, Verma and Sule raised points of dissent, and were opposed by Bhadauria and the team’s other members. The contentious points were placed before the DAC, which overruled some of the dissenters’ concerns itself, and passed others on to the Modi-led CCS for its consideration. The CCS cleared the Rafale deal despite the outstanding objections of the negotiating officers.

These are all the objections to the Rafale deal raised by the dissenting members of the negotiating team:

1. “The benchmarked price of €5.2 billion was too low as compared to the final negotiated price of 7.89 bn euros and so, the reasonability of the price was in question.”

The dissenting officers raised concerns that the new price, at over €2.5 billion higher than the one first suggested by Singh, was unreasonably high.

2. “No Advance & Performance Bank Guarantee has been obtained from Dassault Aviation and the advance payments made prior to delivery are not secured.”

The Indian government agreed to pay massive sums to Dassault Aviation, the manufacturer of the Rafale, in advance of deliveries, but did not obtain any financial security from either the French government or Dassault that it could encash in case of a breach of contract. Such securities are a standard part of defence-procurement deals. In purchases directly from a manufacturer, the manufacturer puts up the security. In government-to-government deals where a sovereign government stands in as the guarantor, the security is put up by the foreign government. India makes exceptions in deals with Russia and the United States, whose laws channel all foreign defence sales through official channels, and whose governments make themselves liable for failure to deliver as promised. As reported earlier by The Caravan, France does not have such provisions. The lack of a guarantee from the French government means that the Rafale deal does not satisfy the conditions of a government-to-government deal, even though the Modi government has described it as such.

3. “The delivery schedule of 36 Rafale IGA was not better than that of 126 MMRCA bid.”

4. “The Maintenance Terms and Conditions including PBG (Performance Based Guarantee) of 36 Rafale IGA was not better than that of 126 MMRCA bid.”

Under the Congress-led administration that preceded the Modi government, Dassault Aviation won a competitive tender to supply India with 126 “medium multi-role combat aircraft,” or MMRCAs. The Modi government inherited and scrapped the negotiations to purchase 126 Rafales under the tender, to make way for an “inter-governmental agreement,” or IGA, to purchase just 36 Rafales instead. Numerous officials, including the chief of the Indian Air Force, have since claimed that the 36-jet deal offers faster delivery and better conditions than the scrapped 126-jet purchase could. The dissenting officers of the negotiating team did not find this to be so. With both these objections, the DAC set them aside and the CCS ratified its decision.

5. “The IGA Clauses and Articles of the Aircraft and Weapon Supply Protocols be aligned/ modified with the recommendations of Ministry of Law & Justice (MOLJ).”

As reported earlier by The Caravan, the law ministry objected to many features of the 36-Rafale purchase when the deal was forwarded to it for requisite legal vetting. These concerns were ignored in the final deal, which the CCS sanctioned with the knowledge that the law ministry’s objections were still outstanding. Ajit Doval, the national security advisor, was part of the Indian contingent that agreed to a “joint document” with the French side that overlooked the legal red flags, and that effectively blocked any future attempts to address them. The national security advisor has no legal standing to participate in acquisition negotiations. In its submissions to the Supreme Court, the government omitted the fact of Doval’s involvement.

6. “The 20% discount offer of EADS in 126 MMRCA tender was ignored. The INT should take EADS quote for 36 Rafale delivery equivalent and then compare prices.”

The Eurofighter Typhoon, manufactured by the European Aeronautic Defence and Space Company, or EADS, was the only jet other than the Rafale to pass technical trials for the MMRCA tender. Dassault was subsequently awarded the tender over EADS when it bid a lower price for supplying 126 jets. Afterwards, EADS offered a 20-percent discount on its quoted price in the hope of undercutting Dassault, but the Indian government stood by its decision. The dissenting members of the negotiation team now wanted to use the price of 36 discounted Eurofighters as a point of comparison to the price being considered for 36 Rafales. The other four members argued that EADS’s discounted price was invalid as it was unsolicited and made after the bidding process was closed, thus violating procurement procedure. The price of each aircraft under the final Rafale deal was far in excess of the per-aircraft rate offered by Dassault under the MMRCA process.

7. “The cost of India Specific Enhancement (ISE) was too high.”

The Indian government has repeatedly claimed that the Rafales purchased under the 36-jet deal will include “India-specific enhancements.” The three dissenting officers raised concerns that the cost for these was too high. The other four members held that the cost was “non-recurring,” and that it was “not affected by the number of aircraft purchased.” They also said that the MMRCA deal included India-specific enhancements as well. The DAC and CCS backed the four members’ position. The average cost of India-specific enhancements for each jet in the final Rafale deal was much higher than that under the MMRCA tender.

8. “Dassault will not be able to [unclear word] the deliveries as per IGA due to its ongoing contracts with French forces, Egypt and [Qatar].”

The dissenting officers raised concerns that Dassault would not be able to deliver 36 Rafales to India under the agreed schedule as it already had contracts to provide the jets to the French armed forces as well as Egypt and Qatar. The DAC agreed with the four other officers, and the CCS ratified its decision.

9. “Dassault’s financial position is not sound as per its published financial results. So, it may not be able to deliver the 36 Rafale aircraft.”

The three officers believed that Dassault’s financial health did not inspire trust. As reported earlier by The Caravan, the French government transferred its obligations under the “inter-governmental agreement” to private manufacturers including Dassault, and India failed to secure any legally enforceable guarantee of delivery from the manufactures. The Indian government has no legal of financial protection if Dassault fails to deliver the 36 jets for any reason.

10. “As per the prices reflected in Dassault’s financial results, it has sold Rafale at a cheaper rate to Qatar and Egypt as compared to India.”

Dassault’s financial disclosures suggested to the three dissenting officers that the Rafale was being sold to India at a higher price than it had been to Egypt and Qatar. The four other officers disagreed. Information available to The Caravan indicates that Dassault had claimed that its financial disclosures were being misinterpreted, and that the French government had said in writing that India was being offered the Rafale at a lower price than the other countries. The DAC sided with the four officers to set this objection aside, and the CCS backed its decision.