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Mainstream, VOL LIX No 48, New Delhi, November 13, 2021

Rafale controversy – the mystery deepens | Upal Chakraborty

Saturday 13 November 2021

by Upal Chakraborty *

The Rafale controversy has its origin in the decision to purchase 126 multi-role combat aircraft (MMRCA) by the Indian Air Force (IAF), as announced by the Ministry of Defence on the 28th of August, 2007, through a Request for Proposal (RFP) for the procurement of 126 MMRCA (medium multi-role combat aircraft) fighters.

It was only after 5 years, on the 31st January 2012, that the Ministry of Defence of the then UPA Government announced that Dassault Rafale had won the MMRCA competition to supply the Indian Air Force with 126 aircraft, along with an option for 63 additional ones. The initial 18 aircraft were to be imported from Dassault Aviation, and the remaining 108 aircraft manufactured under license by Hindustan Aeronautics Limited (HAL) to whom there would follow a technology transfer. Rafale was apparently chosen as the lowest bidder based on various factors, including the cost of acquisition, operating cost over a duration of 40 years and the cost of transfer of technology.

It was only in In March 2014, a few months prior to the General elections, that HAL and Dassault signed a work-share agreement on licensed manufacture. The deal was held up for a sufficiently long time because the Indian Government insisted that the guarantee for the subsequent aircraft should rest with Rafale. Hence no firm agreement could be signed during the tenure of the UPA Government.

In June, the UPA lost the elections and NDA under Narendra Modi took over. On the 8th of August, 2014, the then Defence minister Arun Jaitley informed Parliament that 18 direct ‘fly-away’ aircraft were expected to be delivered in 3-4 years from signing of the contract and the remaining 108 aircraft were expected in the next seven years. In February 2015, it was reported by the media that the Rafale purchase was heading for cancellation on account of deficiencies in Dassault’s bid, and on the 25th of March 2015, Dassault’s CEO Éric Trappier publicly refuted the reports, stating that although the deal was taking time, it was "95 percent completed”. During an official visit to France in April 2015, taking everyone by surprise, the Indian Prime Minister Narendra Modi announced that India would acquire 36 fully built Rafales on grounds of "critical operational necessity”. In July 2015, Defence Minister Manohar Parrikar informed the Rajya Sabha that the tender for 126 aircraft had been withdrawn and negotiations for 36 aircraft had begun. In January 2016, India and France signed a memorandum of understanding (MoU) for acquisition of 36 aircraft without finalizing the financial terms of the acquisition and only in May 2016, the two sides arrived at a figure of €7.87 billion (₹58,891 crore) for the agreement, compared to €11.8 billion quoted in April 2015 and €8.6 billion quoted in January 2016. In September 2016, India and France finally signed an inter-governmental agreement (IGA) for the acquisition of 36 aircraft following clearance from the Indian Cabinet Committee on Security.

There are two points worth noting here. The provision for manufacture by HAL was conveniently excluded and the flurry of contradictory comments emanated from various Government functionaries. Bulk of our defence expenditure has been traditionally in the form of imports, that is, where the items- be it aircrafts, guns, tanks, ammunition, or electronic equipment- are manufactured abroad and the finished goods shipped to India. This not only causes enormous outflow of foreign exchange but makes us dependent on the external manufacturer, keeps avenues open for illegal gratification (the Bofors controversy being still fresh in our minds) and, importantly, fails to generate employment. The decision of the UPA Government to manufacture the 108 aircrafts within India, and that too by a public sector unit, was laudable and a welcome departure from the past. This was unfortunately eliminated from the final agreement on the ground that HAL lacked the required competence.

The above milestones are considered important in light of the recent allegations in the French newspaper, Mediapart, that one Sushen Gupta, a middleman, had been paid bribes worth 7.3 million euros between 2007 and 2012 by Rafale. The question that comes to our minds is: why would a deal which was announced only in 2014 attract bribes to be paid to a middleman between 2007 and 2012? We have seen in the past that such bribes are normally paid just before the awarding of the contract or along with the signing of the same. And would the UPA not have ensured that the contract was signed and sealed prior to its departure?

Although the Supreme Court, in November 2014, dismissed allegations against the deal as tendentious and motivated, questions still hover in many minds on the propriety of the entire process adopted, hurry in announcing the deal, the prices agreed upon, lack of a bank guarantee, removal of anti-corruption clauses, and, finally, the awarding of an offset contract to a company formed by Anil Ambani, a near-bankrupt individual with no proven track record of managing companies profitably and zero experience in aircraft manufacture - after bypassing an experienced organization like HAL. If HAL lacked competence, it was the job of the Government to induct competent managers, grant them autonomy and enhance their capabilities to manufacture the aircrafts. The offset portion of the agreement, finalized through procedures laid down by the Government in 2002, was envisaged to ensure that the exporting organization agrees to offload a part of its normal requirements onto any Indian manufacturer to ensure partial reversal of foreign exchange outflow and generate employment. It need not be limited to the manufacture of equipment pertaining to the items imported. We have already mentioned the capabilities of Anil Ambani and there appears to have been no subsequent movement in this direction. In the meantime, Anil and his organization have both reached a state of bankruptcy, unable to pay its creditors.

The controversy has only turned murkier after Mediapart has claimed that the office of the Attorney General of Mauritius sent copies of the bogus invoices to the CBI on October 11, 2018 and an image of the letter from the Mauritius AG’s office to the CBI was shared. As a matter of fact, that is how Indian detectives discovered that Sushen Gupta had also acted as an intermediary for Dassault Aviation over the Rafale deal. The question is – why did the CBI not launch a probe? Surely not out of fear that the Congress Party and its leaders would stand implicated?

The mysteries only deepen as we go along, and, with the French Government investigating the entire deal, the future may store many more surprises for us.

* (Author: Upal Chakraborty has worked for various corporate organizations in a long career of 35 years, and, after retirement, currently focuses on writing articles on various social topics, consultancy and teaching.)

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