The manner in which the order for the Rafale fighter was suddenly changed. The gross violation of mandatory procedures. The dogged effort of the government to conceal facts. The contradictory and ever-shifting statements of the ministers of defence. The gross misuse of friendly media to purvey falsehood, and to drown vital facts and questions in an avalanche of abuse. Invoking secrecy clauses in the contract that are just not there. The inexplicable dropping from the project of the one national organisation that has decades of experience in building aircraft – the public sector organisation, Hindustan Aeronautics Ltd, commonly known as HAL – and the incomprehensible induction of a private company that has absolutely no experience in the field of aerospace manufacture, but does have a record of failing in large projects, and is mired deeply in debt.

 

Each of these features has convinced us that there is a major scandal here, gross misuse of office, and monumental criminal misconduct. Nor is this an ordinary scandal or ordinary misconduct: it is one that imperils the security of the country, and puts serious pressure on the already fragile defence capital budget. Moreover, it is by far larger than ones that the country has had to contend with in the past.

We urge:

• The government to disclose the facts relating to the deal – especially those relating to the cost that the exchequer has paid.
• The Opposition parties to press the government relentlessly on this matter as, financial considerations apart, the government has wilfully by-passed institutions and violated procedures that have been evolved to safeguard national security
• The media to do its duty by excavating the facts that the government is trying so hard to conceal

Facts and questions

• In accordance with requirements specified by the Indian Air Force, the United Progressive Alliance government issued a Request for Proposal – or RFP – on August 28, 2007 for 126 Medium Multi-Role Combat Aircrafts or MMRCAs. The Request for Proposal made clear that the bids were to be inclusive of cost of initial purchase, transfer of technology, licensed production, etc. Please glance at the italicised portion once again as it gives the lie to the government’s repeated assertion that a higher price is being paid to Dassault now because of “add-ons”.
• Six vendors, that is Dassault Aviation, Lockheed Martin, Boeing, Saab, Eurofighter GmbH, and Russian Aircraft Corporation submitted bids. After flight trials and technical assessment, the Indian Air Force announced in 2011 that Dassault’s Rafale and Eurofighter GmbH’s Typhoon fighters met the air force’s requirements. In 2012, it was found that Dassault’s bid was the lowest and therefore negotiations began between Dassault and the Indian government.
• Intensive negotiations took place. They reached the penultimate state. Addressing the press on March 25, 2015 in France Eric Trappier, the chief executive officer of Dassault stated:

“You can imagine my satisfaction to hear … from the HAL Chairman, that we are in agreement for the responsibilities sharing, considering as well our conformity with the RFP [Request for Proposal] in order to be in line with the rules of this competition. I strongly believe that contract finalisation and signature would come soon”. 

 

The United Progressive Alliance government steered the negotiations to fulfil three inter-related objectives. First, the Air Force should get some aircraft at the earliest possible, since the MiG-21 and MiG-27 fleet had completed their service lives and were being retired from service. Second, India’s aerospace industry has to be rejuvenated: for this to happen, the country must acquire access to advanced technologies; an order of such a large magnitude – buying 126 fighters – ought to be leveraged to obtain advanced technologies from the foreign vendor. Third, the one Indian company that had decades of experience in building aircraft – HAL – should build the fighter in India so that it would be in a position to maintain, service and overhaul the Rafale through its service life of 30-40 years. In the process, HAL would also acquire advanced manufacturing capabilities to become self-reliant in producing state-of-the art fighter aircraft.
Accordingly, the 126-aircraft deal envisaged that the first eighteen aircraft would be procured in a “fly-away condition”: that is, these would be fully built by the vendor. The remaining 108 fighters would be manufactured in India by HAL under a Transfer of Technology agreement. At the time the Request for Proposal was floated in 2007, the total cost for 126 Medium Multi-Role Combat Aircrafts was estimated by government to be Rs 42,000 crores. The final price that was being negotiated under the deal is not in the public domain.

