Modi govt's Rafale fighter jet deal 2.86% cheaper than UPA's: CAG report

The CAG report has redacted monetary amounts related to the latest Rafale Inter-Governmental Agreement
The Narendra Modi government’s agreement with France to buy 36 Dassault Rafale combat aircraft was 2.86 per cent cheaper than the price negotiated by the previous United Progressive Alliance (UPA) government in its aborted attempt to buy 126 of these planes, according to the Comptroller and Auditor General of India’s report tabled in Parliament on Wednesday.

Beyond that headline number, the report gave enough talking points to both the government and opposition parties to validate their respective positions.

While the report on capital acquisitions of the Indian Air Force came down heavily on the original 126 Medium Multi-Role Combat Aircraft (MMRCA) deal, it also raised concern that Dassault or France did not offer any company or a sovereign guarantee for the latest government-to-government deal. And, that this will lead to savings for the French company and limit India’s legal remedies in a breach of contract.

The report drew sharp political responses. “It cannot be that the Supreme Court is wrong, the CAG is wrong and only the dynast is right... Satyameva Jayate – the truth shall prevail. The CAG report on Rafale reaffirms the dictum,” Union minister Arun Jaitley tweeted. “The lies of Mahajhootbandhan stand exposed by the CAG report. How does democracy punish those who consistently lied to the nation?” 

Congress President Rahul Gandhi said the CAG report did not mention the dissent note by negotiators, and that the government's argument on price and faster delivery of the Rafale had been demolished. The report states the Rafale jets would be delivered only one month faster than they would have if the original deal went through. “You say there was no scam, then why are you afraid of ordering a JPC?” he said, reiterating his demand for a Joint Parliamentary Committee to look into the deal.

The CAG report has redacted monetary amounts related to the latest Rafale Inter-Governmental Agreement (IGA), as well as the earlier MMRCA proposal on insistence from the defence ministry, which had cited the IGA and an earlier Indo-French agreement. 

The IGA was signed in 2016 to procure 36 Rafale jets in flyaway condition, as compared to the earlier MMRCA deal in which 18 fighters were to be supplied in flyaway condition and another 108 would be produced by state-owned Hindustan Aeronautics under transfer of technology.

In the report, the CAG states that since a direct price comparison between a 2007 deal and one in 2015 isn’t possible, the Indian Negotiating Team (INT) applied a price escalation formula. This had used the industrial cost indices, adjusted for inflation, and aligned the quantities in the 2015 bid with that in the 2007 one. 

The CAG also calculated its own aligned price based on INT’s methodology.

“Overall, it may be seen that as against the aligned price as estimated by audit of “CV” million euros, the contract was concluded for “U” million euros, i.e 2.86 per cent lower than the audit aligned price,” the report stated.

It also compared prices between the two deals on various components — services, support equipment, India-specific enhancements, engineering support package, performance-based logistics, weapon package and others. The bare-bones price of the jet in both the deals is essentially the same. However, India-specific enhancements were 17.08 per cent cheaper in the 2016 contracted prices as compared with the UPA government’s price, and this is where most of the savings were made. On the other hand, the contracted price as in the final contract in 2016 was 6.54 per cent more expensive when it came to the engineering support package and performance-based logistics, each.

The CAG report slammed the original MMRCA proposal (in the Congress government’s tenure), in which Dassault was declared the lowest bidder, and which was scrapped in March 2015. The report found inconsistencies in every step of the process, which ended when a panel of independent external monitors found Dassault should not even have been declared the lowest bidder or ‘L1’.

FROM THE CAG REPORT
  • CAG highlights the drawbacks of settling for a ‘Letter of Comfort’ rather than a sovereign guarantee by the French government
  • Says India manages to save 17.08% through India-specific enhancements in the contract for purchase of 36 flyaway Rafale jets 
  • Points out engineering-support package, performance-based logistics 6.5% more expensive in the current deal
  • Slams original MMRCA proposal, which was scrapped in March 2015