Prime Minister Narendra Modi addressing the two-day BJP National Convention | PTI
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Modi government’s extraordinary ineptitude can only be explained by the circumvention of laid down procedures in the Rafale deal.  

The Rafale deal is back in the news. Writing in The Hindu, its former editor N. Ram has shown why the BJP government ended up paying substantially more for 36 fighter aircraft. The article has drawn the ire of the government’s votaries and their responses merit scrutiny. But we also need to go beyond the question of costs and look at the causes and consequences of the decision to scrap the older process for acquiring 126 aircraft.

Although the government has resolutely refused to share the full details of the costs of the deal, the broad figures have been in the public domain from the time the agreement was inked. As early as 24 September 2016, Ajai Shukla reported that the average cost of each of the 36 bare-bones aircraft was €91.7 million (in all, €3.3 billion). In addition, there were costs of India-specific enhancements (€1.7 billion), spares (€1.8 billion), logistics (€350 million) and weaponry (€700 million).

Drawing on official documents, The Hindu article shows that the cost of these enhancements is actually €1.3 billion. In its original bid for 126 aircraft, Dassault Aviation had pegged the design and development costs of these at €1.4 billion. In the negotiations for the new contract, this came down a bit to €1.3 billion. Because this fixed cost would now be spread over 36 aircraft instead of 126, the cost per aircraft in the new deal was naturally higher.


Also read: Decoding the Rafale numbers: Where Rahul Gandhi and Modi government went wrong


When the bids for the older tender had opened in 2011, the price of each of the bare 126 aircraft quoted by Dassault was €100.85 million (including the price escalation from €91.75 million in 2007, as claimed by Dassault). The cost of development and design for each of the 126 aircraft worked out to €11.11 million. So, the total cost of each aircraft stood at €111.96 million. By contrast in the new deal, the government procured each bare aircraft at €91.7 million. But the costs of development and design amounted to €36.11 million, taking the total price of each of the 36 aircraft to €127.86 million. In short, the government obtained a 9 per cent reduction in the price of the bare aircraft, but ended up paying substantially more owing to the fixed costs of development.

The difference in price per aircraft could actually be higher as the government dropped the standard ‘options’ clause that allows it to purchase an additional 50 per cent 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.

Critics have claimed that the comparison is misleading because these 36 aircraft will come with additional capabilities beyond those specified in the older tender. This is true, but beside the point. The salient fact is that there is no increase in India-specific enhancements sought by the Indian Air Force. As the ministry of defence’s spokesperson notes in his response to The Hindu report (circulated to a few journalists): “These were part of the 2007 bid and continued to be part of the 2016 deal.” The additional weaponry and logistics performance now sought by the Air Force are calculated under separate heads of costing. Bringing them in does not in any way detract from the point that the government has ended up paying more owing to the fixed costs of design and development of India-specific enhancements.

This extraordinary ineptitude can only be explained by the circumvention of laid down procedures. The Prime Minister evidently took the decision to scrap the older tender and purchase 36 Rafales 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 has informed the Supreme Court that the DAC approved the AoN for 36 aircraft on 13 May 2015, although Prime Minister Modi had announced the deal during his visit to Paris on 10 April 2015. Had due process been followed, the Air Force’s statement of case would have been scrutinised by financial experts in the defence ministry, who would have pointed out the costly error in going for just 36 aircraft. As it happens, the decision was taken at the highest level and presented as a fait accompli to the Air Force and the defence ministry. Still, there were serious differences in the negotiating team on whether this high cost of development was worth paying for 36 aircraft.


Also read: Rafale, Bofors, AgustaWestland: Why is every Indian defence deal hit by scam allegations?


No wonder the government continues to adopt an implausible stand. The MoD’s spokesperson insists, on the one hand, that “the deal for the purchase of 36 Rafale fighter jets in 2016 achieved the objectives of better price, better delivery period and better terms compared to the earlier proposal”. But, on the other hand, he claims that “to compare the cost for the MMRCA contract which never materialized with the cost of the 36 aircrafts procured in 2016 is fallacious.”

The style of decision-making in Rafale is strikingly similar to that in demonetisation. In both cases, an excessively centralised and secretive approach coupled with a limited grasp of technical issues, disdain for expertise and a penchant for public positioning led to grievous outcomes.


