MOHAN GURUSWAMY | 24 SEPTEMBER, 2018
The Rafale Deal. One More in a Long List
Why defence deals play such a major role in our politics
I have known and seen up close ten Prime Ministers of India and can safely testify that except for Dr Manmohan Singh, all the others collected money. The money was mostly for their parties and some of it inevitably leaked out. Collecting money involves trade-offs. It’s always an investment by the giver for more. Money is the mother’s milk of politics. Without it the political machine that sustains the whole edifice grinds to a halt. Without it the people who mostly man the system from the propaganda phase to the bringing-out-the-voters phase will just disappear. Thus the main task of a political leader is to raise money. Have no illusions about it. We have a corrupt system.
Narendra Modi didn’t get where he did without hush money and slush money. That’s why he figures in the documents seized in the raids on Birla Group companies in 2013, and on the Sahara India Group in the national capital region on November 22, 2014. It is alleged that there are notings by Sahara officials that they had paid money nine times to Modi between October 2013 and February 2014. It is also alleged that documents with Income Tax departments reveal that the Birla Group paid Rs 12 crore to Modi, of a total of Rs 25 crore, when he was Gujarat chief minister. (So let's can this nonsense of an incorruptible prime minister. They are all men of the world, save Manmohan Singh who has a long relationship with people of grease and sleaze to do the job for him.)
This is why defence deals play such a major role in our politics. Like petroleum taxes they make for easy collection. India’s defence spend is expected to hit $620 billion between the fiscal years 2014 and 2022, with half of it going into capital expenditure. According to the Stockholm International Peach Research Institute India is the fifth largest military spender (2016) in the world and the largest importer of arms, accounting for 13 percent of the world’s total imports between 2012 and 2016. As much as 70 percent of India’s arms are imported.
India’s first big ticket military purchase was for de Havilland Vampire jets in November 1948. V.K. Krishna Menon, India’s first High Commissioner in London, engineered this deal. At that time India had UK Sterling reserves and the cost of the Vampires was just deducted from this. In those days of early innocence this deal escaped notice. Here was a relatively large arms purchase made on the quiet and with no options examined. Incidentally the Vampires arrived without firing pins.
Following the Vampires, India ordered several hundred Ouragan’s and Mystère fighters from France, Fairchild C-119G Packet transports from the USA, Hawker Hunter fighter-bombers and English Electric Canberra bombers. Most of these were ad hoc purchases and it was always speculated that some money had changed hands to facilitate these deals. We were in too much of a funk to use them in 1962.
Nothing ever came out on these deals, but soon people started noticing a new class of people in New Delhi. These were the early jet setters with homes in London and business interests in India. Their business interests were mostly centered on highly placed bureaucrats, military officers and powerful politicians. It was not long before the names of some leading politicians' sons also began to be heard in this connection.
The only deals that didn’t have such intermediaries were the government-to-government purchases from the former Soviet Union. In fact the deals mostly favoured India and often we got the latest fighters, like the MiG 29, even before the Soviet Air Force got them.
The 1970s also saw the advent of the likes of the Hinduja brothers and soon arms deals became major sources of slush funds for buyers, sellers, middlemen and everyone else in between, all of whom went laughing all the way to the bank.
The first major deal that went this way was the Anglo-French SEPECAT Jaguar deep penetration strike aircraft in 1978, when Jagjivan Ram was defence minister. In 1979 the defence minister’s son Suresh Kumar was in a fracas in the car park of Parliament in a Mercedes Benz car (a rarity in those days) with a group of rival Janata Party activists led by K.C. Tyagi, now a JD(U) MP. When the police investigated the matter, it was discovered that the car was registered in the name one S.P. Chibber, a known arms wheeler-dealer who was reputedly the intermediary for the Anglo-French consortium which produced the Jaguar.
This was when the French Mirage 2000 made by Marcel Dassault Avions made its appearance. Rajiv Gandhi, as a newly elected MP in 1982 and Congress general secretary, saw it put through its paces at the Paris Airshow. He was very impressed. He sat in on the official meeting in the ministry of defence that decided to acquire Mirage 2000. Gandhi had just become a qualified Boeing 737 pilot and this was presumably considered expertise enough.
In 1985 the Rajiv Gandhi government decided to induct 150 Mirage 2000 fighters into the IAF. The first 40 aircraft were to be imported from France and the rest manufactured by Hindustan Aeronautics Limited. But the second part of the program was not operationalised despite HAL's having invested in an assembly line for Mirage 2000s. What happened is still a matter of speculation.
The next big deal pertained to Bofors about which so much has been written. The merits of the Bofors FH-77 155 mm Howitzer are not in question, although ignorant people like Ram Jethmalani tried to paint it as a dud. But what became apparent was irrespective of which Howitzer was bought Ottavio Quattrochi and the Hinduja brothers were cut into the deal. The Hinduja influence to peddle went beyond parties. Atal Bihari Vajpayee even wrote to then Prime Minister P.V. Narasimha Rao (another Hinduja friend) to exonerate them of all charges and Jethmalani defended them in court.
