Aero India 2019: Indian Rafale deal comes under scrutiny

The Comptroller & Auditor General’s (CAG) report on capital acquisitions in the Indian Air Force (IAF) was tabled in parliament on 13 February. It examined 11 contracts signed from 2012-18, including the procurement of 36 Medium Multi-Role Combat Aircraft through an inter-governmental agreement with France.

The French offer in 2007 under the previous Manmohan Singh government was 126 aircraft, of which 18 were in ‘flyaway’ condition and the remainder produced by Hindustan Aeronautics Limited (HAL). However, the current government changed this in 2016 into a contract for 36 flyaway fighters.

The main bones of contention relate to warranty issues, financial and performance guarantees (totalling about 25% of the 2007 contract value) that are missing from the 2016 contract. The CAG observed that savings accrued to the vendor ‘should have been passed on to the ministry’.

Other major observations include the French government and Dassault not furnishing bank or sovereign guarantees under the 36-aircraft contract. Instead, a ‘letter of comfort’ signed by the French prime minister was provided in lieu of a bank guarantee, bypassing the procedure for payments to be made through an escrow account.

Acceptance of these deviations by the Indian government’s Cabinet Committee on Security attracted strong criticism by the CAG.

India goes to the polls in May, and in the politically charged atmosphere, allegations that Modi’s government favoured Dassault and a certain Indian conglomerate for offsets under the contract have been flying thick and fast. The CAG report provides more ammunition to the opposition.

The issues are manifold. A Defence Procurement Procedure that relies on L1 (lowest bidder) rather than ‘best value’, plus archaic multi-level approval and decision-making processes of the MoD, and customer-specific modifications driving costs upwards have all come under the auditor’s circumspection.

The CAG has not spared the IAF, and it observed in the report’s executive summary that the ‘IAF should improve its process of formulation of ASQRs [air staff qualitative requirements] to ensure that they correctly reflect the user’s functional parameters. Exhaustive ASQRs with detailed technical or design specifications should be avoided, unless they are functionally necessary.’

Capital acquisition in Indian defence is often mired in policy changes, corruption allegations, lobbying and other such devils. The tardy progress of indigenous capacity building is compounding an ever-widening gap between the IAF’s desired force level of 42 fighter squadrons (by 2027) and the present 31 squadrons, mostly vintage machines of Russian origin.

Recent reports that the IAF is in advanced talks with Russia for 21 MiG-29 fighters built from mothballed 1980s airframes do not bring much comfort either.

The Indian Navy is hunting for carrier-borne jets and the IAF is looking for 110 single-engine fighters. The numbers are huge, requirements urgent and there is every indication the Indian government would like to spread the cheer east, west and in house, rather than sign up for a mother-of-all-deals under the watchful eyes of hawkish auditors.

For an air force already facing a tenuous situation of depleting fighter assets, the CAG report and its unpleasant wake comes at a bad time.