Also read: On Rafale, BJP is not corruption free but investigation free


The consequences of the decision are plain. The Air Force has to make do with far fewer aircraft than it needs. A Request for Proposals for another 110 aircraft has been put out last year and the process is likely to go on for some years. Further, in the absence of any technology transfer, India has not only lost access to crucial technology but also the opportunity to acquire manufacturing skills. This will have long-term repercussions for our defence industrial base.

The parsimony and incompetence of the Modi government have dealt a deep blow to India’s military modernisation. Future historians are likely to judge this episode in the words of Joseph Fouché: It was worse than a crime—it was a blunder.

The author is Professor of International Relations and History at Ashoka University and a Senior Fellow at Carnegie India. Views are personal.  

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21 Comments Share Your Views

21 COMMENTS

  1. The print is smart failed to hide truth. Stop spreading lie in the name of journalism.
    First india plans to acquire 126 fighter jet since 2004. Congress under UPA failed to sign the deal with france for 126 jet. The deal under UPA does not include any breakthrough technologu like AESA radar, Meteor missile . IAF was left with no option than aproachining prime minister Narendra modi

    Under the leadership of narendra modi India signed a deal to purchase 36 fighter jet. This was done to fullfill the urgent requirement by IAF . IAF will now get 2 squadren of MMRCA. India had an option to sign 126 MMRCA jet, but the deal will include TOT and make in india which will lead to delay in delivery of rafale jet to IAF.

    These jet will be acquired in flyaway condition. The jet is far more superior than the one which congress wanted to purchase. This jet will be equipped with ram jet powered meteor missile, RBE2 AESA RADAR, SCALP missile. It can also carry air launched missile armed by nuclear warhead. It will have upgraded Electronic warfare suite . This suite will help in employing active cancellation technique in enemy airspace. The current configeration has stealth characterstics which no other 4.5 gen fighter jet will offer. It will be the first aircraft in asia pacific which will equipped with X band towed decoy. A powerful counter measure devoloped to defeat powerful SAM and AAM

    I request print to stop modifying truth and facts. Please be sensetive on the matter of National security

    Please read the below link for more information
    http://globaldefencewatch.com/with-5-new-stealth-features-rafale-f4-will-be-a-fighter-to-beat-in-mmrca-2-0/

  2. The author’s arguments are based on wrong arithmetic by N.Ram. the figure of 41% is blatantly wrong. It is worked out by adding up only two of the three components of the price of a jet : (1) cost of barebones aircraft and (2) development cost of India specific enhancements. what about the third component of the cost which includes spare, logistics, weaponry etc. You add these costs and then work out the arithmetic, the answer comes just 12%!Let us do the exercise other way around : spread over of total development cost of €1.3 billion for 36 planes is €0.03611 billion per plane(1.3/36) and for 126 planes is €0.01032 billion per plane (1.3/126). The difference of €0.02579 billion per plane is the purported loss, which comes ot around Rs.186 crore as claimed by P.Chidambaram, which is just 12 % of the total cost of Rs.1600 crore per plane. Now for availing this cost benefit, the country will have to buy 126 planes. The total bill then comes to Rs.1.78 lakh crore! (186×126). This is staggering amount, which the country cannot simply afford and if paid, it will strain our financial resources and drain our forex reserves. It is just like the marketing gimmick :’ buy 10 & get one free’ . To get one free you have to first buy 10! Now, if India buys 226 planes the cost will even go down further. But should we do it? Some balancing has to be done to arrive at the optimum number. Modi government has done it by settling for buying just 36 planes for now.

  3. One question for a layman like me is what is the differentiator that Anil Ambani who has got 3% of offset deal from Dassault bought to table? Why Modi brought him?

  4. Rafale became an issue in 2018 due to allegation by Rahul that Chowkidaar Chor Hai! Where is corruption proven by anyone? The number of aircrafts ordered, process followed, cost paid etc are issues essentially in executive domain. Unless these are tainted by corruption, there is hardly anything to discuss. Now that after SC judgement and debate in Lok Sabha it is clear that there is no substance in the allegation of corruption, people like N. Ram and others are digging out irrelevant issues. This article is in the same category. It is elementary that fixed cost is fixed whether you buy 1 aircraft or 126. So what is relevant is what is variable cost. Why 36 and not 126? If IAF is fine with this, who should object? Cost is high as some experts in MoD objected to it! Are we buying vegetables? If one wants to get at Modi, one can find other issues, not Rafale.