• But in an interview to Doordarshan, broadcast on April 13, 2015, soon after Prime Minister Modi signed the deal, the then Defence Minister Manohar Parrikar disclosed that the price for 126 aircrafts would have been about Rs 90,000 crores. He stated, “We must remember that Rafale is a top-end multi-role fighter . . . but it is quite expensive. When you talk of 126 aircrafts, it becomes a purchase of about 90,000 crores.”. That would place the price per aircraft at Rs. 715 crore (Rs 90,000 crore divided by 126 planes). According to Parrikar this cost was inclusive of everything.
• The cost per aircraft that is to be compared is: the cost at which the first 18 aircraft of the aborted medium multi-role combat aircrafts deal would have been obtained in the “fly-away” condition and the cost at which the 36 are going to be obtained in the “fly-away” condition under the new Agreement, to which we shall come in a moment. 
• Manifestly, the cost of manufacturing the aircraft by HAL in India would have been substantially higher than the cost of Rafale fighters procured in the “fly-away condition”. That is because, to manufacture in India, additional costs would have had to be incurred for setting up the requisite infrastructure and the plant, establishing the supply chain, developing vendors, etc. The supplier would also have charged a heavy fee for transfer of technology. Therefore, the price of the Rafale fighter in “fly-away condition,” built in an already running plant in France, would have been substantially less than Rs 715 crore. 
• On the 8th of April, 2015, India’s Foreign Secretary, S Jaishankar briefed journalists regarding the forthcoming visit of the Prime Minister to France. During this briefing he stated, “In terms of Rafale, my understanding is that there are discussions under way between the French company, our Ministry of Defence, the HAL which is involved in this. These are ongoing discussions. These are very technical, detailed discussions. We do not mix up leadership level visits with deep details of ongoing defence contracts. That is on a different track. A leadership visit usually looks at big picture issues even in the security field.”Four facts are evident from what the Foreign Secretary said just two days before the Prime Minister’s announcement:< >Negotiations were still going on regarding the Rafale aircraft; Manifestly these were going on under the original Request for ProposalHAL was very much to be a part of the project as it was of the negotiations; The Prime Minister of India and the President of France were to focus on the “big picture issues even in the security field”.two days later, the prime minister on his own announced that a completely new deal was going to be struck. Under this, India would purchase 36 aircraft in a “fly-away” condition.

“The two leaders agreed to conclude an Inter-Governmental Agreement for supply of the aircraft on terms that would be better than conveyed by Dassault Aviation as part of a separate process underway; the delivery would be in time-frame that would be compatible with the operational requirement of IAF; and that the aircraft and associated systems and weapons would be delivered on the same configuration as had been tested and approved by Indian Air Force, and with a longer maintenance responsibility by France.” 

 

Two implications of the Joint Statement were manifest:

1. The price of the 36 Rafales would be cheaper than what was already being negotiated. Since they were being supplied in “fly-away condition”, they had to be cheaper than the 18 Rafales that Dassault had bid to supply in the Medium Multi-Role Combat Aircrafts tender. Moreover, 
2. The aircraft and systems were to be “on the same configuration as had been tested and approved by the IAF in the MMRCA evaluation.” That clear and emphatic affirmation in the Joint Statement nails the falsehood that has been spread since then – namely, that the price per aircraft is so much higher because of some novel “India specific enhancements” in the 36 Rafales now contracted.

The sorts of statements that the then Defence Minister, Manohar Parrikar, made in the wake of the announcement left no doubt that he had not been consulted in regard to this drastic change in the project. He moved swiftly to distance himself from the decision after the Modi-Hollande announcement. “Modi-ji took the decision; I back it up,” he told Doordarshan on April 13, 2015. Elaborating to NDTV, he described the decision as “the outcome of discussions between the Prime Minister [of India] and the President of France.”
There were further startling facts about the decision:

1. There was no explanation for how the number of 36 aircraft had been arrived at;
2. There was no mention of any planes that were to be manufactured in India; 
3. There was no mention of the requirement that the supplier must transfer technology; 
4. From securing 126 fighters, the Indian Air Force was now to get only 36 fighters – there was nothing about the rest.

