Modi govt provides details of decision making process involved in Rafale deal, says all procedures followed

The government also reiterates that it has no role to play in the election of offset partners by the vendors, and there will be hundreds of offset contracts, as there are 2 vendors and 33 sub-vendors with offset obligations in the deal.

Today the government of India submitted an affidavit at the Supreme Court detailing the steps of the decision-making process before ordering 36 Rafale jets from France. On 10th October, the Supreme Court had said that it would like to know about the steps taken in the decision-making process. Further on 31st October, the apex court had asked the government provide such details to the petitioners of the PIL, excluding any sensitive information that comes under the Official Secrets Act.

Obeying that order, the government has provided the details of the Rafale deal to the petitioners.

DPP and DAC

The norms and procedures were all followed in the Rafale deal, said the government. The response of government gives a detailed account of the Defence Procurement Procedure (DPP), which governs all defence related procurements by the Indian government. The government amended through several reviews the DPP which was introduced in 2002.

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The government notes the Preamble of the DPP, which states that defence acquisition is not a standard open market commercial transaction and it has several unique features like supplier constraints, technical complexity, foreign supplier, geopolitical ramifications etc. That’s why decision making in defence procurement is unique and complex.

The government says that it followed the Defence Procurement Procedure-2013 (DPP-2013) in the procurement of 36 Rafale jets. The reply mentions every step involved in the DPP-2013, from the preparation of user requirement to the award of the contract. It says that Defence Acquisition Council (DAC) is the highest body for defence procurement matters. The DAC is headed by the defence minister and it includes all Service Chiefs, along with several secretaries in the defence ministry.

Background

The reply of government gives background the deal. In 2007, bid for 126 fighter aircraft was issued, which was for the direct purchase of 18 aircraft and rest 108 to be made in India. Six vendors submitted their proposals in 2008. Detail technical and field evaluations were conducted in 2009 and 2010. In 2011 commercial bids were opened, and Dassault Aviation was selected as the winner in 2012. After that, contract negotiations started in the same year. But the negotiation could not be concluded due to differences over the manufacture of 108 jets in India by Hindustan Aeronautics Limited (HAL). The reason for this was lack of agreement between Dassault and HAL over the following issues:

  1. HAL required 2.7 times higher man-hours compared to Dassault for manufacturing the Rafale in India.
  2. Dassault was required to undertake contractual obligation for entire 128 jets, both made in India and France. But these were issues in this regard which could be resolved.

This situation remained in place for more than three years, delaying the purchase. This delay also increased the cost of purchase, due to in-built escalation and also variations in Euro-Rupee exchange rates. During the period, enemies of India had already inducted more than 400 fighter planes. This delay was also impacting other upgradation programs of Indian Air Force.  In view of this, the decision to purchase 36 Rafale jets in fly-way condition was taken.

Decision-making process followed

The reply by government states that all requisite steps as per the DPP-2013 were followed while deciding to purchase 36 jets. After completion of the processes under the DPP, necessary approval of the DAC was taken in 2015. The DAC was informed that the capability of the 36 Rafale aircraft will be as per the requirement for the original bid to buy 126 jets.

An Indian Negotiation Team (INT) was constituted to negotiate the terms and conditions for the deal, which was headed by the Deputy Chief of Air Staff of the IAF. A total of 26 meetings took place between Indian and French sides, while the INT met 48 times for internal meetings. A variety of aspects, including pricing, delivery schedule, maintenance terms, offsets, etc were discussed in those meetings. The government says that INT had arrived at better terms related to price, delivery and maintenance as compared to the earlier order for 126 jets. After finalising the deal, it was placed before the Cabinet Committee on Security in August 2016. The CCS provided the due approval on the same day. After this, the relevant protocols for the Inter-Governmental Agreement (IGA) were signed between Indian Defence Minister and French Defence Minister, on behalf of the respective governments.

Offset

As the major controversy created by the opposition in the deal is one offset partner selected by Dassault, the government has given a detail response on offsets. The government states that no private business house was mentioned in the IGA or Offset Contract. The offset clause does not envisage manufacture of the 36 Rafale aircraft in India by any public or private sector firm. And as per Offset Contract, the vendor is required to provide the details of Indian Offset Partners at the time of claiming offset credits or one year before discharge of offset obligation. As per the contract, the annual offset implementation will start from October 2019, and Dassault is yet to submit any formal proposal for carrying out offset obligations.

A foreign vendor that discharge offset obligations by several routes, they are:

  • Direct purchase of products or services from Indian enterprises, both public and private sector.
  • Foreign Direct Investment in joint ventures with India enterprise for manufacture/ maintenance of eligible products and services.
  • Transfer of technology to Indian enterprises for manufacture/ maintenance of eligible products and services.
  • Providing equipment to Indian enterprises.
  • Technology Acquisition by Defence Research Development Organisation (DRDO) in high technology areas.

Government’s reply says that vendor will be responsible for fulfilment of offset obligations. If the Defence Ministry has not barred the Indian enterprise, then the vendor is free to select an enterprise of their choosing.

The offset guidelines under DPP-2013 governs the offset contracts under Rafale deal. The deals signed were two separate deals, one with Dassault and the other with MBDA, which is providing missiles for the jets bought by India.

There is no offset obligation in the first three years of signing the contracts, which means the obligations start from October 2019 onwards.

Other than the two vendors, offset obligation will also have to discharged by Tier-1 sub-vendors. Dassault has 21 such Tier-1 sub-vendors and MBDA has 12.

The government of India’s response clarified that they followed every norm under the Defence Procurement Policy while deciding to purchase the 36 Rafale jets.

The government also reiterates that it has no role to play in the election of offset partners by the vendors, and there will be hundreds of offset contracts, as there are 2 vendors and 33 sub-vendors with offset obligations in the deal.

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