Military & Aerospace

The Fault Lines of the Rafale Deal
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Issue Net Edition | Date : 28 Nov , 2017

Rafale

The feisty Defence Minister Ms Nirmala Sitaraman faced a volley of questions of late about the Rafale fighter deal for 36 aircraft concluded on April 10, 2015 as lacking in transparency as it did not have the prior approval of the earlier Defence Minister Mr Manohar Parrikar & the Cabinet Committee on Security. Besides it is being alleged that Dassault Aviation is being paid far more than the price earlier negotiated with the same firm in 2012 for 126 aircraft. Besides, the benefit of defence offsets will now flow to Reliance Defence, headed by Mr. Anil Ambani, an industrialist, who does not have any experience in aerospace manufacturing.

As a matter of fact all the earlier arrangement for transfer of technology flowed into the HAL, the only agency having the capability to absorb technology, integrate systems and manufacture fighter aircraft for this country.

It may be recalled that the tenders for the MMRCA tender was issued to six vendors in 2007 and two viz. Euro fighter typhoon and Rafale were shortlisted after elaborate technical trials. Touted as the “mother of all defence deals”, with a cost implication of around 25 billion dollars , the two shortlisted quotes were evaluated on “life cycle cost” basis, which included cost of spares, maintenance cost over the life time of the aircraft (6000 flying hours) as opposed to the earlier evaluation of systems on the basis of cost of the basic aircraft only. Rafale emerged as the lowest bid. The contract involved Rafale to supply 18 aircraft in a fly away condition . The balance 108 aircraft were to be progressively indigenized by the HAL.

It may be recalled that post 1962 Chinese aggression, the Mig 21 aircraft license agreement contract was signed with the Russians in 1964, which became India’s strategic partner, culminating in to another mega transfer of technology agreement for SU 30 in 2000. India today has 240 of these fourth generation fighters, which are the motherboard of India’s air power, with their supersonic capability and excellent manoeverability.

HAL has a proud record of successfully absorbing technology of Mig 21 and Su-30 aircraft. The MMRCA license agreement would have provided a unique opportunity to HAL to absorb critical technology of a Western system for the first time.

The other redeeming feature of the 2012 contract was that 50% of the offset benefits would have passed on to the HAL and the balance to the private sector players like the TATAs and L&T. Rafale had agreed to pass on many critical technologies to HAL as part of the deal. When HAL insisted on critical technologies to be passed on to them as part of the deal, Rafaele dragged its feet and hence the contract went into an impasse till 2014-15.

The IAF today is struggling with 39.5 squadrons, as against 45 squadrons sanctioned and many of its Mig 21s have become completely unserviceable and prone to accidents. The inordinate delay in the successful commissioning of the LCA aircraft to replace the depleting Mig 21 inventory and inadequate availability of the Mirage aircraft pushed the Modi government to fill up its gap in the inventory of a fourth generation multirole fighter. There was considerable euphoria over the fact that the PM could break the logjam of the 2012 contract and ensure early delivery of 36 Rafale fighters into the IAF’s inventory.

The key criticism of this new contract is that Modi’s Paris announcement had made it a single vendor contract without giving opportunity to the second vendor, viz Euro fighter typhoon, who was shortlisted in the evaluation trial. The Defence Procurement Procedure 2016 clearly frowns upon such practice to eschew competition and puts a premium on competitive tendering.

As is well known, the defence deals, post the Bofors contract, are always viewed with a high degree of suspicion by the public at large. There is a valid perception that under the cover of “strategic” requirement, basic transparency and fairness in procedure is often glossed over. The DPP-2005, therefore, puts the highest priority on probity, transparency and accountability. All the subsequent updates of this procedure document constantly drums up the need to avoid “single tender” contracts, as it compromises the principle of competition which is the life blood of discovering a reasonable price and fosters corruption..

The criticism of the present deal has enormous substance as per unit the aircraft price would be at least 30% more than the earlier contracted price. A competitive tender with the Typhoon would have preempted an exorbitant price from a complacent single vendor. The other sad fallout of the deal is that the critical technology transfers in terms of the propulsion, sensors and weapons would be largely lost, as Reliance Defence, who would benefit from the offset do not have the capability to absorb these technologies. As is well know, only HAL has the capability of being a “systems integrator” and experience of absorbing critical technology.

Besides, indigenization leads to significant cost reduction. It has been generally experienced that a 70% indigenization leads to 30% cost reduction as the man-hour cost of labour in India is almost 30% of the cost of Russians systems and 20% of western systems. India’s self reliance index in the defence sector is only 30% and megadeals like the MMRCA, would have provided a unique opportunity to tap “key technology” and scale up our self reliance quotient. By opting for a direct contract and nullifying the technology transfer route, the Rafale deal has compromised India’s commitment towards Make-in-India in a significant way.