All that was said by government sources in justification was that the Air Force needed the planes urgently, and that these 36 planes would reach India within two years. Three years later, the aircraft are nowhere in sight. It has in fact been announced in Parliament that the first Rafale fighters will come only by September 2019 (four-and-a-half years after the prime minister’s announcement). The full-pack of 36 aircraft will not be available to India till mid-2022.

If the government had adhered to the original Request for Proposal, the 18 aircraft would have come within two and half years, and, as Dassault would have been bound to commence production within three years, the additional aircraft would also have been available to the Air Force by mid-2022. The planes thus would have been available at the pace which the government now claims it has ensured as a matter of urgency, and, in addition, the country would have gained from the technology that would have been transferred.
Several questions arise:

• Did the Air Force urge that the original deal with its all-important multiple objectives be scrapped and a new one confined to 36 aircraft be concluded? How was the Air Force’s studied estimate that it is in dire need of 126 aircraft summarily jettisoned?
• Did the new deal have the approval of the Cabinet Committee on Security at the time that the prime minister announced it in April 2015 and included it in the India-France Joint Statement?
• As this was entirely a new deal, why were fresh tenders not invited? In particular, why was this not done in view of the fact that the suppliers Eurofighter GmbH had formally written to the then Defence Minister Arun Jaitley on July 4, 2014, offering to reduce the cost of the Eurofighter Typhoon by a full 20%?

Enter Anil Ambani group, exit HAL

• In March 2014, it was widely reported that a Work Share Agreement was entered into between Dassault Aviation and HAL according to which HAL would do 70% of the work on 108 planes that were to be manufactured in India while Dassault would undertake the rest of the work. Just days before the new deal was signed, two companies were incorporated: Adani Defence Systems and Technologies Limited on March 25, 2015 [Annexure 5], and Reliance Defence Ltd. on March 28, 2015 [Annexure 6].
• Within days of these companies getting incorporated, on April 10, 2015, the prime minister announced that India would be going in for 36 Rafales in “fly-away” condition. This announcement had four startling features:
• No one could make out what had happened to the original Request for Proposal, and the protracted and detailed negotiations that had been going on in pursuance of that; 
• HAL was manifestly kicked out, and with it the much vaunted “Make in India”; 
• All the talk of Make in India notwithstanding, there was no mention now of transfer of technology; 
• And in little time, it became clear that Anil Ambani (who had accompanied the prime minister to Paris in April 2015) and his newly minted Reliance Defence Ltd. were going to be brought in to benefit from the billions of dollars of Offsets that would arise from the Rafale purchase.
• After the formal contract, a new Joint Venture was struck between Reliance Defence Ltd. and Dassault Aviation with Anil Ambani as the chief executive officer. Reliance is to hold 51% of the equity and Dassault 49%. This brand new company is the one that has been assigned 70% of the Offset benefits – that is, orders worth Rs 21,000 crore out of a total offset liability of Rs 30,000 crore.
• Clause 8.6 of the Defence Offset Guidelines brought into force by this government on 1st of April, 2016, mandatorily require that, “all Offset proposals will be processed by the Acquisition Manager and approved by Raksha Mantri, regardless of their value.” [Annexure 7] 

  Thus, approval of the Defence Minister was mandatorily required to process Offset proposals. In an inexplicable abdication of its mandatory duty, the government has now claimed that it has nothing to do with the matter – that it is the prerogative of Dassault to choose its Offset partner. Surely, the government must be able to list the grounds on which its own company, HAL, was removed? And what experience and infrastructure and financial wherewithal did the new partner, Reliance Defence Ltd. have for doing the Offset work? Could an experienced manufacturer like Dassault have picked a company that had no experience whatsoever of manufacturing aircraft, one which had just been incorporated, without the approval from the government, which was necessary under its own offset policy? All the more so, because at the time, Reliance Defence, a year old company, had a debt of Rs 8,000 crore, and had an accumulated loss of Rs 1,300 crore. In fact, almost all of the companies of the Anil Ambani group were heavily in debt and were experiencing extreme difficulties in meeting their obligations and completing the projects that they had already undertaken. [Annexure 8]

