NDA's Rafale deal 2.8% cheaper than UPA's agreement: CAG
13 February 2019
The Rafale fighter jet deal concluded by Prime Minister Narendra Modi's government is 2.8 per cent cheaper than the one negotiated by the previous Congress-led UPA government, says the report of the Comptroller and Auditor General of India (CAG) in its reports submitted to Parliament.
Tabling the CAG report in the Rajya Sabha today, the defence ministry, however, maintained that the report does not include the controversial and key points of pricing, as these details could not be revealed. The parts in the report referring to cost have been redacted, a move that would provide more ammunition to the opposition.
The opposition Congress and other opposition parties dismissed the CAG report as biased because auditor Rajiv Mehrishi was Finance Secretary when 36-jet Rafale deal was inked in 2016.
While the cost of the basic aircraft is the same in both cases, the CAG report says compared to the 126-aircraft deal negotiated by the Congress-led government, India managed to save 17.08 per cent money for the India Specific Enhancements in the new contract.
The CAG report, however, noted that by settling for a ‘Letter of Comfort’ rather than a sovereign guarantee by the French government, the Indian government lost a chance to address any breach of agreement through the French government. India would now have to first settle the matter through arbitration directly with the French vendors.
The 2007 UPA deal, however, included a 15 per cent bank guarantee against advance payments.
India had wanted 13 specific changes to the Rafale jet to make it more suited to the country's defence parameters. The CAG report suggests that the cost of these upgrades is far cheaper now.
"The lies of the Mahajhootbandhan stand exposed by the CAG report," tweeted union minister Arun Jaitley. "It cannot be that the Supreme Court is wrong, the CAG is wrong and only the dynast is right," he added, taking a swipe at Congress president Rahul Gandhi, who has been pummeling the government with allegations of corruption in the deal to benefit industrialist Anil Ambani.
A defence ministry team had, in March 2015, recommended the scrapping of the previous 126-jet Rafale deal saying that Dassault Aviation was not the lowest bidder and the other player, European Aeronautic Defence and Space Company, was not fully compliant with the tender requirements, according to the CAG report.
The auditor also noted that failure of the Indian Air Force to fully define the Air Staff Qualitative Requirements or ASQRs properly to enable vendors fully meet the parameters.
Instead of defining in the ASQRs in terms of functional parameters, the IAF made it exhaustive and detailed technical or design specifications, such that none of the vendors could fully meet the ASQRs and user needs were sometimes overridden. ASQRs were also changed repeatedly during the procurement process.
The CAG report details have emerged as a report in The Hindu newspaper on Wednesday said at least three senior defence ministry officials among the seven-member Indian negotiating team were of the view that the final price offered by the French government cannot be considered as 'better terms' compared to the deal under the UPA.
The CAG report, however, highlighted the drawbacks of settling for a ‘Letter of Comfort’ rather than a sovereign guarantee by the French government. The report noted that the 2007 UPA deal included a 15 per cent bank guarantee against advance payments. But, now with the conditions of the present deal, in case of a breach of agreement, India would now have to first settle the matter through arbitration directly with the French vendors.
However, with only a 'Letter of Comfort' in new deal, India would have to settle matter through direct arbitration in case of breach of trust. The absence of sovereign guarantee in deal would help Dassault Aviation save but benefit was not passed to India: CAG report
The CAG noted in its report that in the 2007 offer, Dassault Aviation had provided performance and financial guarantees which was about 25 per cent of the total value of the contract. “The vendor had embedded the cost in its bid price. But in the 2016 contract there are no such guarantees/warranty. This led to saving for Dassault Aviation which was not passed on to India,” it observed.
Several opposition leaders criticised the report and called it "incomplete" for missing out the controversial bit on the pricing of the Rafale aircraft. However, the BJP-led central government has already said in the Parliament that the pricing of the deal can't be revealed.
Against the three years envisaged in the Defence Procurement Process, four cases took more than three years and seven cases took more than five years to reach the contract conclusion stage. The report states that the delays in the acquisition were essentially due to a complex and multi-level approval process, where objections could be raised at any stage.
The defence ministry had argued in 2016, the contracted price was nine per cent lower than the price of the 2007 deal. But, according to the CAG report the basic flyaway aircraft was bought at the same price as at the time of UPA's deal and the deal was only 2.86 per cent cheaper.
Reacting to CAG report on Rafale deal, senior Congress leader P Chidambaram tweeted, "No bank guarantee, no sovereign guarantee and no Escrow account! No anti-corruption clause!"
The report has said that the ministry of defence had sought opening of an Escrow account to manage the payments as a measure of safeguard. However, the French side did not agree.