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Mainstream, VOL 61 No 20, May 13, 2023

Review of The Rafale Deal: Flying Lies? by Ravi Nair and Paranjoy Guha Thakurta | Shubham Sharma

Saturday 13 May 2023


Book Review:  

by Shubham Sharma

The Rafale Deal: Flying Lies? The Role of Prime Minister Narendra Modi in India’s Biggest Defence Scandal

by Ravi Nair and Paranjoy Guha Thakurta

2022. pp 532 HB: Rs 795

Until recently, India, like other Western-capitalist countries, lacked a robust domestic ‘military-industrial complex’ (MIC). It could be defined [1] as the presence of a defence procurement mechanism which involves a transactional nexus between private group(s) that benefit from the funds generated by the state. It involves a host of actors, namely, top defence officers and procurement officials, ministers as authorizers, and private business entities as recipients of contracts. Among MICs, chief ethos are: a revolving door i.e., a continuous flow and exchange of top personnel between the core groups of the transactional nexus; a preparedness ethos i.e., constant preparedness for war even during peacetime; and last but not least, the presence of defence pressure groups incorporated for constant and relentless lobbying.

With almost eighty percent of India’s defence manufacturing being under the public sector, there have been calls from the right-wing think tanks [2] and big businesses [3] to the government to make MIC the dominant phenomenon in India. The government has been quick to heed. The Defence Minister has promised [4] to earmark three-fourths of the defence capital outlay for 2023-24 (more than Rs 1 lakh crore) for domestic defence manufacturers. All this is being done to make India Atmanirbhar (self-reliant) and reduce dependency on defence imports. The Prime Minister has targeted [5] to export defence equipment worth $ 5 billion by 2024-25 against the current $ 1 billion. In reality, Atmanirbharta is nothing, but a euphemism employed to hollow out the public sector in defence research for the benefit of private players. In the long run, it can have disastrous results. In the US, the most advanced ‘military-industrial-congressional-complex’ [6] prods the US government to have an aggressive foreign policy in the Far East, which is capital-intensive, as opposed to a more labour-intensive engagement in West Asia. Indian foreign policy too could be susceptible to such pressures in the long run. The exact nature of it, as of now, remains indeterminate. Secondly, cronyism and favouritism towards select private players could lead to the creation of monopolies and duopolies. For instance, after winning the contract in 2001 to design and manufacture the Joint Strike Fighter, Lockheed Martin positioned itself as the monopoly player in advanced fighter aircraft. Similarly, Huntington Ingalls has a monopoly on building and servicing US aircraft carriers, and a duopoly (along with General Dynamics) on Navy submarines. Thirdly, thanks to the system of opaque electoral bonds in India, such monopolies will be in a better position to fund and sustain political parties who favour them through defence contracts.

The argument that the public sector is not a viable alternative for modern defence requirements and the private sector should replace it, is based on a flawed premise. Between 1950-2010, India imported arms worth US$64.84 billion (the highest quantum of purchase when compared to any other country) from the Soviet Union/Russia where all, in the case of the Soviet Union, and most, in the case of modern-day Russia, of the defence industry belonged/belongs to the state [7]. In China, where a robust MIC is on the rise, has at its centre the State-Owned Enterprises (SOEs). In no manner whatsoever is the public sector is being used as a sacrificial lamb for the benefit of private entities.

In India, the Rafale scandal has marked a big step towards, not only the creation of a military-industrial complex at the cost of the public sector but also the inauguration of the most nakedly corrupt practices emanating from the highest office i.e., the Prime Minister’s Office.

Ravi Nair and Paranjoy Guha-Thakurta in their scintillating book The Rafale Deal: Flying Lies? The Role of Prime Minister Narendra Modi in India’s Biggest Defence Scandal [8] interrogate the entire process of ordering the Rafale aircraft from Dassault Aviation, France in technical association with the Hindustan Aeronautics Limited (HAL), an Indian public sector undertaking, to its final denouement at the hands of a rapaciously carnivorous collusion between the government and its cronies.

The story begins with the requirement of the Indian Air Force (IAF), in the aftermath of the Kargil War, of a new fleet (126 to be precise) of advanced fighter jets belonging to the Medium Multi-Role Combat Aircraft (MMRCA) class. In 2004 when the United Progressive Alliance (UPA-1) came to power it urged the IAF to prepare a detailed Request for Proposal (RFP) based on the guidelines set out by Defence Procurement Policy (DPP) as prepared and amended in 2002 and 2003 by the Atal Bihari Vajpayee led National Democratic Alliance (NDA) government. Latter’s DPP included the crucial clause of ‘buy and make through a Transfer of Technology (ToT). The UPA, in December 2005, further amended the DPP of 2003 and inserted the significant ‘offset’ clause. For the uninitiated, a defence offset clause meant that ‘the economic and technological losses that were to be incurred by Indian defence manufacturing companies on account of foreign procurement were sought to be ‘‘offset’’ partially by mandating that a portion of the manufacturing process took place using the local suppliers’ (p 10-11).

