India’s Modi Caught in Rafale Fighter Price Mess

For a Prime Minister who has made the fight against corruption and cronyism a primary government aim, and who asserts there have been no such allegations since he was elected in 2014, it seems odd that Narendra Modi has allowed secrecy over the purchase of 36 Rafale jets from Dassault of France to become a potential political scandal.

India has become accustomed to Modi not quickly condemning – nor stepping in to curb – violence by Hindu extremists over the sacred cow and alleged beef eaters, and more recently over lynchings by cow and child abduction vigilantes.

But with Rafale, Modi has not only allowed the tempo to build up over the government insisting that the price of the deal be kept secret, but he actually laid the groundwork for the controversy with three moves when he visited Paris in April 2015.

Mum’s the word

Even more odd, the government is refusing to reveal the current figures for the contract, even though they were announced in 2016. The Congress Party has tabled a censure motion for misleading parliament against Modi and against Defense Minister Nirmala Sitharaman who made an unsatisfactory statement last week in a parliamentary confidence debate.

Modi’s first move came in Paris when, without even his defence minister Manohar Parrikar knowing, he announced that he had personally asked for 36 of Dassault Aviation’s Rafale fighter jets to be delivered “in fly-away condition as quickly as possible.” That replaced a US$13 billion order in 2012 for 126 of the jets that had become stuck in negotiations under the last Congress-led government.

Secondly, he stated that the 36 would be supplied “on better terms and conditions” than those proposed for the deal for the 126. They seem however to be far more expensive, hence the requests for the figures.

The third brings in apparent cronyism and makes the saga more intriguing because businessmen accompanying Modi included Anil Ambani, the younger and less successful of Mumbai’s two Ambani bothers.

Ambani had absolutely no prior experience of defense manufacturing and has had problems with heavily indebted businesses, but his newly formed Reliance Defense (based on Pipavav, a defense company he had bought) then arranged a joint venture with Dassault to execute the deal in India.

Curiously, Ambani was in effect replacing his estranged elder brother Mukesh, whose Reliance Industries was Dassault’s preferred partner for the original 126-aircraft deal. That got stuck partly because Hindustan Aeronautics, an Indian public-sector corporation that has monopolized aircraft manufacture, tried to block Ambani’s private sector entry.

Dassault CEO Eric Trappier (left), Anil Ambani, and Nitin Gadkari (right)

Like Modi, the Mumbai-based Ambanis originate from Gujarat, which is also the base for Anil Adani, whose Adani group has been picked as a partner by Saab for its Griffin fighter jet that is competing in another proposed contract. Adani, who also has no experience in aircraft manufacturing, is known to have been close to Modi for many years. His far-flung infrastructure and allied industries empire has grown exponentially since the early 2000s, and especially since 2014.

No personal allegations against Modi

Despite these seeming crony links, none of this has turned into allegations of personal corruption against Modi. There have been no suggestions of him benefiting personally throughout his political career, though it is widely believed that businessmen made payments to the Bharatiya Janata Party when he was chief minister of Gujarat, and there are similar stories circulating in Delhi now about payments to the BJP nationally.

Memories of Bofors

The Congress Party, led by Rahul Gandhi, however sees this as an opportunity to try to pin on Modi and the BJP the same sort of long-running corruption allegations that hit Rajiv Gandhi, Rahul’s father, when he was prime minister in the mid-1980s over a US$1.4 billion howitzer gun contract with Bofors of Sweden. That led to allegations of the equivalent of about US$50 million) bribes and a scandal that continues to haunt the Gandhis.

The primary difference however is that the Bofors story built up because it was pursued by the media and became a cause in Sweden as well as in India, just as an Augusta Westland VVIP helicopter contract scandal during the last Congress government has run for years because it was also being pursued in Italian courts.

There is no sign of the Rafale case getting a similar foundation in France, some of whose fighter and submarine contracts with India have for more than 35 years been accompanied by suggestions of corruption.

