CAG Report was recently tabled in the Parliament, which brought some interesting revelations forth, adding further to the Rafale Deal controversy.

The Comptroller and Auditor General (CAG) Report has claimed that the deal was actually 2.86% cheaper, as compared to UPA’s previous deal. Interestingly, this comes ahead of the General Elections for the BJP to counter Congress’s alleged corruption claims.

The CAG Report Findings
Rafale Deal signed by the NDA 2.86% cheaper, as opposed to government;s claims of having a 9% margin
Fighter Jets to be delivered only 1 month earlier
No sovereign guarantee given by France in case of non-delivery, only  a ‘Letter lof Comfort’
The dropping bank guarantees culminates as savings for France’s Dassault Aviation, not India
Prices could be lower, given banking/performance guarantee waivers
In case of disputes over quality of work and delivery, India to go into arbitration with France

What is the Rafale Deal Controversy all about?

The Rafale Deal Controversy is a political controversy in India which is related to the purchase of 36 multirole fighter aircrafts estimated to be worth Rs 58,000 crore by the Defence Ministry of India from France’s Dassault Aviation.

Read the complete Rafale Deal coverage here!

What are Rafale Jets?

CAG Report

The twin-engine Rafale combat jets are designed from the beginning as multi-role fighters for air-to-air and air-to-ground attacks. They are nuclear capable and their on-board Electronic Warfare (EW) systems can also perform reconnaissance and radar jamming roles.

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Rafale Deal: Background

Notably, the Rafale Deal has its genesis during the Atal Bihari Vajpayee government in the year 2000. The deal was meant for the procurement of the advance jet fighters as a part of the modernisation of the Indian Air Force. The procurement process was first initiated by the Manmohan Singh government in 2007. Therefore, the next UPA government zeroed in on Rafale jet fighters in 2012 and a deal was inked with Dassault for 126 MRCAs.

However, the deal was scrapped after the Narendra Modi government came to power over pricing and a few specification issues. However, PM Modi during his visit to France in the year 2015, announced that the deal has been reworked and a fresh agreement has come into existence. Finally, the Rafale Deal was signed in September 2016, with a statement saying that India would be buying French-manufactured Rafale fighter jets off-the-shelf from the French aircraft builder and integrator, Dassault. Notably, Rafale was selected to upgrade India’s ageing fleet in the year 2012 over other rival offers from the United States, Europe and Russia.

As per the plan, India was meant to buy  18- off-the-shelf jets from France’s Dassault Aviation. The rest 108 would be assembled in the country by the state-run Hindustan Aeronautics Limited.

The Rafale Deal controversy came into existence when the Modi led BJP government broke its commitment of the last UPA government to buy 126 Rafales, stating the twin-engined planes were expensive. This refusal made the Rafale Deal fall through post-decade-long negotiations between India and France. However, despite the tussle between the cost and the need for the aircraft, Modi decided to buy 36 ready-to-fly fighters instead of borrowing technology from Dassault and building the fighters in India.

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The India-France Deal

  • The Rafale Deal announced by the PM Modi was signed as an inter-governmental agreement with France.
  • India was reportedly supposed to about Rs. 58,000 crore (7.8 billion euros) for the 36 off-the-shelf Dassault Rafale twin-engine fighters.
  • Notably, 15% of this cost was paid in advance as per the deal. Also, as part of the deal, India would receive spares and weaponry as well,  including the Meteor missile which is considered to be one of the most advanced missiles in the world.
  • An accompanying offset clause stated that France would be investing 30% of the Rs. 58,000 crore in India’s military aeronautics-related research programmes. 20% would go into the local production of Rafale components.
  • In November 2016, a political warfare over the Rafale Deal begins between Congress and BJP. The former accuses the latter of not being transparent and wasting the taxpayers’ money by signing a hefty deal of Rs. 58,000 crores.
  • Congress claimed that Anil Ambani-led Reliance Defence Limited was unfairly chosen as the French firm’s Indian partner.
  • Congress also alleged that the current ost of each aircraft is three times more than the previously negotiated price in 2012.
  • Defence Minister Nirmala Sitharaman and Reliance Defence Limited, however, rebutted the Congress claims stating that the renegotiated deal was transparent and cheaper than the earlier one, negotiated by the UPA government. Sitharaman said that the revised deal has superior weapons package and logistical support unlike the previous one.
  • She also told the Parliament that the France Deal was meant to be kept discreet as it is “classified information” and meant to be kept confidential.

