In any major defence procurement, what is considered sacrosanct is the prescribed procedure. Even when the procedure is followed to the letter, there is always a possibility of malfeasance. That is the reason why the awarded value of the contract is analyzed thoroughly.
On September 23, 2016, then French defence minister Jean Yves Le Drian, accompanied by Eric Trappier, chairman, Dassault Aviation signed with India a 7.87 billion Euro deal (about Rs 59,000 crores/Rs 590 billion) for 36 Rafale fighter jets. At first glance, it appears that the awarded value of the contract is way above what could be considered reasonable, not withstanding the loud protestations of the Government. It is possible that the Government is right, but since the deal itself is considered a secret it is impossible for an informed layman to analyze it objectively and draw a conclusion.
I must however add here that things would not have come to such a pass but for the infernal lethargy of the UPA’s Defence Ministry headed by A K Anthony, who believed more in rearranging files than in taking decisions. Thus I will reserve my comments in so far as the cost of the contract is concerned, though my surmise that the Indian Prime Minister had been taken for a merry ride by the wily French.
Many experts however suspect that the difference in price per aircraft could actually be high as the government dropped the standard ‘options’ clause that allows it to purchase an additional 50% of the aircraft under the same terms and conditions. In other words, the costs of design and development in the older process could have covered not 126 but 189 aircraft, bringing the average cost of each plane further down. But let us give the benefit of the doubt to the Government for the present and turn our attention to the procedure, which I consider should be treated inviolate by every person involved, especially the Prime Minister.
1. Had the Procedure been violated by the Prime Minister?
The answer is an unequivocal yes. The Prime Minister, I am never tired of repeating, is not the King of India. He is bound by rules and norms. It was his infernal arrogance that made him announce suddenly in France that India would buy 36 of the fighter planes in flyaway condition. It must be noted that the original deal was for 126 fighter aircraft under the Medium Multi-Role Combat Aircraft contest, which began in 2007. Dassault’s Rafale was shortlisted in 2012 after rigorous evaluation but negotiations had been stuck over pricing and delivery guarantees for the aircraft manufactured by Hindustan Aeronautics Ltd. (HAL) in India. The prime minister took the decision to scrap the deal without consulting the Air Force or the ministry of defence. According to the procurement procedure, a declaration of intent to buy any defence equipment can happen only after the government approves the Acceptance of Necessity (AoN) for the equipment in the specified quantity. This is done by the Defence Acquisition Council (DAC), chaired by the Raksha Mantri, after a statement of case is moved by the concerned service headquarters. The government had informed the Supreme Court that the DAC approved the AoN for 36 aircraft on May 13, 2015,
while Modi’s announcement in France was made on 10 April 2015.
It was thought at that time a direct purchase would drive down the costs as there was no technology transfer involved and the delivery of aircraft would be faster!
2. Was there any interference from the PMO?
The answer is an unequivocal yes. As Sudhansu Mohanty, ex Controller General of Defence Accounts points out in his article dated 6 February 2019 in the Wire magazine, Ajit Doval the National Security Advisor, played a proactive role in the finalization of the contract. He had no locus standi at all. As reported by the Caravan magazine, a retrospective document issued by the Defence ministry in August 2016, noted that “after the receipt of legal advice, discussions have taken place during the meetings of INT on these issues, in the meetings of MoD and also in the meeting of NSA and Member Secretary, INT, with the French side in Paris.” French negotiators met their Indian counterparts, including Doval, in Paris on 12 and 13 January (2016)”.
Thus Doval was the elephant in the drawing room.
3. Now let us turn the Hindu’s bombshell on the 8 February 2019. Were the Hindu and Mr Ram unethical in coming out with a piece which only quoted two-thirds of an official note and did not quote the Raksha Mantri’s remarks which appeared at the lower end of the note?
Firstly, Mr Ram’s article is not a comprehensive piece that narrates the entire story. It is but a chapter of it. He had earlier written articles on the same subject and he is likely to write many more. Thus he was well within his rights to tell what he chose to tell. Secondly, it is not clear he had access to the remarks of the RM. The Hindu of today has just reproduced the ANI’s photocopy of the Minister’s remark and NOT its copy superscribed ‘The Hindu’. Thirdly, as Mr Ram has said in an interview, he is reluctant to drag Mr Parrikar’s name, because he is seriously ill. Had he been OK, and had his remarks on the note been known to Mr Ram, he would have surely asked for Mr Parrikar’s version of the story. He did not ask Ms Sitharman’s version only because she was nowhere in the picture when the note was written.
In fact, it was the Ministry’s act of leaking Mr Parrikar’s remarks that was highly unethical and probably in violation of the Official Secrets Act.
4. Do Mr Parrikar’s remarks help Government’s stand?
The answer is an unequivocal no. Firstly, he kept the note with him for more than 40 days,because he knew that the issue raised was very serious. It is idiotic to claim, like some prime asses in the media do, that a junior official had unnecessarily raked up the issue. No official would write a note out of the blue on a subject he was not supposed to be involved unless he had been asked to do so. The full file is not available to us, but it is clear that he was responding to a communication he had received. He would have been hauled over the coal if he had chosen to keep quiet. The submitted note, if my surmise is correct, must have been vetted by both the Joint secretary and the Defence Secretary. Both must have been livid that the PMO was interfering. Mr Parrikar too must have felt that the officials were right and waited for the tempers to cool down. What is to be noted is that he only asked the officials not to overreact; he did not ask them not to react at all. He clearly said that the Defence Secretary should speak to the Principal Secretary of the PM and sort things out. Ministers do this all the time. Thus there was a problem of interference and that it was perhaps later sorted out and that the Defence Secretary became reconciled to the presence of Mr Doval in meetings does not obliterate its prior existence.
5. What is a bank guarantee, what is a sovereign guarantee and what is a letter of comfort?
Bank Guarantee:
Let us say you want to buy a flat which is still on the drawing board stage. The builder demands an advance. Since you are helpless you pay the advance and hope that the builder will eventually come out with the flat. In major contracts, such risks will not be taken. If one party demands a huge advance before delivery, the buying party demands an irrevocable bank guarantee for the sum advanced. It means that if this guarantee is submitted to the bank, it will pay the money immediately with no questions asked. Thus the buying party gets an assurance that the other party will not walk away with the money or default in any manner. In Rafale’s case, the company, M/s Dassault was not in a financially sound state and it was more than likely that no bank was prepared to give them the required guarantee.
Sovereign Guarantee:
This is a guarantee one State gives to another. Since a State is not supposed to renege on its word, it is accepted without any reservation.
Letter of Comfort:
In this specific case the agreement was signed between the French Government and the Indian Government for the delivery of 36 Rafale fighter jets,though the delivery would be done by a private French company. The French PM had written to our PM that the French Government would do all it could to ensure that M/s Dassault fulfilled all the contractual obligations. This was the famous ‘letter of comfort’. Its legal status is not very clear. Though it is unlikely that the French Government will wash off its hand in the event of a serious default, one really never knows.
P A Krishnan's Writings 