• Neither Reliance Defence nor any of its allied companies have any experience of manufacturing aerospace and defence equipment. Its Pipavav Shipyard is facing serious difficulties in building Offshore Patrol Vessels for the Navy – a long-delayed order that is impacting the Navy’s operational effectiveness. In contrast, HAL has over 60 years of experience in aircraft manufacturing. As recently as 2014, HAL had entered into a Work Share Agreement with Dassault for manufacture of Rafale. During his Press Conference on March 25, 2015, Eric Trappier had stated: “the choice of Rafale in 2012 was made after a demanding competition. Rafale is the next logical step. After outstanding amount of work and some discussion you can imagine my satisfaction to hear; on one hand from IAF Chief that he wants a combat proven aircraft which could be the Rafale and we would have signed which should be the next logical step; and on the other hand from the HAL chairman, that we are in agreement for the responsibilities sharing, considering as well our conformity with the RFP [Request for Proposal] in order to be in line with the rules of this competition. I strongly believe that contract finalisation and signature would come very soon” . 
  

  Secrecy clause: ‘As much of a lie as it is baseless’

  Government of India has been insisting that it cannot disclose the price of the aircraft because of an Agreement of Secrecy with the government of France. This claim is as much of a lie as it is baseless.
  In fact, on November 18, 2016, in response to a question asked in the Lok Sabha on the acquisition of fighter aircrafts, the Minister of State for Defence stated that: “Inter-Governmental Agreement with the Government of French Republic has been signed on 23.09.2016 for purchase of 36 Rafale aircraft along with requisite equipments, services and weapons. Cost of each Rafale aircraft is approximately Rs. 670 crore and all the aircraft will be delivered by April 2022.” [Annexure 9].

• As will be evident:
  < >The price was disclosed by the government itself; The price was put at Rs. 670 crore per aircraft; In the government’s own telling, in addition to the cost of the aircraft per se, this price included the “requisite equipments, services and weapons.”March 26, 2012, regarding the “Upgradation of Mirage Aircraft,” the Ministry of Defence stated: “Contracts have been signed with M/s Thales, France and M/s Dassault Aviation, France, along with M/s Hindustan Aeronautics Limited (HAL) for upgrade of the Mirage 2000 aircraft of the Indian Air Force (IAF). A contract has also been signed with M/s MBDA, France, for procurement of air-to-air missiles for the Mirage 2000 aircraft. “The cost of the contract for upgrade of the Mirage 2000 with M/s Thales and M/s Dassault Aviation is Euro 1470 Million, while the cost of the contract with M/s HAL is Rs.2020 crore. The cost of the contract for procurement of the missiles from M/s MBDA, France, is Euro 958,980,822.44.
  “The entire upgradation of the Mirage aircraft is scheduled to be completed by 2021. Delivery of MICA missiles is scheduled between 2015 and 2019.
  “This information was given by Minister of Defence Shri A.K. Antony in written reply to Dr. Padmasinha Bajirao Patil and Shri Rajaiah Siricilla in Lok Sabha today.”

 

The government is in a complete denial on its spectrum auction fiasco. Only Rs. 65,000 crore worth of spectrum – or 11.6% of the expected price of 5.6 lakh crore – on the block was sold. Out of this, the government would get only Rs. 32,000 crore this year, leaving a gaping hole in its revenue projection of Rs. 98,994.93 crores in the budget for this year, as 'other communications services', the bulk of which is expected to be spectrum fees. Fully 60% of the spectrum on offer, particularly the highly priced 700 MHz band, remained unsold, compared to the 2015 auction, when only 11% of the spectrum was left unsold.

In spite of the obvious failure of the spectrum auction, the government has been claiming success as it was the largest spectrum auction carried out “in a transparent manner”. Does it mean that the present government's 2105 spectrum auction was not transparent? Or that they has knowingly offered spectrum which they knew would not attract any bidders?

For an analysis of the failure of the spectrum auction, we must also look at the larger context.

We have a telecom sector that has been saddled with a very poor quality of service that is affecting the consumers. The industry had claimed that the key problem that they face is inadequacy of spectrum. If it is indeed true, the poor response to the spectrum auction does not show any evidence of this. The telecom companies either do not believe in what they are saying, or believe that they cannot get away with poor service.