Ms Sitaraman tried to defend the deal in terms of its legitimacy. But the fact remains that the deal was formally approved by the Cabinet Committee one year after Modi promised the French President Mr Hollande tyo ink this deal publicly, overlooking the formal process of approval from the Ministry of Defence. But more fundamentally, the party which prides itself with a spotless record on corruption would be hard pressed to defend its decision to go on a single tender, when another technically shortlisted vendor was available for price competition. Decisive leadership and nationalistic postures often overlooks serious fault lines like favoritism, potential corruption & missing the boat of indigenization.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

S.N. Misra

former Director DRDO and Joint Secretary – Aerospace, MOD

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10 thoughts on “The Fault Lines of the Rafale Deal

  1. There are so many inaccuracies : IAF has only 33 squadrons as against the 39.5 mentioned in the article.

    And now coming to the issue, HAL enjoyed monopoly in defense aviation and received all the benefits for so long but still it is stuck with assembly lines and not able to move up the chain. They missed every deadline in Tejas. They claim Sukhois 30 as success but its quality is not at expected level and since it is license-produced by HAL Sukhoi is not ready to accept the quality issues. SO IAF demanded quality assurance from Dassault but they are not ready to guarantee the product produced by a firm which is not under its control.

    ALso note that All the 36 planes are bought off the shelf and none are produced by here. Reliance as well as many other firms got offset investments.

  2. Does the writer have an axe to grind? Daussault could not verify the quality and time schedule of HAL and the resultant cost over runs would have drained resources. Better to get a few in fly away conditions for IMMEDIATE needs of security. May be GRIPEN should be considered for LOCAL PRODUCTION.

  3. Author is agent of China and possibile agent of us defence industery lobby they are thinking by this they will delay project and at the time of war India lose war ,

    China & Pakistan increase defence power and fighter jet

  4. The author has messed up the IAF figures. The IAF had 39.5 squadrons of planes in 1971 war, Out 39.5 squadrons only 34 were fighter planes. As per IAF sanctioned strength is 42 squadrons. Congress party has no right to question the NDA Govt. When the Dassault Aviation company refused to comply the tender condition why did Ex MoD Antony failed to cancel the tender then and there? Why did he keep the case pending and left the case to the next Govt? The reason was there was a penalty clause. which was favouring. the contractor. If the Govt wants to cancel the contract, the Govt has to pay a huge amount to Dassault Aviation company, This Clause was there since 1978. We will get the truth from the article given below:-
    “IAF: Realpolitik of the Mirage deal”
    None of the previous Govt even Indira Gandhi does remove the penalty clause. So the penalty clause continues and puts the MoD and PM in a most difficult position in the Rafale case. I do not the actual amount. But it was below 3 billion dollars. PM cancelled the Contact without paying any penalty. It is a known fact nobody wants to transfer the technology jet engine. The greatest achievement of this contract is that Seneca Company agreed to develop Kaveri engine for Tejas. So impracticable to calculate actual of the deal.

  5. As usual a foolish article in terms of the situation that was back than dragging the deal.
    When rafale dont want to take the responsibility of hal made rafale. how it is matter if make in India can be cheaper.
    These articles are written on false assumptions.

  6. Absolutely biased article with just half truth. Author skillfully touched what he required to, to prove his point. To begin with-
    1. Author is deliberately trying to dispute thedeal by adamantly proving a single vendor situation.
    2. Author deliberately did not talk about the break up of the cost of 36 rafales.
    3. Repeatedly he emphasised that HAL is the only company in india to absorb the technology. While did not talk about what HaL achieved out of it. Even with all his experience n such great absorbtion of the tech (from Mig 21 to Su30 MKI), HAL could not get FOC ofor tejas after 17 years of its first flight. During last 1.5 yrs when the lca order was finalised, it could deliver just 5 aircraft. And at the best, can deliver 8AC a year starting next year, which might increase to 12 and then16 AC a year. Doesn’t it put a huge question mark on HAL’s abilities.
    4. due to the what explained in point#3, it is extremely important to have a private player in the Indian Aerospace industry. To give somesense of competition to HAL, who simply does not want to excel.
    5. Now that Su-30 orders are almost over and rafales are not going to HAL’s production line, Hal is worried about its order books and its chairman is claiming that FGFA can easily roll out of HAL assembly lines.

  7. whatever the way deal is completed ,,it was on urgent baises looking after interest of our IAF ..secondly ppl must not forget it was govt to govt no third party involve in it so no chance of broker in between,,, thirdly all together its a package of complete system with service and BVR missile and 50% investment back in india ..in other way Money will be invested in india which not only create jobs also Make us technology advance with long term relation with france in other technology field ,,also support from france in UN or NSG or any other Political matter in internationally ..Refale is not only a fighter jet deal its has significant strategic value

  8. This is an objective analysis to date that has appeared among many others in IDR regarding the French Rafale deal – a great credit to Mr Misra that he has come out boldly in the open in the hostile environment of the PM and his coterie justifying anything goes since they are now hoisted to power by the Indian electorate.

    • A correction is warranted here in my wording “among many others” – it needs to be replaced by “in contrast to many others”. which radically alters the substance here.

      Actually, this is the first article I have stumbled upon which hits the nail on the head of the present stake holders of Indian defense.

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