Story Of The Week

DEAL OR NO DEAL- THE RAFALE (D)ASSAULT

 ” We did not have a say in this… the Indian government proposed this service group and Dassault negotiated with (Anil) Ambani group. We did not have a choice, we took the partner who was given to us.”

Former French President Francois Hollande’s comment that the Indian Government had proposed Anil Ambani’s Reliance Defence as Indian partner giving no choice to the French counterpart, has given rise to Political and Economic turbulence in the nation.

However, last night Dassault Aviation gave a new twist to plot. The statement came a day after the Former French President’s remarks on the Indian Government shook the nation.

“This offset contract is delivered in compliance with the Defence Procurement Procedure (DPP) 2016 regulations. In this framework, and in accordance with the policy of Make in India, Dassault Aviation has decided to make a partnership with India’s Reliance Group. This is Dassault Aviation’s choice…”

The entire row has left the nation baffled with too many arguments and statements. To understand the nation’s most complex treaty, let us decode the entire timeline of the deal.

PROPOSITIONS AND TIMELINE OF THE DEAL

The Rafale deal has been one of the most controversial deals in the history of India’s bilateral trade practices. Recent political impatience as demonstrated by various Indian political parties have put India and France’ economic relations at stake.

  PRE-NDA GOVERNMENT PERIOD

  1. The competition to acquire 126 Medium Multi-Role Combat Aircraft (MMRCA) for IAF began in 2007 after Government agreed with IAF to replace the obsolete MIG aircraft.
  2. Six companies were invited for the expo and were issued tender papers.
  3. India required 18 off the shelf, that is ready to use aircraft while 108 aircraft were to be manufactured in India. The manufacturing had to be a collaboration between the selected company and a state-owned bidder, which was Hindustan Aeronautics Limited in this case.
  4. After eleven months of field evaluations, the trials were completed in the Month of May in 2011.  The evaluation committee shortlisted two aircraft companies:  Eurofighter Typhoon and Dassault Aviation from France (Rafale manufacturers). The recommendations were forwarded to the then defense minister A.K Antony who took almost a year to process them.
  5. Dassault Aviation emerged as L-1 (The lowest bidder of the deal) while the L-2 position was automatically allocated to Eurofighter Typhoon. Dassault was responsible to deliver all 126 aircraft to IAF.
  6. For the next two years, negotiations on the transfer of technology, offset and maintenance was being held with HAL. The major disagreement issue revolved around the ‘man-hours required to manufacture aircraft in India’.

 POST-NDA GOVERNMENT PERIOD

 Meanwhile, in November 2014, power holding authority changed at the center and Mr. Manohar Parrikar took over as the Defence Minister of India.  The matter of Rafale deal was taken up again and an ultimatum was issued in March 2015 to the French supplier to fulfill its commitment

         * Point of negotiation: MAN-HOURS REQUIRED TO MANUFACTURE THE JETS

Dassault Aviation in its response to the ultimatum proposed to apply a factor 2.7 to               the original man hours to accommodate inefficiency of the Indian labor.  Application of   this factor will increase the cost of acquisition of the deal and Dassault would no longer have been the L-1 bidder.

Realizing the gravity of IAF working with a lower number of effective squadrons,             MoD ejected the possibilities of any further round of MMRCA negotiations in order to avoid further time delays and monetary losses.  Under such circumstances, Government decided to scrap the original MMRCA tender and went on for an off-the-shelf purchase of 36 Rafale jets.

*Point of negotiation:  TOTAL COST OF ACQUISITION OF 36 RAFALE JETS

In 2015, in an interview for Doordarshan, the then Defence Minister, Mr. Manohar Parrikar mentioned about Rafale’s bid for 126 fighter jets to have been pegged to Rs.90,000 crores, that is approximately 714 Crores per jet, however, the final procurement of 36 jets has been made for Rs. 1.3 Lakh crores that are approximately 1600 crores per jet- more than double the earlier price.

Deal or No deal 2

 So, is the latest deal really a bad one?

Considering the fact that the latest deal and the UPA deal are incomparable, the deal cannot be deemed bad. India has managed to incorporate many add-ons in this new deal:

  • Dassault will be making some India-specific modifications to the planes that     include Israeli-mounted displays.
  • The deal includes the supply of Meteor, an air to air missile and Storm Shadow, an air-launched cruise missile.
  • French have also agreed to make a complete transfer of technology, including Thales RBE2-AA radar and software source code, spare parts and maintenance.
  • The deal also provides for free training of ninety-one AF personnel. Sixty additional hours of trainer version of Rafale fighters will also be provided as per the deal clauses.
  • The deal also incorporates 50% OFFSET CLAUSE* which means that Indian companies, big and small, will be provided business worth Three Billion Euros. Under the offset agreement, 30% offset commitment has been made for military research and development programs and the rest 20% for making the parts in India itself.

*Offsets can be defined as provisions to an import agreement, between an exporting foreign company and an importing public entity, that obliges the exporter to undertake activities in order to satisfy a second objective of the importing entity, distinct from the acquisition of the goods and/or services that form the core transaction

 The new deal also removed HAL as the indigenous partner for manufacturing of aircraft in India. Anil Ambani led Reliance Defence Limited was roped in as the Indian partner of the French firm.

*Point of negotiation: WHY RELIANCE, WHY NOT HAL?

Former President Holland’s remarks have stirred a political debate in the economy regarding BJP by-passing the tender from HAL to Reliance however, few analysts do not opine the same.

HAL’s core competency is to co-produce planes while the new contract requires the Indian partner firm to offset the industrial defense goods. Currently, Reliance ADAG (Anil Dhirubhai Ambani Group), L&T, Kalyani, Tata, and Bharat Forge are the only companies that are manufacturing defense equipment. MoD claims Reliance to be the most competitive of all and thus chose the firm for the same.

Deal or No deal 3

The propensity of the truth is still unclear. Opposition and various analysts are forcing the Government to take the responsibility of this alleged scam, whereas Government is ardent on its point and claims to have cracked a deal that has saved the taxpayers a hefty proportion of their income.

References:

https://r.search.yahoo.com/_ylt=AwrxhTvArqZb0gMANOnnHgx.;_ylu=X3oDMTByajVjNzRjBGNvbG8Dc2czBHBvcwM0BHZ0aWQDBHNlYwNzcg–/RV=2/RE=1537679169/RO=10/RU=https%3a%2f%2fwww.ndtv.com%2findia-news%2fwhat-is-rafale-deal-controversy-all-you-need-to-know-1810706/RK=2/RS=CoBzSUKRrhls3KUiSm.Sc6u7FUk-

http://r.search.yahoo.com/_ylt=Awrxg9IcbKZbOAcABhLnHgx.;_ylu=X3oDMTBycWJpM21vBGNvbG8Dc2czBHBvcwMxBHZ0aWQDBHNlYwNzcg–/RV=2/RE=1537662109/RO=10/RU=http%3a%2f%2fwww.opindia.com%2f2016%2f09%2frafale-deal-is-it-really-an-exorbitant-deal-as-claimed-by-experts%2f/RK=2/RS=CACHkGphOAM1rL_R3QffcZ4Nvm8-

 

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