Will Rafale aircraft deal be a major issue?

Indian elections:


by Jagath Savanadasa

In the report on the controversial deal between the French fighter aircraft manufacturer Dassualt Aviation and the Indian government, what first struck this writer forcefully is the big picture of Anil Ambani with the previous President of France Francoise Hollande at the Elysee Palace. The picture with the story was published in "India Today", in its 08th October 2018 issue. The picture I couldn’t help feeling, tells a lot.

This controversial deal is big news in the vast Indian subcontinent. Above everything else, in the Lok Sabha , with the leader of the Congress Party, Rahul Gandhi flaying the government for what he calls crony capitalism and nepotism.

The Rafale’s deal was first entered into in 2012 when the Congress party was in power. The original arrangement was for Dassault to supply India with 126 Rafale aircraft to be partly manufactured by Hindustan Aeronautics Ltd. There, too, Mukesh Ambani, the elder brother of Anil was involved in the original deal. His firm Reliance Aerospace Technologies had entered into partnership as the main offset partner.

It seems that the original transaction partly fell into abeyance after the government changed but in 2015, the current administration revived it.

The new transaction purported to be purely government to government was entered into by Prime Minister Narendra Modi. He had signed an MOU with the then President of France, on 11th April 2015 in Paris.

How did Anil Ambani and Dassault establish a partnership ?

This was just before the formal MOU between France and India was entered into. An Anil Ambani firm named Reliance Infrastructure, had been formed and Ambani informed the Indian Defence Authorities that he had formed three wholly owned subsidiaries , namely Reliance Defence Systems, Reliance Defence Technologies and Reliance Aerospace Ltd, all private companies to be in partnership with Dassault to handle offsets of Rafale aircraft manufacture.

Further features of Anila Ambani’s involvement is connected to the revelation made by the former President of France, Francise Hollande, on September 21st 2018. In an interview with a French news portal, he had said that it was the Indian Government who suggested the name of the Company belonging to Anil Ambani should be a partner in the project.

This was in direct contrast to what had been consistently maintained by the Narendra Modi Government.

The controversy emerged into the open again, when the Indian Minister of Defence, Nirmale Sitharaman had told the media last October, that she had not included Anil Ambani’s name or any others in this agreement, which was Inter-governmental, and not a commercial transaction.

In the midst of these conflicting statements, the current President of France, Emmanuel Macron, had on the sidelines of the recent UN general assembly reiterated that as a part of a broad coalition of a military and defence pact between France and India, the Rafael’s deal was a government to government affair.

"India Today" also points out that though the total package of the deal is IR 59,000 crore defence offsets amount to 50% of the deal.

And such offsets are spread across the defence industry and other joint ventures throughout India

On the basis of rules governing defence procurements in India, foreign companies which enter into contracts are required to either offset or re-invest half of the full value of the contract within India. In the instance of the Rafale’s contract, which amounts to a colossal INR 59000 Crore, nearly INR 30000 Crore is to be invested in either joint ventures or subcontract purchases from Indian firms .

In this particular connection, it may be pertinent to mention that this writer was impressed by the long list of precision technology oriented firms in India. Like Mahindra and Mahindra , Titan , a Tata group firm Larsson and Toubro which is indicative of India’s technological progress at a glance.

At the moment, the Indian manufacturers are only an indicative list and no contracts have been entered into them by the main contractor yet.

It is important to remember that the Anil Ambani group have no experience in the building of aircraft. The deal is also said to have bypassed Hindustan Aeronautics Ltd. the monolithic public sector enterprise in Aircraft manufacture, more commonly known as HAL .HAL incidentally in a fresh revelation that emerged after the deal in question was concluded, finds itself without adequate orders and in fact is struggling for existence. In midst of all these controversies Rahul Gandhi has again launched into a virulent attack against the purchase of 36 Rafale fighter aircraft.

This happened in the last few weeks in front of the giant corporate headquarters of HAL in Bengalaru, where he had addressed a sizable gathering of its employees which centred on the Rafale’s deal and how the government had overlooked Hindustan Aeronautics, which is well experienced in aircraft manufacture.

The whole Rafale affair is highly complex and unraveling it is not by any means easy.

"India Today" says that the French Aircraft manufacturer Dassault, on the basis of its deal, which includes French maker of engines Saffran, the radar manufacturer Thales are to purchase rupees 30000 crore worth of accessories from the Indian industry which in other words includes 70 manufacturers of such accessories in all.

