An Examination of the Rafale Case: The Old Non-Deal and the New Deal
November 18, 2017
Earlier this week, questions were raised about the Rafale deal signed between India and France in September 2016. The allegations made went to the extent of issuing warnings about “a huge scam” in the deal and that the earlier 2012 proposal for an aircraft deal with Dassault Aviation (which manufactures the Rafale) was better and cheaper although that was never sealed.
We checked the facts of the case, and in the process also made a comparison between the two deals – the one that was never cleared by the previous administration and the new one signed last year by the current administration. Below are our findings:
KEY TAKEAWAYS
- Acquisition of 36 Rafale is meant to address the IAF’s operational preparedness
- Price of old deal did not include cost of weapons, equipment, tools, documentation, training & logistics. Adding these, the old deal’s cost goes up further
- Total value of new deal includes cost of platform, infra support, supplies, India-specific changes, additional weapons package, logistics support
- Under the old deal, India would have ended up paying more – for underdeveloped aircraft – and kept on paying more as per the vagaries of the European market
- Dassault agreed to make India-specific modifications to Rafale under the new deal
- Additions to Rafale and further concessions from Dassault and France have qualitatively changed the deal
- Units are fundamentally different in qualitative terms
- Under the new deal, Dassault will have to ensure that at any one point of time, 75% of the Rafale fleet is operational
MAIN TAKEAWAY
If there was a deal in 2012, why did India not get the aircraft? The answer is that there was no deal and thus quoting the price of the old “deal” itself and then comparing it is logically fallacious. The deal was on the verge of cancellation and the
last administration’s prolonged delay led costs to shoot up.
The current administration revived the deal and addressed a critical shortfall in the operational readiness of the IAF.
Moreover, the
deal has been completely customised by Dassault now. If we use the analogy of buying a car, this is what happened:
The price being quoted for the old proposal is of a base car unit, the skeleton, without modifications or additions. What we are getting now is a complete car, with all necessary equipment and tools added. The old proposal’s costs did not include anything like equipment, weapons, support & supplies, etc. Adding these, the price of the “old deal” would be nowhere near what has been quoted recently.
Therefore, the deliverables between the old proposal and the new deal are qualitatively very different. (In our study, we have mapped out the approximate costs under the new deal above and the reader can see how it all adds up.)
A Brief History of the Rafale Deal
- Observing the Indian Air Force’s critical need for fighters, the proposal to procure 126 aircraft first came up in 2000.
- Therefore, the idea did not originate in the 10 years of the previous administration. In fact, it is the same administration which could not take a decision.
- The lowest vendor was decided only in 2012, after the Dassault Rafale won the competitive bid. Yet, over the next two years of the negotiations stalled and could not be completed.
- By the time the change of guard happened at the Centre in 2014, the IAF’s squadron shortfall had already created a critical situation in its operational requirements. It was against this backdrop that the decision was taken to purchase at least 36 aircraft in flyaway condition.
- The purchase of the 36 aircraft was decided during the summit between Prime Minister Narendra Modi and then French President Francois Hollande in Paris in April 2015.
- Thereafter, India did not sign the deal as it stood in January 2016 because it did not agree with the price of €8.6bn.
- The inter-governmental agreement was finally signed on September 23, 2016, in the presence of the then defence ministers of India and France.
- India had also announced that if it were to order additional Rafale aircraft after the outright purchase of 36 fighters, it would thereafter go for government-to-government deals.
We also fact-checked some of the remaining critical claims that have been made against the Rafale deal signed last year.
Claim: New Rafale deal does not include transfer of technology (ToT) unlike the earlier proposal.
Fact: The new deal on 36 aircraft in flyaway condition does not include ToT. The reason for that is economic. Spread across 126 units, ToT costs would make less of an impact than the same on a base of 36 aircraft. Instead, what is being done now is the consolidation of the Strategic Partnership (SP) model, which goes way beyond ToT and is a much more holistic approach. In the near future, this is expected to enable a strengthened defence manufacturing process through “Make in India” with seamless sharing of technology and more.
Claim: The PM’s decision to buy 36 Rafale was “unilateral” and bypassed the Defence Procurement Procedure.
Fact: The decision was unilateral. Apart from the Joint Statement, the Inter-Governmental Agreement (IGA) was issued. Thereafter, the IGA was signed after approval from the Cabinet Committee on Security (CCS).
Claim: The interests of “one industrial group” or Reliance Defence Limited was promoted, since Reliance tied up with Dassault in October 2016 for a joint venture.
Fact: Private players have come into India’s defence production and how two firms choose to work with each other, or not, whether they engage in a tie-up, is entirely a matter between the two parties involved. The Indian government was not involved in this process. More importantly, the acquisition of the 36 Rafale aircraft did not involve any private player. It is completely an agreement between two governments.
We know that despite Dassault winning the tender in 2012, the previous administration could not complete the deal, nor even successfully renegotiate it. It was after the change of administration that we saw a fresh impetus being given to the stalled project. In a significant difference, the new government began direct talks with the French government. What emerged from the inter-governmental negotiations was a new deal which, too, India did not sign till further tuning and alterations were made to its satisfaction.
When the deal was signed in September last year, we saw a deal very different from the original MMRCA deal. As listed above, the
additions to the Rafale and the further concessions from Dassault Aviation and France have qualitatively changed the deal significantly. Factors like the unit price as in the previous deal and current deal simply cannot be compared because
the units are fundamentally different in qualitative terms.
And yet, when compared, we find that the picture works out to the advantage of the new deal in each case and overall. In fact,
it is under the old deal of the last government that India would have ended up paying more – for underdeveloped aircraft – and kept on paying more as per the vagaries of the European market!
India had a squadron strength of 42 in 2000 – the full authorised strength. Subsequently, little happened in terms of procurement and the armed forces, the IAF included, ended up with shortages. The acquisition of 36 Rafale is meant to address that fundamental question of the IAF’s operational preparedness. Having wasted several years even in securing the Rafale deal, there did not appear to be any time left for further delay.
http://thetruepicture.in/rafale-case-old-non-deal-new-deal/
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