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.