Also according to the magazine , the fighting capabilities of this difficult to manufacture aircraft have been officially tested to the hilt. It has passed the stiffest of tests and its utility value has been approved by the Indian Air force.

Significantly, the cost negotiation committee of the state has been responsible for working out the price of the deal, yet the price remains the most critical aspect of this transaction in addition to the other controversial issues highlighted.

The price inter- alia is one of the factors that the Congress highlights and is a vital part of the main battle between the Congress on the one side and the National Defense Authority ( NDA ) on the other.

The Congress claims that in 2012 when they entered into the deal the price per aircraft was INR 526 Crore. But the off shelf price when the NDA was buying it, was INR 1671 Crore, being the figure quoted in 2016 which reflects a price increase of 300%. But the NDA added that it had actually paid INR 670 Crore for the purchase of each Rafal aircraft. The price escalation according to the NDA was due to the additional equipment, weapons, country specific enhancements and maintenance and support services. However the core issue is that this Government does not want to reveal the final price.

In a further strange twist and contradiction Dassault has asserted that it had selected Reliance as a partner on the basis of French Defence Ministry policy. Such policy permits an overseas firm in the same field be selected as a partner.

When the Modi government assumed office it had announced to make India a global manufacturing hub. This dramatic announcement was made in 2014 and such manufacture included armaments. In this connection readers should remember that India is the world’s biggest buyer of armaments and she buys such armaments from Western Europe and also from Russia.

Anil Ambani, perhaps, realised that the manufacture of weapons could give a life line to his falling fortunes to salvage his companies which are facing a big crisis

The above account is an endeavor to place facts in this intriguing case study which relates to State procurements often open to political involvement in our big neighbour India as well as in a small country like Sri Lanka. Hopefully it presents lessons in terms of political and bureaucratic corruption that damages development in both big and small countries in South Asia.

According to the World Trade Organisation (W.T.O) government procurements are as high as 10%-15% of each nations annual budget and it is fertile ground for corrupt politicians to enter.

Whist examining this multi- billion dollar transaction in India under the present regime one also needs to go back to the Bofors scandal that rocked the Congress Government of Rajiv Gandhi.

In April 1987 a Swedish radio in an alarming allegation disclosed that a leading manufacturer of arms in Sweden had bribed top Indian politicians in order to win a contract for the supply of 400 Howister guns at a cost of a massive 1437 crore.

This rattled the Rajiv Gandhi government and in all probability would have affected his party to be re-elected at the general elections. However Rajiv Gandhi was assassinated by the L.T.T.E in a sensational development and the Bofors scandal and the connected inquiries were delayed

But the Criminal Bureau of Investigations (C.B.I.) in India launched an investigation against the President of Bofors , and an Indian middleman called Win Chawda and an Italian businessman together with the Hinduja brothers U.K. based billionaires from India. The C.B.I. registered charges against all those mentioned above for criminal conspiracy, cheating and forgery.

But the Delhi High Court quashed the charges in February 2018. However the C.B.I. is challenging the High Court order in the Supreme Court.

A note on the Reliance group and the Ambani brothers

To facilitate reader comprehension of the incredible power and influence of the Ambani’s in a country as vast as India I picked out a book by the Australian author Hamish McDonald titled Ambani and Sons from my home library. The book was first published in India in 2010 following the 6 years that McDonald was South Asian Bureau Chief of Sydney Morning Herald .

The book examines the fairy tale rise of one of the world’s richest families and their climb from rags to riches to the apex of the vast Indian Industrial structure. It had been an intriguing and episodic journey.

This writer discovered through the pages of Ambani and Sons that they could even make and break governments.

Dhirubani Ambani who founded this gigantic company generally balanced himself on a tight rope. He twisted and turned rules governing business to suit his whims and fancies.

The fabled enrichment of the Ambani clan and their intrusion into the domains of other powerful Indian entities led to huge rows that made waves in the fertile Indian press. Reliance on the other hand enriched its shareholders who numbered hundreds of thousands especially in the highly successful undersea oil explorations .As opposed to this, in operations like polyester manufacture, Dhirubani Ambani clashed with the likes of Nusli Wadia, who too was from a famous Parsi family ,that dominated India’s textile manufacture and trade for decades.

The last few paragraphs would show the political power and the influence wielded by the Ambanis who are once again involved in a highly controversial deal that may in the final analysis impact on the Indian General elections to be held in April/May 2019

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