Rafale fighter jet: Photo: Dassault Aviation
Rafale fighter jet: Photo: Dassault Aviation

The Hindu report on Rafale: Govt. says inaccurate, Congress demands JPC

NetIndian News Network

New Delhi, January 18, 2019

The Congress today said a report today in The Hindu, which claimed that Prime Minister Narendra Modi's decision to buy 36 Rafale fighter jets from France instead of the 126 asked for by the Indian Air Force had pushed the price of each aircraft up by 41.42%, left no doubt any longer that the deal deserved to be examined thoroughly by a Joint Parliamentary Committee (JPC).
"The Congress reiterates its demand for the constitution of a JPC," former Finance Minister and senior Congress leader P. Chidambaram said at a press conference here.
The Ministry of Defence, however, said the report was factually inaccurate. "It does not adduce any new arguments. All the issues have been answered in detail by the Government at various fora and most recently by the Raksha Mantri in an open debate in the Parliament," a statement from the Ministry said.
The newspaper report, authored by The Hindu Group Chairman N. Ram, said Mr. Modi's decision, announced out of the blue in Paris on April 10, 2015, to buy 36 Rafale fighter jets from France instead of the 126 asked for by the Indian Air Force for seven squadrons, pushed the price of each fully fitted, combat-ready aircraft up by 41.42%.
"It was the National Democratic Alliance government’s acceptance of the cost of €1.3 billion claimed for the ‘design and development’ of 13 India Specific Enhancements (ISE), and the distribution of this ‘non-recurring cost’ over 36 instead of 126 bare-bones aircraft, that was the major reason for the big increase in price," the  report said.
The report said three senior Defence Ministry officials on the seven-member Indian Negotiating Team (INT) objected to the high cost of €1.3 billion (brought down from the original €1.4 billion) assigned by the vendor, Dassault Aviation, to India Specific Enhancements for the 36 Rafale fighter jets. 
It said the three officials had also objected to several other aspects of the proposed inter-governmental deal, including the inflated "benchmark price".
The report said the INT ultimately adopted a 4-3 resolution on the amount, with the other four members overruling the objection by their three colleagues. It was ultimately ratified by the Cabinet Committee on Security.
"The official record shows that various aspects of the government-backed proposal for the procurement of 36 flyaway Rafales were presented or referred back to the DAC (Defence Acquisition Council) on five separate occasions between August 2015 and July 2016. It is surely significant that every one of the 10 contentious issues raised within the INT was settled by a 4-3 majority vote. The negotiating team duly completed its work and its chairman submitted a report on August 4, 2016," the report said.
Mr. Chidambaram said the report had given a new dimension to the controversial decision, on which the Congress has been demanding a JPC, which the government has repeatedly turned down.
"Ever since 10 April 2015, when the Prime Minister announced in Paris that the earlier UPA-negotiated deal for 126 aircraft was scrapped and he had agreed on a new deal to buy 36 aircraft, one question has loomed large. Why did the government reject the Air Force’s need and demand for 126 fighter aircraft (7 squadrons) and decide to buy only 36 aircraft (2 squadrons)?
"That question has never been answered by the Prime Minister or the Defence Minister or the Finance Minister or the Law Minister. Be it noted that the Supreme Court expressly declined to go into that question. 
"The answer to the question is now available through the splendid investigative report published by The Hindu," he said.
Mr. Chidambaram said an analysis of the report showed that the price negotiated by the UPA government in 2007 was €79.3 million per bare-bones aircraft. 
"In 2011, that price had escalated to €100.85 million per aircraft. In 2016, the ‘discount’ of 9 per cent negotiated by the NDA government brought down the price (presumably after factoring in the escalation between 2011 and 2016) to € 91.75 million. 
"Air Force had asked for 13 India Specific Enhancements (ISE).The negotiated price was €1300 million that would have to be paid under both the UPA-negotiated deal and the NDA-negotiated deal.
"The twist in the story is over the amortization or recovery by Dassault of the cost of ISE. Under the UPA-negotiated deal, it would have been spread over 126 aircraft. Under the NDA-negotiated deal it will be spread over 36 aircraft.
"Assuming one aircraft would be delivered every month, if 126 aircraft had been purchased, Dassault would have recovered €1300 million over 10 years and 6 months (or a little sooner). If only 36 aircraft are purchased, and delivered between 2009 and 2012 as contracted, Dassault will recover €1300 million in 36 months.
