by Abraham Thomas

Disclosing the details of the Rafale deal before the Supreme Court, the Centre on Monday quoted the Offset Contract to show that no Indian business house has been named by Dassault Aviation as its Indian offset partner. The Centre blamed the escalation of cost of 36 Rafale jets on the delays of the UPA government and the variations in Euro-Rupee exchange rate.

With three PILs in the Supreme Court questioning how the deal was signed at an escalated price and that too involving Reliance Aerostructure Limited (RAL) as Dassault's Indian offset partner, the Government's response said it had no knowledge of the Indian offset partner of either Dassault Aviation supplying jets or M/s MBDA supplying weapon systems.

As per Defence Offset Guidelines, the decision to choose Indian offset partner (IOP) is of the equipment manufacturer. The note said: "The vendor/equipment manufacturer (Dassault) is yet to submit a formal proposal in the prescribed manner. Besides, in the Offset Contract there is no mention of any private Indian business house."

The government released a 16-page note on Monday to counter the charges of corruption and cost escalation in the multi-crore deal signed between the Indian and French government on September 23, 2016.

The SC on October 31 asked the Centre to share details of the Rafale deal with the petitioners. In addition to the note, the Centre is understood to have filed yet another sealed cover in SC disclosing the price of the aircraft and the advantages in purchasing it at an escalated cost. The hearing on the PILs filed by advocates ML Sharma, Vineet Dhanda, Prashant Bhushan and two former Union Ministers Yashwant Sinha and Arun Shourie will be heard on Wednesday. 

Besides blaming the UPA government for causing delays and cost escalations, the government also mentioned the variation in the Euro-Rupee exchange rates.

As per Reserve Bank of India reference index, the average rate of exchange for one Euro was Rs 64.65 back in February 2012. By the time, the deal for 36 Rafale jets was signed on September 23, 2016, the average exchange rate climbed to Rs 74.67 (source RBI). In a span of four years, the euro became expensive by Rs 10.02 and the escalation in currency rate was approximately 15.5%.

The reason for delay in negotiations was attributed to two "unresolved issues" between UPA government and Dassault. Out of 126 jets, 108 were to be indigenously produced by Hindustan Aeronautics Limited (HAL) in India.

HAL required 2.7 times higher man-hours compared to the French side for the manufacture of Rafale aircraft in India. Secondly, Dassault Aviation was not willing to take responsibility for the 108 aircraft to be manufactured in India, the report said. "This delay impacted the cost of acquisition as the offer was with in-built escalation and was influenced by the Euro-Rupee exchange rate variations." This stalemate led to withdrawal of deal in June 2015.

During the same time between 2010 and 2015, India's "adversaries" inducted over 400 fighter jets that included 5th generation Stealth Fighter Aircraft. With India's ageing air combat fleet, the government felt there was an "urgent need" to purchase 36 Rafale jets from France.

Centre's Reply To Petitioners' Query

Why HAL was not engaged?

HAL required more man-hours to produce Rafale jets in India for purchase of 126 jets. Also, Dassault refused to take obligation of 108 aircraft to be manufactured in India

Why Cost Got Escalated?

Issues between HAL and Dassault remained unresolved for 3 years which impacted cost of acquisition. The offer had in-built escalation and variations in Euro-Rupee exchange rate.

Why Reliance Was Roped In As Indian Offset Partner?

The Offset Contract does not mention name of any private Indian business house. Dassault is yet to indicate details of its Indian offset partner.