CAG report makes it clear that the present government’s Rafale deal has made a shortfall of 70 per cent on this vital count

by T K Arun

The cost of technology transfer, bank guarantees and the cost of avoided India-specific enhancements — if you factor these in, the 2016 deal would be dearer, not 2.9 per cent lower, than the earlier deal.

The headlines scream that the CAG found the 2016 deal to be 2.86 per cent cheaper than the deal negotiated by the UPA. But the main conclusion to be drawn from the CAG report is that by junking the deal that had been negotiated by the UPA, the present government has left a five-squadron gap in India’s defence preparedness, with no arrangement for five out of the seven squadrons, each of 18 Medium Multi Role Combat Aircraft, that the Air Force needs and began the process of procuring in 2001.

The primary goal of defence procurement is to reinforce the nation’s defence capability. The CAG report makes it clear that the present government’s Rafale deal has made a shortfall of 70 per cent on this vital count.

Price comes after that. The 2016 deal does not entail technology transfer whereas the UPA deal did. India’s public sector aircraft manufacturer HAL would have acquired the technology to produce these sophisticated jets. This would have advanced India’s indigenous capacity in defence production. The cost of technology transfer would have to be added to the 2016 deal to make a fair comparison with the deal negotiated by the UPA. Further, the cost of giving bank guarantees worth a quarter of the total size of the deal was part of the UPA deal. The 2016 deal does not have this element, either. Some India-specific enhancements that were part of the earlier deal do not figure in the 2016 deal, which would automatically lower the cost.

The cost of technology transfer to an Indian public enterprise, the cost of bank guarantees and the cost of avoided India-specific enhancements — if you factor these in, the 2016 deal would be dearer, not 2.9 per cent lower, than the earlier deal.

Urgency was cited by the present government as the reason to abandon the 126-plane UPA deal and strike the new one for a smaller batch of 36 planes in fly-away condition. The CAG report says that the effective saving is one month, instead of 72 months from signing the contract, the new contract will make India-specific enhancements available within 71 months.

But was it to procure additional offsets that the negotiated contract was abandoned, as the Congress has alleged? The offsets provisions are the same, as to the proportion of the deal value Dassault is obliged to spend in India as investment, procurement, expenditure on training and R&D and so on. Under the UPA, the Reliance company under discussion was part of the Mukesh Ambani-controlled RIL, whereas it is an Anil Ambani group company that got the offset order under the 2016 deal.

As various leaks from defence ministry files have revealed, the Prime Minister’s Office had taken charge of the negotiations with Dassault and the French government, after the present government took office, leaving defence ministry officials fuming. Whether this procedural deviation had any material consequence is not something that the CAG report helps us determine.

The CAG report is unhappy about the defence ministry’s repeated demand not to discuss specific prices in the Rafale deal, as not disclosing price was presented as part of the agreement between India and France on the planes. This contention is absurd. There can be no such deal in a democracy where the people’s representatives, Members of Parliament, have to be kept in the dark about the price of equipment they authorise the government to buy. If India enters into a deal that makes such secrecy necessary, that would be wrong. The Indo-French agreement does not, in fact, forbid disclosure of price. The security agreement legally binds the parties to "protect classified information that could impact the security and operational capabilities of the defence equipment of India or France." Is price the kind of information that can impact security and operational capability? Multiple configurations of avionics and weapons systems could add up to the same price. How would revealing price of the Rafale deal compromise the security and operational capabilities of the defence equipment of India or France?

What the CAG report does bring out is the reason why our defence procurement takes ages. A media campaign had given rise to the impression that defence minister AK Antony’s determination to defend his reputation as a saint had prevented him from taking decisions on anything that had not been completely sanitised of all potential germs of corruption. The CAG report makes it clear that the Air Force’s inability to specify its requirements clearly was to blame, in large part, for the delay.

Rather than determining Air Staff Quality Requirements (ASQR) broadly, in terms of functional characteristics required, and, instead, specifying particular technologies, the Air Force’s request for proposal made it impossible for several vendors to even take part in the bid. Some vendors, says the CAG, offered technologies and functions superior to what was asked for, but that would have called for a waiver of the stipulated norms.

ASQRs were modified and four India-specific enhancements that were deemed necessary were abandoned in 2010. Yet, the 2016 deal incorporates these enhancements.

The first step to indigenous production of defence hardware is clarity on what is required by our armed forces. Once the specifications are clear, Indian companies can develop prototypes and bid for orders. If our defence forces prefer not to precipitate such clarity, the political leadership must get it out of them, with determined perseverance and sufficient technical and military nous. Only then can a genuine indigenous defence manufacturing capability be built up.

Unfortunately, for a large number of personnel of in senior military ranks, the civilian bureaucracy involved in military procurement and the political leadership, defence imports present a wealth of salivating opportunity. Only political will can countervail this and lay the ground for India to build its own capacity for realising its ambition of strategic autonomy in the post-unipolar world that President Xi Jinping and President Donald Trump are labouring to beget.