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Rafale Deal Verdict: What the CAG Report says

CAG Report

  • The CAG Report swings in favour of the Centre, when it states that the overall Rafale deal negotiated by the National Democratic Alliance (NDA) was 2.86% cheaper than the one put together by the United Progressive Alliance (UPA) government.
  • However, issues persist, which will give fodder to the Opposition to continue questioning the BJP’s decisions.
  • The CAG Report is divided in 2 volumes: the first comprises of 7 chapters, shedding light on the examine systematic issues in India’s acquisitions process, several contracts etc.
  • The second volume pertains to the Rafale Deal and consists of audit finding based on the acquisition of medium multi-role combat aircraft (MMRCA) through the France agreement.
  • The second volume, however, examines pricing but covers nothing on the on the offsets package or the role of Anil Ambani’s Reliance.
  • However, Reliance will be having a separate individual report which would out only after the General Elections in May, as per the national auditor.

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Rafale Deal Verdict: Key highlights of the CAG Report

  • As per the auditor, the Rafale contract consisted of 6 different packages, with a total of 14 items. Notably, the price of 7 items were higher than the aligned price, i.e., the price at which the agreement should have signed post price variations between year 2007-2015.
  • 3 items in the Rafale Deal, including basic aircraft, were procured at the same price as of the UPA’s previous negotiations. However, 4 other items were purchased lower than the aligned prices, making the NPA-II’s deal cheaper than that of the UPA one.
  • However, Nirmala Sitharaman had asserted that the Modi government got a price which was 9% cheaper than the UPA deal, which the CAG Report disagrees with. The CGA Report counters her claim that the basic flyaway aircraft was purchased at the same rates as 2007.
  • The CAG Report also stated that NDA-II has hurried up the Rafale delivery schedule by 5 months. Notably, UPA asked for 36 aircraft to be delivered within 72 months, while the NDA contract demanded delivery in 67 months only. The auditor also noted that the 5-month achievement is also dubious.
  • On the issue of sovereign or bank guarantee, the CAG Report states that France did not adhere to the said demand. Instead, it offered to provide a letter of comfort.
  • The CAG Report also explicitly highlighted that the unpaid bank guarantee charges added to the savings of Dassault and not India, compared to the year 2007 offer. The savings reportedly amount to Rs. 574 million.
  • The caveats here are that if the savings added to Dassault Aviation, then the table saying the NDA deal is not cheaper by 2.86%, but rather expensive than the UPA’s.
  • 4 India-specific enhancements “were not needed”,  says the CAG Report. They were, nevertheless, added to the Rafale Deal.
  • The CAG Report offers a mixed bag on the Eurofighter offer. As per media reports, the offer was rejected due to its ‘inaccuracies,’ and to avoid violations of the Defence Acquisition Procedure process.
  • CAG acknowledges that if there is a breach of agreement in terms of arbitration, India will have to first settle the matter directly with the French vendors.

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Rafale Deal Verdict: Hits and Misses in the CAG Report

India’s national auditor, the Comptroller and Auditor General (CAG), is known to present lucid and comprehensible reports, to be understood easily by laymen. Not this time, though. The CAG Report submitted to the Parliament on the Rafale Deal row is slightly flawed and lacks selective attention. The CAG Report, on one hand, expressed its unhappiness over the non-disclosure specific prices in the deal. It, however, brings to the table as to why India’s defence procurement takes ages.

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