On 28 August 2007, the Indian government sent a detailed Request for Proposal (RFP) to six aircraft manufacturers globally, namely- to Russia for the MiG-35, to the Swedish Saab for the JAS-39 Gripen, to the French Dassault Aviation for Rafale, to the American Lockheed Martin and Boeing for F-16 Falcon F/A-18 Super Hornet, respectively, and finally to a European Consortium consisting of Britain, Germany, Spain and Italy for the Eurofighter Typhoon.

The authors argue that this RFP was unique for more reasons than one. They write, ‘‘this was the first time that the Ministry of Defence was sending out an RFP to foreign vendors...this was the first major tender involving the IAF which included an offset component and mandated that half the cost of the deal would have to be ploughed back into India...this was also the first time that the Ministry of Defence had asked vendors for a performance-based warranty over the entire lifecycle of the aircraft itself’’ (p 45).

After procedurally stringent air trials consisting of 643 parameters, in December 2010 the IAF submitted its final report to the Ministry of Defence endorsing two aircraft—Rafale and the Eurofighter Typhoon. And in January 2011, after calculating the life cycle cost, Rafale was selected. The purchase contract was not signed with Dassault immediately because ‘the 2012-2013 was about to end, and there were insufficient funds with the IAF for new acquisitions during that fiscal year’ (p 48).

The choice of the French Dassault over others led to a lot of diplomatic jostling which clarified how the world capitalist system and arms/weapons trade operate. The failure of the two American companies to win the bid was ‘a blow for Barack Obama who had pushed hard for a defence deal during his visit to India in November 2011’. Lockheed Martin’s statement in the aftermath of its rejection that ‘we understand that the US government is working on a response to that letter (announcing the initial shortlisting of Rafale and Eurofighter Typhoon) from the Indian government’ (p 50) showed how states and state heads often act as sales executives for big corporations. Interestingly, Timothy John Roemer, then US ambassador to India, resigned soon after both the American companies were knocked out of the race citing ‘personal’ and ‘professional’ reasons. A leaked secret cable sent out by outgoing Roemer to the Indian government emerged in 2013 that said that ‘Dassault was unhappy taking on Hindustan Aeronautics Limited (HAL) as its offset partner’ (p 61). This was a clear bid on the part of Roemer to scuttle the deal between India and Dassault wherein the former had put supreme premium on the fact that HAL would remain the ‘lead integrator’ of the project with other private players would at best serving as ‘vendors’ to HAL.
On the contrary, in March 2015, Eric Trappier, the CEO of Dassault Aviation, hailed his company’s partnership with HAL and called it a ‘great step.’ On 25 March Trappier again reiterated that ‘Dassault had an excellent working relationship with HAL which went back several years, and he was happy that the two firms would be collaborating on the upcoming Rafale deal in India’ (p 85).

In comes Modi

After winning the 2014 general election, Prime Minister Narendra Modi whilst inaugurating the Aero India exhibition in Bengaluru in February 2015 declared to amend the DPP to promote private investment in defence equipment manufacturing. Two months later, on April 10, during his tour of France, Modi binned the previous agreement and unilaterally declared the purchase of 36 ready-to-fly Rafale jets to India. The announcement was unexpected because a day before the influential French daily Le Figaro had reported that any announcement on the Rafale deal was not on the table. Even the annual report of Dassault Aviation released on 10 March 2015 stated that negotiations with India and Indian Industrial Partners to finalise the contract for the sale and licensing of 126 Rafale jets were on and ‘‘a great deal of work was done with India’’ (p 84). On 25 March Eric Trappier was heard saying, in the presence of HAL and IAF officials, that negotiations were ‘95 percent’ through (p 164). Even the then Foreign Secretary and now Minister of External Affairs S. Jaishankar had no clue of the new deal. Two days before Modi left for France, Jaishankar had announced that ‘we do not mix up leadership level visits with deep details of ongoing defence contracts. That is on a different track. A leadership visit usually looks at big picture issues even in the security field’ (p 23).

