Posted by: John Elliott | July 26, 2018

Modi allows Rafale fighter jet price allegations to grow

Price escalation plus Anil Ambani’s involvement spurs questions

Modi did the deal without his defence minister’s knowledge

For a prime minister who has made the fight against corruption and cronyism a primary government aim, and who asserts there have been no such allegations since he was elected in 2014, it seems odd that Narendra Modi has allowed secrecy over the purchase of 36 Rafale jets from Dassault of France to become a potential political scandal.

India has become accustomed to Modi not quickly condemning – nor stepping in to curb – violence by Hindu extremists over the sacred cow and alleged beef eaters, and more recently over lynchings by cow and child abduction vigilantes.

But with Rafale, Modi has not only allowed the tempo to build up over the government insisting that the price of the deal be kept secret, but he actually laid the ground for the controversy with three moves when he visited Paris in April 2015.

Even more odd, the government is refusing to reveal the current figures for the contract, even though they were announced in 2016. The Congress Party has tabled a censure motion for misleading parliament against Modi and against defence minister Nirmala Sitharaman who made an unsatisfactory statement last week in a parliamentary confidence debate.

RafaleModi’s first move came in Paris when he unexpectedly announced that he had personally asked for 36 of Dassault Aviation’s Rafale fighter jets to be delivered “in fly-away condition as quickly as possible”. That replaced a $13bn order in 2012 for 126 of the jets that had become stuck in negotiations under the last Congress-led government. Even Manohar Parrikar, who was then Modi’s defence minister, did not  know Modi’s intention, though there had been prior discussions about the urgent need for some Rafales, and that the 2012 contract negotiations should be abandoned.

Secondly, he stated that the 36 would be supplied “on better terms and conditions” than those proposed for the 126 deal. They seem however to be far more expensive, hence the requests for the figures.

The third brings in apparent cronyism and makes the saga more intriguing because businessmen accompanying Modi included Anil Ambani, the younger and less successful of Mumbai’s two Ambani bothers. Ambani had absolutely no prior experience of defence manufacturing, and has had problems with heavily indebted businesses, but his newly formed Reliance Defence (based on, Pipavav, a defence company he had bought) then arranged a joint venture with Dassault to execute the deal in India.

Curiously, Ambani was in effect replacing his estranged elder brother Mukesh, whose Reliance Industries was a Dassault partner for the original 126-aircraft deal along with the government designated manufacturer, Hindustan Aeronautics, an Indian public sector corporation that has monopolised aircraft manufacturing.

Dassault Ambani Gadkari

Dassault CEO Eric Trappier (left), Anil Ambani, and Nitin Gadkari (right)

Like Modi, the Mumbai-based Ambanis originate from Gujarat, which is also the base for Anil Adani, whose Adani group has been picked as a partner by Saab for its Griffin fighter jet that is competing in another proposed contract. Adani, who also has no experience in aircraft manufacturing, is known to have been close to Modi for many years. His far flung infrastructure and allied industries empire has grown exponentially since the early 2000s, and especially since 2014.

Despite these seemingly crony links, none of this has turned into allegations of personal corruption against Modi. There have been no suggestions of him benefiting personally throughout his political career, though it is widely believed that businessmen made payments to the Bharatiya Janata Party when he was chief minister of Gujarat, and there are similar stories circulating in Delhi now about payments to the BJP nationally.

Memories of Bofors

The Congress Party, led by Rahul Gandhi, however sees this as an opportunity to try to pin on Modi and the BJP the same sort of long-running corruption allegations that hit Rajiv Gandhi, Rahul’s father, when he was prime minister in the mid-1980s over a $1.4bn howitzer gun contract with Bofors of Sweden. That led to allegations of Rs64 crore (then about $50m) bribes and a scandal, which continues to haunt the Gandhis.

The primary difference however is that the Bofors story built up because it was pursued by the media and became a cause in Sweden as well as in India, just as an Augusta Westland VVIP helicopter contract scandal during the last Congress government has run for years because it was also being pursued in Italian courts.

There is no sign of the Rafale case getting a similar foundation in France, some of whose fighter and submarine contracts with India have for more than 35 years been accompanied by suggestions of corruption.