Last week, the French embassy played a straight bat during a parliamentary confidence debate after Rahul Gandhi accused Sitharaman of “speaking untruth” about the need to keep the contract price confidential under a 2008 government-to-government agreement. Gandhi said that French president Emmanuel Macron had told him he had “no issues in making the cost public”.

Sitharaman interrupted Gandhi’s speech to reassert the confidentiality point, and a statement was issued a few hours later by the French embassy in Delhi (presumably at Sitharaman’s request), which the government (also presumably) hoped would confirm the need for secrecy under a 2008 agreement.

The statement said security issues were confidential, but did not mention whether that included the price, which it presumably did not. This indicates that it is the Indian government, not the contract terms, that is dictating the secrecy.

No price was announced for the 36 aircraft at the time of Modi’s Paris visit, but it was reported at the time, based pro rata on the expected 126 aircraft price, to be around $4.5bn.

Eventually however, when the government-to-government deal was finalized in September 2016, the price was then €7.8billion, US$8.66billion). That was a far bigger escalation than could be justified by inflation together with enhanced specifications, and the extra labor costs involved in all 36 being manufactured in France with some component supplied from India. (Under a 50 percent “offsets” agreement, 20 percent of the price is being spent by the Dassault-Ambani joint venture in India on components, along with Dassault spending 30 percent on aero research programs).

Various figures

There are various versions of the two deals’ figures in circulation. Congress claims that the figure for 36 of the aircraft based on the 126 aircraft plan was Rs18,940 crore, whereas the price for Modi’s 36 is Rs60,145 crore. That is broadly in line with the Rs58,000 crore announced in September 2016 and breaches Modi’s pledge.

Ravi Shankar Prasad, the law minister, has posted on twitter a television interview where he said on that the 2016 deal was finalized at a cost of €91.75 million per aircraft, which was 9 percent less than the price quoted in 2011 – but does not tally with other figures.

The scale of Anil Ambani’s involvement has been indicated by an Indian defense website, Livefist, which in March reported that Rafale, under its “US$4 billion offsets plan,” had developed partnerships with at least 72 companies to contribute towards other Dassault equipment, the Rafale’s airframe, its Snecma M88 engines, radar, electronic warfare and avionics, aeronautical components, engineering and software.

A factory to produce components for assembly in France is being set up by the joint venture company, Dassault Reliance Aerospace, near the central Indian city of Nagpur, where the headquarters of the Rashtriya Swayamsevak Sangh (RSS), the BJP’s right-wing umbrella organization, is located and Nitin Gadkari, a leading government minister, is the MP. Dassault has said the factory will also produce parts for its Falcon business jets, and that it will assemble complete Rafale aircraft if there are further orders in India.

Along with other defense contracts, this is probably Anil Ambani’s final attempt to build a viable business, having exited various big power and other infrastructure projects over the years, some incomplete, and sold assets to clear debts. His Reliance Communications telecom business, which he took over when he and his brother split the family group in 2005, has been beaten into the ground by a price war launched by Mukesh Ambani’s Reliance Jio Infocomm.

India’s Comptroller and Auditor General (CAG) is preparing a report on the Rafale order, which will presumably include how Anil Ambani was chosen for the joint venture, but it is not expected to be published till the end of the year. That gives Rahul Gandhi and Congress plenty of time in the run-up to next year’s general election, to try to push Modi further into a Bofors-style scandal, unless of course the prime minister decides the government should reveal the figures, which surely it should.

Meanwhile the Indian Air Force continues to be seriously undermanned, with only 31 squadrons of fighters instead of 42. The need for 126 fighters was first identified in 2001 and it has taken till now for the manufacture of just 36 to be about to begin. Modi was elected to reform the way India is run and he directed his Make in India campaign towards transforming defense procurement and production. It seems he has failed on all counts and has finished up instead with a potential political scandal over contract costs and alleged cronyism.

John Elliott is Asia Sentinel’s New Delhi correspondent. He blogs at Riding the Elephant.