The shroud of opacity that marred Modi’s announcement was also reflected in the French government’s response to the question raised by Senator Roger Karoutchi regarding the sale of Rafale jets. On 16 April 2015, six days after Modi’s announcement, the response by the French Ministry of Defence did not even mention the sale of 36 Rafale jets in ‘fly-away’ condition to India. The latter fact was not reported by the Indian media (p 92).

The then Defence Minister the late Manohar Parikkar was left in a lurch and his statements trying to defend Modi’s unilateral announcement were as clear as mud. On many occasions, Nair and Guha-Thakurta show how Parikkar contradicted himself and was thrown off balance. For instance, Parikkar declared that the cumulative cost of 126 aircraft would have gone up to Rs 90,000 crores over a period of seven years. Later on, he ratcheted the cost to around Rs 1.3 lakh crores. On another occasion, he claimed that India would buy another 90 Rafales under the ’Make in India’ flagship. A month later he claimed that after having saved the cost of 90 Rafales India would use that money to buy Tejas Light Combat Aircraft (LCA).

Parikkar’s successor Nirmala Sitharaman was no different. She not only muddied the waters more but went on to defend the indefensible in a thoroughly unconscientious manner. For instance, the selection of Anil Ambani’s Reliance Aerostructure Limited which was curiously incorporated within two weeks after Modi’s announcement in Paris was defended by Sitharaman as a ‘business decision between two private companies’ and therefore ‘outside the purview of her government’ (p 161). One is bound to ask the question that if the deal was between two companies and the government had nothing to do with it would it not have been better that instead of Modi and Hollande, Anil Ambani and Eric Trappier would have announced the purchase from any private hotel in Paris?

Sitharaman also lied when she declared that the decision to buy 36 Rafale jets followed due process by getting a clearance from the Cabinet Committee on Security (CCS). Nair and Guha-Thakurta show that approval from the CCS came sixteen months, i.e., September 2016, after the deal was announced by Modi. Neither was the IAF consulted, nor the Defence Acquisition Council (DAC) convened to approve the proposal. On the question of Transfer of Technology (ToT) which was the most crucial component of the deal since the Request for Proposal (RFP) was mooted as it involved no less than sixty categories of ToT, Sitharaman claimed that it was not possible to have a ToT agreement on a ‘small ticket purchase’ of 36 aircraft. The lack of ToT meant that the First World would again mooch off Indian public money through ‘technological rent seeking’. The whole brouhaha about ‘Make in India’ now appears to be merely as ‘Paid in India.’

Sitharaman also harped on making a ‘qualitatively better deal’ than the one that was negotiated earlier. Whilst the Indo-French joint statement had categorically stated that ‘the aircraft and associated systems and weapons would be delivered on the same configuration as had been tested and approved by Indian Air Force during the 126 MMRCA selection process’ (p 168). Therefore, any qualitative upgraded deal was out of the question. On the question of faster acquisition of 36 aircraft, Sitharaman was again on the wrong footing. The annulled 2007 Request for Proposal had mandated that within three and four years 12 single-seat and 6 twin-seat aircraft would be delivered to India. In March 2017, the Minister of State for Defence Subhash Bhambre told the Parliament that ‘the first aircraft under the new agreement would be delivered after three years’ and the last was to arrive in ‘the sixth year after the deal had been signed’ (p 169). Therefore, in no manner whatsoever the new deal was to ensure a ‘faster delivery’ of the aircraft.

Disappointment also came from the top echelon of the IAF. Before Arup Raha became the Air Chief Marshal, he had declared in October 2015 that ‘we would like to have about six squadrons.’ Later when he became the IAF Chief his response to the press became cryptic. He declared that ‘we would like to have more, but the decision will be taken in the near future based on the capabilities and the desirability of having more fighter aircraft of this class’ (p 147).

When the leaders of the opposition queried about the increased cost of 36 aircraft, Sitharaman was at her deceptive best. Despite she and her Party pooh-poohing the entire procedure initiated by the Congress-led UPA, she argued that as per Article 10 of the Inter-Governmental Agreement and the Security Arrangement signed between India and France in 2008 the price of the deal was deemed to be ‘classified information’. Nair and Guha-Thakurta argue that Sitharaman’s decision to seal the real cost of Rafale from public scrutiny was nothing but an eye wash. They write, ‘‘most of the customization that the IAF had asked for that were to be incorporated into the Rafale aircraft were already in the public domain and a number of journalists and analysts in India and abroad had written extensively on these details.’’ The Security Agreement did not speak of the applicability of the ‘secrecy’ clause to commercial details (costs of purchase) of the military transaction between India and France. Its scope was limited to technical details and non-transference of technical knowledge to third parties i.e., states or any international organisations (p 178). Moreover, the validity of the secrecy agreement was already over.