Even if the Rafale had been bought in 2014 as it was cleared by the Medium Multi-Role Combat Aircraft tender for far less, $10.5 billion for 126 aircraft, it would have involved under the table payments. These payments typically go three ways. One tranche to the Indian decision-makers, the second to the middlemen and the third to officials in French establishment and manufacturers. French leaders like Giscard d’Estaing, Jacques Chirac and Nicholas Sarkozy have at various times been accused by French media of taking money from the likes of Jean Bedel Bokassa, Muammar Gaddafi and Saddam Hussein.
This is a well-honed European practice. We saw it happen in the purchase of Bofors Howitzers when Olof Palme’s Socialist Party too got a cut. Even then British Prime Minister Margaret Thatcher’s son was found to have been paid in the Saudi deal to buy 220 Tornado fighters. The Guardian wrote: “MoD documents reveal that the price of each Tornado was inflated by 32%, from £16.3m to £21.5m. It is common in arms deals for the prices of weapons to be raised so that commissions can be skimmed off the top”.
But how much more are we paying for the “new” Rafales? Air Marshal M. Matheswaran (retd.), the officer who led the evaluation of the six fighters bidding for the MMRCA contract said that the Rafale was chosen as it was “an exceptional aircraft in a multirole capability, but was an expensive aircraft”. According to him the MMRCA tender was cleared “for $10.5 billion for 126 aircraft”. The French Air Force acquired its Rafale for €55 million apiece. The Indian Rafale cost more because of an India-specific weapons package and avionics modifications.
In the Air Staff Qualitative Requirements (ASQR) provided by the Indian Air Force, there were 13 “India-Specific Enhancements” demanded by India in the 126-aircraft MMRCA contract. These included radar enhancements, a helmet-mounted display, a towed decoy system, a low-band jammer and the ability to operate from high-altitude airfields.
That these were the same for the 36 Rafales ordered by Prime Minister Narendra Modi is made clear by the joint statement of April 10, 2015 issued by French President Francois Hollande and PM Modi, which reads: “…that the aircraft and associated systems and weapons would be delivered on the same configuration as has been tested and approved by Indian Air Force…”
There is much noise about the huge costs at which the 36 Rafales have been contracted for. The comparable costs of the 126 and 36 deals can only be read when all the costs are factored in.
The cost of the new deal for 36 Rafales is €3.42 billion as the cost of bare planes; €1.8 billion for associated supplies for infrastructure and support; €1.7 billion for India-specific changes; and €353 million for “performance-based logistics support”; with the weapons package of €700 million being the extra. What is new here are the performance-based logistics support and weapons package. So take out €1,053 million and you have the comparable cost, which means it is now €7.1 billion.
It appears that the “fiddle” is in India-specific costs, additional infrastructure and support, and performance logistics support. The first MMRCA deal would also have included India-specific specifications, as in the case of the IAF’s Su-30 MKIs. For comparison’s sake, the argument can be that 36 Rafales now cost €7.1 billion, while 126 Rafales in 2012 cost €7.75 billion.
Clearly a huge cushioning has been provisioned to meet the needs of all the parties concerned – the Bharatiya Janata Party, Anil Ambani and I would suspect even some French officials to preclude any whistle blowing. Look at these other facts now. According to the ministry of company affairs, Reliance Defence Ltd was registered on March 28, 2015. On April 11, 2015 Reliance Defence Ltd becomes the main partner to ensure the 50 per cent offset clause, under which Dassault and other related French parties would invest half the contract value back into the country.
Government officials insist that 74 percent of the offsets will be exported, earning €3 billion for the country in the next seven years. The experience with all offsets suggests that this is far-fetched. It has not happened so far. In the AgustaWestland offsets investigators discovered money trails from Mauritius, Singapore, the UAE, Tunisia, the UK and the British Virgin Islands linking the agents and the manufacturer. I will bet that Reliance Defence, a company registered just 14 days before the Modi-Hollande deal, was meant to create a pathway for “offsets” to come back into Indian hands, for politics and business.
Incidentally Anil Ambani’s flagship company, Reliance Communications Ltd (stylised as RCom) just defaulted on a major foreign loan and its future ability to fulfill its Rafale offsets commitment should now be in doubt.
Recently, IDBI Bank filed an insolvency application before the National Company Law Tribunal (NCLT) seeking debt resolution of Reliance Naval and Engineering, the shipbuilding Anil Ambani company, under the Insolvency and Bankruptcy Code. Yet Reliance Defence is quite confident about fulfilling its Rafale-related obligations. I suspect there are no obligations. Reliance Defence is just a pass through. It’s not without reason that Anil Ambani is believed to be close to Prime Minister Modi and to some in his close circle.
(The views expressed are the author’s own.)