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SEEMA MUSTAFA | 13 APRIL, 2015

Rafale Jet Fighters Deal Opens Pandora’s Box, Ambanis Emerge As Possible Beneficiaries

Prime Minister Narendra Modi with the Ambanis


NEW DELHI: Prime Minister Narendra Modi has in one brilliant, and totally unprecedented, stroke killed several birds in France. By intervening to clear the way for the delivery of 36 “ready to fly” Rafale fighter jets the PM has taken a decisive decision that on the face of it addresses the “critical operational requirements” of the Indian Air Force, but actually opens what could be a Pandora’s Box of bonanza’s for the private defence sector( read Ambani) in India, and a revival of Dassault Aviation that might have shut shop otherwise. It is, of course, also intended as a signal of ‘more to come’ for world governments seeking a slice of India’s big defence pie.

The tender for the the 126 jet fighters was floated by the Ministry of Defence in 2007. Dassault was selected after the usual procedure to supply the Rafale jet fighters at an estimated cost of $ 20 billion. Under the agreement it was decided that 18 of the fighters would be supplied in ‘ready to fly’ condition, and the remaining 108 manufactured with Hindustan Aeronautics Limited in India. The deal got bogged down over differences centering around the French resistance to the Indian demand that Dassault take responsibility for the HAL produced fighters and stand guarantee for the same. There was no breakthrough till date with both sides stuck on the negotiations that were making no headway.

PM Modi arrived in France and in a grand gesture announced "Keeping in mind critical operational necessity of fighter jets in India, I have talked to him(French President Francois Hollande) and requested for 36 Rafale jets in fly-away condition as quickly as possible under government-to-government deal.”

The PM’s direct intervention has, thus, effectively closed the earlier file that has been hanging fire between the two sides for three years, and converted the deal into a government-to-government transaction for what is a first for India in its military dealings with France. And as experts here point out, the rules of the game have thus, changed completely taking the deal out of the hands of the bureaucrats and the Ministry of Defence and placing it in the hands of the political leadership that can now direct the framing of new rules for this as it goes along.

For instance, there is no clarity whether 1) the 126 aircraft deal has been reduced now to just the 36 aircraft that the PM has spoken of; 2) if not, will the remaining 90 fighter jets be manufactured with HAL or will the deal be re-negotiated with the private sector and Dassault. There is no clarity on any of this so far.

Hence, the informed speculation that the deal can now be turned away from public sector participation at the Indian end, to private collaboration between an Indian company and Dassault. Reliance business honcho Mukesh Ambani was present in France and has already signed an agreement with Dassault---quietly and without much fanfare---in 2012 itself, after Dassault was selected to supply the Rafale fighter jets in a deal that had almost the entire defence manufacturing world competing for it.

Dassault Aviation in a statement at the time had admitted entering into an “MoU with Reliance Industries Ltd, India’s largest private sector company, for pursuing strategic opportunities of collaboration in the area of complex manufacturing and support in India.” The Congress government was in power at the time, and the agreement in the defence sector had been approved by the government. There was mention in the media of the possibility of Reliance becoming---through collaboration on the Rafale deal---the biggest Indian player in combat jets. However, the UPA government at some point appeared to have got cold feet and insisted on Dassault not only working with public sector HAL but also standing guarantee for the combat fighters, a sore point that held up the agreement till date.

There has been no announcement as yet on Reliance, and defence experts expect this to be a piecemeal deal over the next weeks or even months. In fact, while Mukesh Ambani has signed the MoU with Dassault, his younger brother Anil Ambani has in what is being seen in defence circles as a complimenting, and certainly not contradictory, move acquired controlling stakes in the Gujarat based Pipavav Defence and Offshore Engineering in March this year in what is a whopping over Rs 2000 crore deal. Anil Ambani in his remarks after the acquisition said that this was a “unique opportunity for Reliance Group to participate in Prime Minister Narendra Modi’s ‘Make in India’ programme for the high growth defence sector.”

PM Modi has also brought fresh life to Dassault Aviation that, without this deal could have been looking at closure. The 36 jet fighters alone give the loss making French company a new lease of life, with costs for India now expected to touch new heights. The maintenance and sustenance of the 36 aircraft that will now be done by Dassault of course with a price attached, will rev up the figures substantially as spare parts and the infrastructure to do so will be required for at least 40 years while the squadrons are in operation.

Interestingly as experts pointed out, if the rules of the game were to be changed in this rather dramatic fashion the Prime Minister should have taken a serious look at some of the other offers on the anvil. More so as under the new order these might have proven to be more cost effective than the Dassault deal as it is emerging now. For instance, Swedish defence company Gripen that had also put in a bid for the 126 fighter jets had offered to transfer entire manufacturing units to India. This would have cut costs substantially, and was at least worth exploring now that India has suddenly decided to award a contract of 36 fighter jets (instead of 18) in a ‘ready to fly’ condition with no word whether HAL would be co-producing it now.

The devil in this deal is in the details that have still to emerge.

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