Why are dropped calls so high in India? The figures that the service providers have been reporting to TRAI are gross underestimates. TRAI has set up a quality of service standard of less than 2% dropped calls for the operators. This compares favourably with global figures are less than 3%. While the industry has been reporting figures of less than 3%,  the TRAI had earlier said that figures were about 4.73%. This by itself would not be very bad. The reality is that the actual numbers are much higher. In October last year, TRAI admitted that mobile operators had a call drop rate of as high as 24.6 per cent for 2G services and 16.1 per cent for 3G services respectively for the April-June quarter of 2016.

Why are dropped call rates so high? The industry claims that this is due to a lack of spectrum, and regulatory constraints in putting up cell towers. However, studies indicate that the bulk of dropped calls have occurred due to poor network infrastructure and network management. Without going into the details, the dropped calls have two primary reasons. One is not investing in their physical network infrastructure except for expanding data services, and the other, for using existing erstwhile voice spectrum for data as well.

During the hearing on the TRAI order imposing penalties on the telecom companies for dropped calls, it was disclosed by the Government that while the telecom companies made huge profits – to the tune of 61% –  they invested only 5% on infrastructure.

There is an argument that the existing spectrum is inadequate for the number of subscribers. This is partially true. What is left unsaid is that the telecom operators have been trying to squeeze as much as they can out of their existing infrastructure and spectrum at the cost of poor service. It has been compounded by the relaxation given by the government that instead of reserving certain spectrum bands for voice, they could also be used for data. As data users provide higher revenue, the operators have squeezed the voice subscribers further by optimising for data at the expense of voice. That is why the dropped call rates have become much more of a problem recently as the competition for data has heated up. With Reliance Jio entering the fray, we are likely to see the dropped call phenomenon become even worse.

The trend towards using voice spectrum for data was visible in this auction as well. The industry preferred to buy the bargain basement chunks of spectrum, which can be used for voice as well as data, instead of buying the costly spectrum such as the 700 MHz band, which are meant for high end data services. What this means is that the companies will use the voice band for data as well and the dropped call rates for the voice users will at best continue at current levels, or get even worse..
The spectrum auction therefore brings out the underlying problem of the sector, where the voice users continue to be neglected as captive customers, who have to live with poor service.

Unfortunately, TRAI's attempt to address the dropped call rate problem using a financial penalty of paying the consumer for dropped calls was turned down by the Supreme Court las year as too complicated, arbitrary and not transparent. The Supreme Court had said that if they wanted penalties to be paid to the consumers, then TRAI should have issued a Tariff Order and not a Regulatory directive. TRAI as well as the government seems to have gone to sleep on that one, instead of addressing the problem using a back to the drawing board approach that the court had asked.

Clearly, if dropped call rates were of concern to the industry, we would have seen a much better response to the auction. The fact that it did not happen indicates that the industry is clear that consumers have little choice and the TRAI and the government will only make noises without taking any serious action.

The other issue in the telecom sector is that it has become highly carteslised. Only 3 operators, Airtel, Vodafone and Ideas have the bulk of the subscribers today – they control about 75% of the Indian market. BSNL's share has shrunk to less than 10%. Consequently, the subscribers have little choice. All these operators have very similar calling charges and even similar dropped call figures. In the Supreme Court hearings, the issue of cartels was brought up by the government itself. But it has neither taken any measure to address the issue, nor has the TRAI. Competition, the supposed panacea for all ills, is clearly not working.

As we well know, competition leads to monopolies emerging through what are called network effects. The more subscribers you have, the cost per subscriber drops, making it difficult for others to compete. A possible corrective could be a well-run state entity that would offer quality services and hold the price. Unfortunately, successive governments including this one, has discriminated actively against BSNL, forcing it out of the competition in various ways. Consequently, this corrective is not working either.

