How Modi's decision to buy 36 Rafales raised price of each by 41%?
- Team PT
How Modi's decision to buy 36 Rafales raised price of each by 41%?



THE MODI GOVERNMENT’s decision to buy 36 Rafale fighter jets from France instead of 126 as asked for by the Indian Air Force for six squadrons led to an increase in the price of each jet by more than 41 percent, The Hindu has claimed in an investigative report.

The exclusive report by N Ram in The Hindu suggests that the hike in price was caused due to "government’s acceptance of the cost of €1.3 billion claimed for the ‘design and development’ of 13 India Specific Enhancements (ISE).”

The distribution of this ‘non recurring’ cost got distributed over 36 jets, as opposed to 126, which resulted in the prices going up, the report says.
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The Hindu’s report claims that it has access to documents which show that three members in the 7-member Indian Negotiating Team (INT) objected to the high cost, but the deal went through with a 4:3 majority.
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Here are some points of the report which give a new dimension to the debate on the Rafale deal:

 How are the Rafale jets 41% pricier? 

The report, which quotes ‘official documents’, a 23 July 2018 press conference of Law Minister Ravi Shankar Prasad and a 13 November 2018 interview of Dassault Aviation CEO and Chairman Eric Trappier on pricing details, says that the price of each jet went up from 90.41 million euros in 2007 to 127.86 million euros in 2016 – an increase of 41.42 percent.

In 2007, when the then UPA government floated a tender for 126 Rafale aircraft, the report says the cost of each jet in flyaway condition was quoted at €79.3 million, which went up to €100.85 million by 2011, due to escalation cost factor. Out of this, 18 were to be received in flyaway condition while 108 were to be manufactured in India.

However, in 2016, the NDA government obtained a 9 percent discount for the 36 Rafale jets it was buying from France through an Inter-Governmental Agreement, which brought the price per aircraft down to €91.75 million.

But, that’s not all. The Air Force had asked for 13 ‘India Specific Enhancements (ISE)’ in the aircraft, for which Dassault asked for a cost of 1.4 billion euros. The NDA government negotiated to bring this down to 1.3 billion euros.

However, the government was now procuring 36 aircraft and not 126. So the ‘design and development cost’ shot up from €11.11 million per aircraft in 2007 to €36.11 million when the deal got finalised in 2016.

 India Specific Enhancements 

The 13 ISEs have been asked for by the Indian Air Force right since 2007 as part of its ‘urgent strategic requirement’, the report says.

The report lists some of the ISEs as capabilities relating to radar enhancements "which will provide the force with better long range capability”, a helmet mounted display "through which IAF pilots will be able to counter many threats simultaneously”, the capability to start and operate from high-altitude airfields, an advanced infrared search-and-track sensor, "a very potent electronic jammer pod”, and capabilities pertaining to avionics.

The Hindu claims to have the entire list of ISEs in its possession.

The Hindu’s report claims that it has access to documents which show that three members in the 7-member Indian Negotiating Team (INT) objected to the high cost, but the deal went through with a 4:3 majority.

The report notes Joint Secretary & Acquisitions Manager (Air) Rajeev Verma, Financial Manager (Air) Ajit Sule, and Adviser (Cost) MP Singh as the members who objected to the pricing.

It also suggests that as many as 10 contentious issues were resolved by a 4:3 majority in the INT.

 Rafale vs Eurofighter 

The report points at another aspect which suggests that Eurofighter Typhoon Consortium had presented the government with an offer which it could have used to effect price reduction in the Rafale deal.
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As the Rafale deal got stuck, Eurofighter sensed a chance and offered a new deal to the NDA government with a 20 percent discount.
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The consortium which comprises of leading aerospace and defence companies from the United Kingdom, Germany, Italy, and Spain had also been in the fray with Rafale for the deal, between 2009 and 2011. However, it lost out to Rafale in pricing.

As the Rafale deal got stuck, Eurofighter sensed a chance and offered a new deal to the NDA government with a 20 percent discount.

The report quotes a letter dated 4 July 2014, addressed to Finance Minister Arun Jaitley.

The letter offered "126 Eurofighter Typhoons”, a 20 percent reduction in the total package price "compared to the numbers previously submitted”, improved aircraft capabilities, "favourable payment terms”, an enhanced transfer of technology process by setting up a production line and a Eurofighter Typhoon Industrial Park in India along with "a comprehensive training and support programme”, and the tantalising prospect of accelerated delivery of Eurofighter jets by diverting deliveries meant for Germany, the UK, Italy, and Spain "to the benefit of the Government of India should you wish to utilise such an accelerated program,” the report says.

This offer was also declined through a 4:3 majority in the INT which said that Eurofighter’s "unsolicited” offer was not in line with the provisions of the Defence Procurement Procedure and was also against Central Vigilance Commission (CVC) guidelines.

The report claims that Eurofighter’s offer could at least have been used to bargain for a lower price from Rafale. 

Moreover, it quotes Eurofighter’s letter to Jaitley which opens with: "The interest of the Indian Government to replace its existing fighter aircraft fleet has continually attracted our full engagement and we are hence delighted to respond to your request as conveyed through our Nations’ Ambassador.”

These lines seem to suggest that the consortium’s offer may not have been ‘unsolicited’.

 Controversies of deal 

The Rafale deal has been in the middle of controversy right since September 2016 when Prime Minister Narendra Modi and French President Francois Hollande signed an inter-governmental agreement which scaled back an original plan to buy 126 Rafale jets to just 36 in fly-away condition.

In December 2016, Dassault Aviation’s Annual Report reveals the actual price paid for the 36 aircraft at about Rs 60,000 crore, more than double the government’s stated price in Parliament.
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The report claims that now a fairly large literature, investigative, prosecutorial, and critical, is now available on various aspects of the Rafale deal of 2015-2016.
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In February 2017, replying to an RTI query, the Air Force said that the price of the aircrafts cannot be disclosed as they are confidential in nature.

Then in November 2017, the Congress party claimed that days after the Rafel deal was signed, Reliance Defence Limited, owned by Anil Ambani, tied up with Dassault for a joint venture for defence production in India.

The report claims that now a fairly large literature, investigative, prosecutorial, and critical, is now available on various aspects of the Rafale deal of 2015-2016. This literature has shown or alleged that institutions and mandated or standard procedures laid down for defence acquisitions were bypassed; that guidelines were violated; that the benchmark price, a sort of ceiling for the whole package, discovered by financial experts was arbitrarily raised from €5.2 billion to €8.2 billion at political behest; that crony capitalism was behind the NDA government’s choice of key offset partners.

While comparisons have been drawn with the Bofors scandal, by protagonists as well as antagonists, towards different ends, what seems guaranteed is that we have not heard the last of l’affaire Rafale.
 
For reading the original report, click here.
 

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