More questions on Rafale

CAG report must serve as the basis for further discussion

The long-awaited Comptroller and Auditor General report on defence capital purchases — in particular, regarding the Rafale fighter for the Indian Air Force —has been submitted to Parliament. The report opens up several major questions regarding the fighter deal with Dassault in particular and about procurement processes in general. For one, the basis of selecting Dassault as a partner in the first place has been rendered unclear. Why are specific technologies prescribed for quality requirements under the original bidding process? Why not, instead, user-set performance benchmarks? The latter would achieve technology- and product-neutrality, and the question of special favours for any vendor would not arise. In addition, the United Progressive Alliance’s handling of the original multi-role aircraft tender in 2007, won by Dassault, was clearly faulty. The Congress Party is currently attacking the National Democratic Alliance government for favouring Rafale — but it seems it has its own questions to answer as well. The report makes clear that Rafale did not technically qualify; nor was it the lowest bidder. Indeed, its financial bid was not even in the required format, and made comparisons with EADS difficult. In general, Dassault should not have been chosen, and it seems to have been a particularly difficult vendor all along. The political implication is that the Congress gets accused of favouring Rafale.

The contract that emerged from the 2007 bid process, in the end, had to be scrapped — according to the CAG report — because the financial bid did not take into account the man-hours required for production at Hindustan Aeronautics Limited, and because Dassault was chary of adding a performance guarantee for HAL-built aircraft to the agreement. This opened the door for another contract, such as announced by the prime minister on his 2015 trip to France. But by then EADS had offered a 20 per cent discount on the Eurofighter, and it is not clear why that unsolicited offer was ignored when deciding to buy 36 flyaway aircraft from Rafale — and not even used as a bargaining chip. The CAG report does not go into this, or into the process involved in the second contract. 

The price comparisons themselves are not entirely meaningful, given that the defence ministry has insisted that the actual numbers be redacted. However, some of the numbers have been reported in The Hindu newspaper. The main saving in the second deal comes from the “India-specific enhancements” put in by Dassault to meet the original bid requirements. These saved just over 17 per cent, according to CAG, or almost 240 million euros going by The Hindu report. This is the major contributor to the total saving of 2.8 per cent, according to CAG, which works out to 223 million euros using The Hindu's numbers. However, this saving cannot be seen as entirely credible for two reasons. First, the cost of the enhancement is amortised in CAG’s calculations over 36 aircraft for both contracts, whereas there were 126 aircraft in the original bid. Second, dissenters in the original negotiating team have argued that the enhancement cost had not yet been the subject of negotiations and was inflated, so the 17 per cent “saving” is against Dassault’s first offer and not the final agreement. 

Finally — and most politically salient — the price comparisons in the CAG report are closed before the discussion on the absence of a sovereign and other guarantees, which it is observed yield cost savings to Dassault that have not been passed on to the government. There is no assessment of the money saved, nor does it get incorporated into the total cost calculations. Thus, while the CAG report does not close the discussion into the Rafale deal, it is important that henceforth discussion be based on actual facts that have been made available and not on numbers and assertions that are cherry-picked or remain unverified.