"Dassault gains in two ways. First, the price per aircraft, because of ISE, would have increased by €10.3 million if 126 aircraft had been ordered. Under the new agreement for only 36 aircraft, the price per aircraft, because of ISE, will increase by €36.11 million. Second, calculating net present value of money, the €1300 million that Dassault will recover (by 2022) will be much higher than the €1300 million it would have recovered (by 2029 or so). This is the gift to Dassault that the NDA government gave between April 2015 and August 2016," Mr. Chidambaram said.
"It seems to me that Dassault is laughing all the way to the bank. The government has wronged the country in two ways: firstly, it has compromised national security by denying to the Air Force 90 fighter aircraft that they desperately need; secondly, it has purchased two squadrons that will cost about €25 million more per aircraft. At the 2016 exchange rate, €25 million is equal to Rs 186 crore! India will pay Rs 186 crore more per aircraft!" he said.
The former Finance Minister said The Hindu report also raised many other seirous issues about the  process of decision-making in the NDA government.
"The vote of 4-3 itself tells a story. Has it ever happened before in a defence purchase? Why was it so important in this deal to take every decision by a 4-3 vote brushing aside every objection?" he asked.
The Ministry of Defence, in its statement, said the deal for the purchase of 36 Rafale fighter jets in 2016 "achieved the objectives of better price, better delivery period and better terms as compared to the earlier proposal."
The statement said the pricing details, which are of confidential nature and covered by the Indo-French security agreement of 2008, were shared with the Supreme Court in a sealed cover.
"The Supreme Court has gone through  the details of pricing and commercial advantage. The Supreme Court has not found anything adverse in the deal and has refused to order an investigation as sought by the petitioners. The CAG has been given access to all the files related to Rafale deal. It is best to await the report of an authoritative agency like the CAG," it said.
"The author has rightly pointed out that the cost of the basic aircraft in the 2016 deal was better than the offer of 2007 after considering escalation even though several media reports and political parties kept comparing the cost of the basic aircraft of 2007 with the cost of fully loaded aircraft in 2015," it said.
The Ministry said the India Specific Enhancements were part of the requirements of the Indian Air Force to achieve tactical superiority over India's adversaries. These were part of the 2007 bid and continued to be part of the 2016 deal.
"The cost of the India Specific Enhacements was on a fixed basis in the 2007 bid which was negotiated down in the 2016 deal. However, to compare the cost for the MMRCA contract which never materializeed with the cost of the 36 aircrafts procured in 2016 is fallacious. The author while indicating the price of ISE as 1.4 Bn Euro in 2007 has failed to include the in-built escalation factor that would have worked between 2007 and 2015.
"Surprisingly, in the headline of the article, the author has compared the unescalated price of 2007 with the price of 2016 without considering the escalation factors inherent in the price bid. Later, hidden deep in the article itself it is stated that the price is 14.2% higher compared to the escalated price as probably this fugure does not attract as much attension as a 41.4% higher price," it said.
The statement said the author of the article had also missed the main advantage in terms of price obtained by the Government in the 2016 deal which was mentioned by Defence Minister Nirmala Sitharaman in Parliament.
"This change from a firm and fixed price to a flexible rate was possible only because the deal was structured an IGA. This factor is expected to lead to a substantial commercial advantage over the delivery period of 36 Rafale aircrafts.
"A negotiation, especially between two countries, is a comprehensive deal and by selectively picking certain aspects while ignoring others, creates doubts by vested interests on a matter of vital national security. This has been repeatedly pointed out by the Government and accepted by the Supreme Court.
"The issue of dissent within the Indian Negotiating Team has also been asnwered by the Raksha Mantri in the Parliament. In the highest traditions of the Civil Service, all views are aired and recorded and a collegiate decision taken after considering such opinions. Decisions on the deal were taken after due process of inter-ministerial consultation.
"The issue of  benchmarking and the offer of EADS to give a 20% discount are related. Even the UPA Government had rightly  rejected the EADS offer of 20% discount in 2012 after opening of bids as violative of procedure. Consideration of this offer by the Government would have again made the Government subject to charge of violating basic procedure. It is best to avoid the pitfalls of a corporate battle which has been going on since 2012 which has adversely affected the capabilities of the Indian Air Force. The controversy should be put to rest in the interest of national security," the statement added.

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