Anil Ambani’s company which was chosen as Dassault Aviation’s Indian offset partner was the biggest beneficiary. With no experience whatsoever in defence manufacturing, Anil Ambani, as on 31 March 2015, was under a massive pile of debt, Rs. 1.21 lakh crore, to be precise. On the same date, Ambani’s earnings, before payment of income tax, stood at Rs. 9,848 crores, of which the bulk i.e., Rs. 8, 299 crore was his conglomerate’s annual interest liability on loans (p 41). Anil Ambani had earlier hailed [9] Modi as the ‘King of Kings’ and the largesse that he got from his King was grand. By 2017, Dassault Aviation had picked up a 34.79 percent share in Ambani’s company which had posted losses worth Rs. 10.35 lakh for the financial year that ended on 31 March 2017 while earning a meagre revenue of Rs 6 lakh. And in the previous year, 2015-16, it had suffered losses worth Rs. 9 lakhs and earned almost no revenue. The investment by Dassault translated into a profit of Rs 284 crore for Ambani (p 212).

On the issue of sidelining the HAL in favour of Ambani, the Modi government had declared in the Supreme Court that ‘the man hours taken by HAL for production were 2.7 times higher than the optimum required’ and this led to the failure of negotiations relating to the older contract with Dassault Aviation (p 99). Nair and Guha-Thakurta pigeonhole this argument by citing the Request for Proposal (RFP) issued in 2007 which read that ‘the choice of the Indian defence industry partner rested with the vendor’ (p 100). And as we have seen so far, Dassault had been waxing eloquent about partnering with HAL until Modi unilaterally scrapped the agreement. Another question that arises from this is that if HAL’s production time was 2.7 times higher, what was the corresponding figure for Anil Ambani’s Reliance Aerostructure Ltd.? Certainly, it would be zilch! Because it had no experience in defence manufacturing, not to speak of making a full aircraft.

The Modi government also amended the Defence Procurement Policy (DPP) in 2016. DPP 2016 had envisaged promoting ‘indigenous design, development and manufacturing of defence equipment’. The Rafale deal was none. Moreover, the DPP 2016 had raised the offset threshold limit (mandating a minimum indigenously manufactured content of 30%) to Rs. 2,000 crore (approximately USD 305 million) from Rs. 300 crore. Internationally speaking, the minimum offset threshold slaloms between $5 million to $ 15 million. Pakistan has an offset threshold of $ 15 million. Defence Analyst Laxman Behera writes [10] that ‘‘the hike in the threshold would mean that fewer arms import contracts would now be eligible for offsets. This would be a big setback to the local industry, particularly the manufacturers of parts and components which have exploited the existing offset policy for boosting their export performance, and in the process have set up capability that could have been further exploited for the ‘Make in India’ initiative.’’

The change in offset threshold is also deeply biased towards big businesses which are already well entrenched in defence business such as the Tata group, Godrej, Adani, Larsen and Toubro etc. Micro, Small and Medium Enterprises (MSMEs) which were hedging their bets have been sacrificed since they would be in no position to absorb offset obligations of Rs 600 crore and above.

The inclusion of private entities at the cost of the public sector has not paid off the way Modi had desired. After leaving the IAF with a critical shortage of fighter aircraft, in April 2018 the Modi government announced a Request for Information (RFI) for 110 fighter aircraft. In doing so, the government cancelled the previous Request for Proposal (RFP) because it mandated HAL to be taken as the Indian offset partner whereas in the new RFI, ‘there was no such compulsion’ (p 182). More than five years have passed but the floated RFI is yet to metamorphose into an RFP. The Swedish Saab which had tied up with Gautam Adani in 2017, another of Modi’s corporate besties, to build the Gripen E Fighter in India has cancelled the agreement. Here too Saab’s choice of Adani was rather incredulous since the latter had no experience whatsoever in aircraft manufacturing.

To conclude, Ravi Nair and Paranjoy Guha-Thakurta are to be congratulated for producing a tome that will always serve as a telling reminder of the naked corruption and cronyism that emanated from the top echelons of the Indian state. This is a must-read book for all conscientious citizens of India. The book is available on Amazon [11]. Buy it fast and read it slowly!

(Reviewer: Shubham Sharma, MPhil World History, University of Cambridge, UK; Research Scholar, Dept. of Political Science, University of Connecticut, USA)

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