  5. As a former IAF Techie and will full respect to the author the he ought to restrict himself to historical matters where he has competence.

    The original 2007 IAF RFP was for the F3 variant of the aircraft. The current airframe which will enter service into the IAF now is the Romeo variant. The F3R involves major software and hardware upgrades, most importantly the SBU-54 Hammer, MBDA Meteor BVR missile together with the improved Spectra EW suite, the Thales Talios LDP and the Auto-GCAS to name a few. These cannot possibly have been part of the old deal as they did not exist in the first place.

    If a manufacturer has sunken costs wrt every major and minor variant that has been inducted into service then the very same costs will need to be recovered this is basic economics. A complete acquisition of 126 aircraft would have cost the country more than 20 billion$ and wrecked the capital plans for the next century.

  6. N Ram.is a rotten idiot.Srinath Raghavan also seems to be intellectually challenged.This article has no basis but the rantings of an obscurantist.

  7. N Ram , knowledgeable,intelligent but a BJP hater to core BJP like other political parties has good and bad actions.
    I had opportunity to hear him at convocation of IIM K in 2015. His whole speech was devoted to criticising BJ P Govt.
    One cannot expect rational analysis from him.

  8. The number of stories and unanswered questions on this deal are amazing.
    No matter which version of the various explanations one supports – one needs to look at them in the light of the parliamentary answers by all and sundry. it appears doubtful if any of the explanations given in parliament fully matches various theories doing the rounds.
    The issue about the india specific costs being allocated over 36 aircraft also seems somewhat far fetched. It would be difficult to believe that India has such requirements which no one else in the world ever used and so had to be developed specifically for 36 aircraft. In any event previous pricing and requirements of the aircraft and the so called india specific requirements appear no different.
    This also puts in doubt the issue about whether future aircraft would not bear the cost of india specific costs. If so the future aircraft purchased would be really cheap and still carry the same equipment. Appears completely illogical.
    Then there are the issues of a Ambani Dassault JV. For what purpose? To maintain 36 aircraft?
    Over and above this is the issue of the Rs 30,000 crore offset with varying stories. What is this offset achieving when the aircraft are in flyaway condition. if it is not required – did this money come free from Dassault or is it coming out of the GOI hide?

  9. This rubbish will continue for every one has been deprived of kickbacks.Why not order 1000 aircrafts since that the fixed costs will get further reduced.
    If you have proof of wrongdoing file a PIL.

    • Yes only Modi got bribe in the form of Electrol Bonds for the party fund… but exactly know how much he got we should wait till May 2019..

  10. I agree with the author’s argument. But, it only shows that the present government put aside due diligence because something made the matter urgent which the Indian public can understand. There is no proof of quid pro quo nor of any bribes.
    Maybe, it has not occurred to the author, that the PM’s decision was made in such a centralised & secretive nature in order to checkmate vested interests who were trying to make money out of the older contract. Since, the PM decision makes it a G TO G deal, there are no middlemen to earn commissions and to pay bribes.
    Thus, at best it only proves, incompetence rather than corruption. The focus should be mainly two other aspects which are inexplicable. First, giving up sovereign guarantee & options clause in a G2G deal. Second, why Anil Ambani’s fledgling company which has not even been established at the time and was already bankrupt.

    • Nonsense … when we have one lakh twenty Crore to build Bullet Train how can you say we don’t have money to purchase fighter planes for the Air force..

      • The bullet train is being built on soft loans from Japan. Rafale payments have to be in done in installments but in advance. Please enhance your knowledge before shouting crap.

      • It is a loan, dude! Not built using budgetary allocation. Bullet trains will be introduced using Jap loans which will be paid over decades. Can’t you atleast do some homework?!

  11. Then go even further beyond and ask why a deal for 126 aircraft was not signed when the airforce had given its choice by early 2008. Modi would not have been involved at all had incompetent UPA-2 done its job. We could start seeing delivery of the first 18 of 126 by 2014 had UPA2 signed in 2011 and about 40 by now. The goal is not to get certain number of aircraft but to get them in time. The purpose is to be prepared for conflict – not to buy aircraft.
    By your logic if we cannot buy 126 we will not buy anything!

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