Last week, the French embassy played a straight bat during a parliamentary confidence debate after Rahul Gandhi accused Sitharaman of “speaking untruth” about the need to keep the contract price confidential under a 2008 government-to-government agreement. Gandhi said that French president Emmanuel Macron had told him he had “no issues in making the cost public”.

Rel-DasSitharaman interrupted Gandhi’s speech to reassert the confidentiality point, and a statement was issued a few hours later by the French embassy in Delhi (presumably at Sitharaman’s request), which the government (also presumably) hoped would confirm the need for secrecy under a 2008 agreement.

The statement said security issues were confidential, but did not mention whether that included the price, which it presumably did not. This indicates that it is the Indian government, not the contract terms, that is dictating the secrecy.

No price was announced for the 36 aircraft at the time of Modi’s Paris visit, but it was reported at the time, based pro rata on the expected 126 aircraft price, to be around $4.5bn.

Eventually however, when the government-to-government deal was finalised in September 2016, the price was Rs58,000 crore (then Euros 7.8bn, $8.66bn). That was a far bigger escalation than could be justified by inflation together with enhanced specifications, and the extra labour costs involved in all 36 being manufactured in France with some component supplied from India. (Under a 50% “offsets” agreement, 20% of the price is being spent by the Dassault-Ambani joint venture in India on components, along with Dassault spending 30% on aero research programmes).

Various figures

There are various versions of the two deals’ figures in circulation. Congress claims that the figure for 36 of the aircraft based on the 126 aircraft plan was Rs18,940 crore, whereas the price for Modi’s 36 is Rs60,145 crore. That is broadly in line with the Rs58,000 crore announced in September 2016 and breaches Modi’s pledge.

Ravi Shankar Prasad, the law minister, has posted on twitter a television interview where he said on that the 2016 deal was finalised at a cost of Euro 91.75m per aircraft, which was 9% less than the price quoted in 2011 – but does not tally with other figures.

The scale of Anil Ambani’s involvement has been indicated by an Indian defence website, Livefist, which in March reported that Rafale, under its “$4bn offsets plan”, had developed partnerships with at least 72 companies to contribute towards other Dassault equipment, the Rafale’s airframe, its Snecma M88 engines, radar, electronic warfare and avionics, aeronautical components, engineering and software.

A factory to produce components for assembly in France is being set up by the joint venture company, Dassault Reliance Aerospace, near the central Indian city of Nagpur, where the headquarters of the Rashtriya Swayamsevak Sangh (RSS), the BJP’s right wing umbrella organisation, is located and Nitin Gadkari, a leading government minister, is the MP. Dassault has said the factory will also produce parts for its Falcon business jets, and that it will assemble complete Rafale aircraft if there are further orders in India.

Along with other defence contracts, this is probably 60-year old Anil Ambani’s final chance to build a viable substantial business, having exited various big power and other infrastructure projects over the years, some incomplete, and sold assets to clear debts. His Reliance Communications telecom business, which he took over when he and his brother split the family group in 2005, has been beaten into the ground by a price war launched by Mukesh Ambani’s Reliance Jio Infocomm.

India’s Comptroller and Auditor General (CAG) is preparing a report on the Rafale order, which will presumably include how Anil Ambani was chosen for the joint venture, but it is not expected to be published till the end of the year. That gives Rahul Gandhi and Congress plenty of time in the run-up to next year’s general election, to try to push Modi further into a Bofors-style scandal, unless of course the prime minister decides the government should reveal the figures, which surely it should.

Meanwhile the Indian Air Force continues to be seriously underequipped with only 31 squadrons of fighters instead of 42. The need for 126 fighters was first identified in 2001 and it has taken till now for the manufacture of just 36 to be about to begin. Modi was elected to reform the way India is run and he directed his Make in India campaign towards transforming defence procurement and production. It seems he has failed on all counts and has finished up instead with a potential political scandal over contract costs and alleged cronyism.

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Responses

  1. Why somebody is not filing a suit in the court or it will be done after Modi loses in 2019 presumably? Or is it in fear of the present suits going on against Gandhis?

  2. Well done John no different regards BK

  3. Nice piece John!! I’ve always been suspicious about this contract, alarm bells started ringing in my head back in 2015 when he visited Paris accompanied by Anil Ambani and WITHOUT defence minister Manohar who he told to stay behind. This will without a doubt be Modi’s Bofors!


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