The other problem with the telecom sector is the huge overhand of debts of the sector. Due to the revenue sharing arrangement that the Vajpayee government had started in 1998, the telecom sector has borrowed heavily without bringing in its own capital. Even when large amount of capital has come, it has been to buy the shares of the company – from Essar, Max and Hutchison to Vodafone  – at a huge price, without investing in it. It leveraged the company's shares and borrowed from banks to finance such sales. So even the acquisition of the erstwhile companies that had held the licenses, were financed finally by by the banks through loans to Vodafone, which we, as subscribers are now paying off.

The telecom sector now owes Rs. 4.30 lakh crore to the Indian banks, much of which can become non performing assets. In other words, the Indian public sector banks would take a huge loss, while the telecom companies keep their profits or sell their shares to others. These losses would then be “paid” out by your and my money, through various strategies of the Reserve Bank. It is acknowledged that Raghuram Rajan, the former Governor of Reserve Bank, had to go as he was seen as a hindrance to such crony capitalist measures. The familiar game of capital: heads I win, tails you lose.

The failure of the spectrum  auction shows the underlying problems of the sector. The Modi government's tactic of managing the media and claiming victory in defeat, is visible in this auction as well. All is not well with the telecom sector. This is the message of the failed auction.

Courtesy: Newsclick.in

Suresh Mehta

The order is based on a legal department government resolution (GR) dated August 16, 2011, which had, “in the public interest, people in Gujarat must know whether there is any substance in the allegations, particularly at the time when a strong public opinion is building across the country against corruption in public life.”

Modi set up the inquiry commission in August 2011 following Congress allegations, listing 14 corruption charges under Modi government, valuing above Rs 1 lakh crore, only to declare that “nothing has been found” against it. However, neither the administration under him, nor his successors, have made the report public.

The two-page closely-typed GIC order, signed by information commissioner RR Varsani, comes following the refusal of the legal department – prepared by Justice (retired) MB Shah – to admit that it had the report, allegedly to evade demands to make it public under RTI.

Seeking disclosure of the report under RTI for the last four years, former Gujarat chief minister Suresh Mehta, 80, told Counterview that he and his supporters must have made at least 100 RTI applications to get the MB Shah Commission report submitted to the Gujarat government in 2014.

“Let alone the report, for four long years they have even refused to reveal which department has got it”, Mehta said. It is well known that in 2012, a day after of the announcement of code of conduct for the December assembly polls, Cabinet spokesperson Jay Narayan Vyas told the media that the report had been “submitted” and there is no iota of truth in what the Congress had alleged.

“Ever since then, I tried to get the report, but I would get strange answers: The legal department would tell me the report is with the general administration department (GAD), while the GAD would tell me it was the property of the legal department”, he said.

He added, “Worse, speaking inside the assembly, then No 2 in the Cabinet, Anandiben Patel, had said the MB Shah commission report was with the governor, while an RTI plea with the Raj Bhawan said it didn't have it.”

Mehta made his last plea on October 29, 2014, when, again, the legal department said it “did not have” the report, forwarding the application to the GAD, which looks after personnel issues. In his appeal to the legal department's public authority on November 7, 2014, Mehta was again told that it didn't have the report, and that it is “lying with the GAD.”

This made the ex-chief minister approach the Gujarat Information Commission (GIC) on April 6, 2015. Nearly one-and-a-half years later, on September 6, 2016, the GIC called for a hearing on Mehta's application in the presence of the public information officer, legal department, who again repeated that the report was not with it.

The GIC order asked the legal department to just authenticate the matter “in 20 days”. Mehta told Counterview, “Even after 20 days, the legal department has not approached me to tell me that it has got the report.”

During the arguments at GIC, Mehta argued that it is “wrong to say the Shah Commission report belongs to the GAD” hence it could not give it. Referring to a GAD reply to the RTI application moved by a senior activist, Pankti Jog, dated November 6, 2012, which said that the Shah Commission report wuld have to be placed in the state assembly within six months after its “final report” is submitted, Mehta said, the final report was submitted on November 6, 2013.

While nearly three years have passed for the report to be placed in the assembly, Mehta said during the argument, as quoted by the GIC order dated September 9, 2016, that “there is no such provision in law that the report would be made public only after it is placed in the Gujarat state assembly.”

Courtesy: Counter View